<PAGE> 1
As filed with the Securities and Exchange Commission on February 27, 1998
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
FACTUAL DATA CORP.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
COLORADO 7375 84-1449911
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(State or other jurisdiction of (Primary S.I.C. Code Number) (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
3665 JFK PARKWAY, BUILDING 1, SUITE 200
FORT COLLINS, COLORADO 80525
(970) 226-3600
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(Address and telephone number of principal
executive offices and principal place of business)
JERALD H. DONNAN
3665 JFK PARKWAY, BUILDING 1, SUITE 200
FORT COLLINS, COLORADO 80525
(970) 226-3600
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(Name, address and telephone number of agent for service)
COPIES TO:
SAMUEL E. WING, ESQ. ROBERT W. WALTER, ESQ.
JONES & KELLER, P.C. BERLINER ZISSER WALTER & GALLEGOS, P.C.
1625 BROADWAY, SUITE 1600 ONE NORWEST CENTER, SUITE 4700
DENVER, COLORADO 80202 DENVER, COLORADO 80202
TELEPHONE: (303) 573-1600 TELEPHONE: (303) 830-1700
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered Per Security(1) Price Fee
Common Stock(2) 1,380,000 $ 5.50 $ 7,590,000 $ 2,239
Redeemable Common Stock 1,380,000 $ .10 $ 138,000 $ 41
Purchase Warrants(3)
Common Stock(4) 1,380,000 $ 7.15 $ 9,867,000 $ 2,911
Common Stock(5) 120,000 $ 6.60 $ 792,000 $ 233
Redeemable Common Stock 120,000 $ .001 $ 120 $ --
Purchase Warrants(6)
Common Stock(7) 120,000 $ 7.15 $ 858,000 $ 253
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Total $ 19,245,120 $ 5,677
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</TABLE>
_________________
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 180,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(3) Includes 180,000 Warrants subject to the Underwriters' over-allotment
option.
(4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants.
(5) Issuable upon exercise of the Representative's Option for the Purchase
of Common Stock.
(6) Issuable upon exercise of the Representative's Option for the Purchase
of Warrants.
(7) Issuable upon exercise of the Warrants underlying the Representative's
Option for the Purchase of Warrants.
___________________________
PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL SHARES
AND WARRANTS AS MAY BECOME ISSUABLE PURSUANT TO ANTI-DILUTION PROVISIONS UPON
THE EXERCISE OF THE WARRANTS AND REPRESENTATIVE'S OPTIONS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 27, 1998
PROSPECTUS
FACTUAL DATA CORP.
1,200,000 SHARES OF COMMON STOCK
AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
All of the securities offered hereby are being sold by Factual Data
Corp. (the "Company"). The Common Stock and the Redeemable Common Stock
Purchase Warrants (the "Warrants") will be initially offered together on the
basis of one share of Common Stock and one Warrant. Each Warrant will entitle
the holder to purchase one share of Common Stock at a price of $o (the "Warrant
Exercise Price") during the three-year period commencing on the date of this
Prospectus. Commencing one year from the date hereof, the Warrants will be
redeemable upon 30 days prior written notice at a redemption price of $.05 per
Warrant if the closing high bid price of the Common Stock has exceeded the
Warrant Exercise Price by 50% or more for 20 consecutive trading days
immediately preceding the date of mailing of the notice of redemption, subject
to certain other conditions. See "Description of Securities."
Prior to this offering, there has been no public market for the Common
Stock or Warrants. It is currently anticipated that the initial public
offering price of the Common Stock will be between $5.00 and $5.50 and the
initial public offering price of the Warrants will be $.10. For a discussion
of the factors considered in determining the initial public offering prices of
the securities offered, see "Underwriting." The Company has applied to have
the Common Stock and Warrants approved for quotation on the Nasdaq SmallCap
Market under the trading symbols FDCC and FDCCW, respectively.
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
RISKS ASSOCIATED WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY. THE
SECURITIES OFFERED INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------------
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
Per Share of Common
Stock and Warrant
$o $o $o
Total(3) $o $o $o
- ----------
</TABLE>
(1) The Company has agreed to pay Schneider Securities, Inc., the
representative of the Underwriters (the "Representative") a 3%
non-accountable expense allowance and to issue Representative's
Options (as defined herein). The Company has also agreed to indemnify
the Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses estimated at $541,000, including
the non-accountable expense allowance. See "Underwriting."
(3) The Company has granted to the Underwriters options, exercisable
within 45 days after the date of this Prospectus, to purchase up to an
additional 180,000 shares of Common Stock and/or Warrants on the same
terms as set forth above solely to cover over-allotments, if any. If
the options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $o, $o and $o,
respectively. See "Underwriting."
The Common Stock and Warrants are being offered severally by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to their right to reject orders in whole or in
part and certain other conditions. It is expected that delivery of
certificates representing the shares of Common Stock and Warrants will be made
at the offices of the Representative on or about o, 1998.
SCHNEIDER SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 5
[BACKSIDE OF FRONT COVER]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK AND WARRANTS, INCLUDING ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
"Factual Data," among other trademarks used herein, is a registered
trademark of the Company.
On the effective date of the Registration Statement of which this
Prospectus forms a part, the Company will become a "reporting company" under
the Securities Exchange Act of 1934 (the "1934 Act"). The Company intends to
register the Common Stock and Warrants under the 1934 Act as of the effective
date of the Registration Statement. The Company is a "small business issuer"
as defined under Regulation S-B adopted under the Securities Act of 1933, and
will file reports with the Commission pursuant to the 1934 Act on forms
applicable to small business issuers.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus. See "Risk Factors" for information
prospective investors should consider. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment options, the Representative's Options or options granted or
reserved under the Company's stock incentive plan. Unless the context
otherwise requires, the term "Company" refers to and includes FDC Group, Inc.
and Lenders Resource Incorporated, both wholly owned subsidiaries of the
Company. Industry data used in this Prospectus was obtained from industry
publications that the Company believes to be reliable, but has not
independently verified.
THE COMPANY
The Company provides a broad range of information services to mortgage
and consumer lenders, employers, landlords and other business customers located
throughout the United States. The Company specializes in preparing mortgage
credit reports ("MCRs") that are customized to each mortgage lender's
requirements and transmitted to lenders via the Internet, modem or facsimile.
The Company's larger customers include, among others, NationsBanc/Boatmen's
National, Chase Manhattan Residential, U.S. Home Mortgage, CoreStates Mortgage
and CTX Mortgage. In 1996, the Company was selected to be one of five approved
information vendors for the Federal Home Loan Mortgage Corporation's ("Freddie
Mac") automated underwriting system, Loan Prospector. Based on publicly
reported information concerning mortgage loans originated and refinanced in the
United States, management believes the Company, and its franchisees and
licensees (referred to herein as "System Affiliates"), are collectively one of
the leading suppliers of MCRs in the United States. The Company and its System
Affiliates delivered approximately 1.08 million and 1.43 million MCRs
representing gross system billings of approximately $27.3 million and $31.3
million in 1996 and 1997, respectively.
MCRs supplied by the Company generally fall in three categories:
residential mortgage credit reports ("RMCRs") under which the Company verifies
credit, employment and other information and conducts an in-person or telephone
interview with the loan applicant; residential mortgage credit reports that do
not encompass applicant interviews ("RMCR Jrs.(R)"); and Bureau Express(R)
reports, which provide only the merged credit information from the three
primary credit repositories in the United States without the verification
performed in RMCRs or RMCR Jrs. Through its expertise developed in mortgage
credit reporting, the Company has recently expanded its services to include
EMPfacts(R), an employment screening service, QUICKpeek Identifier(R), an
instant employment screening service, QUICKpeek Tenant(R), a credit and
employment screening service for use by leasing agents and landlords, and
Corpdata(R), a credit reporting service on businesses.
1
<PAGE> 7
The Company markets its services through Company operated offices and
its System Affiliates which combined provide services to lenders in all states
in the continental United States from 45 locations. System Affiliates
consisted of 30 franchisees and 34 licensees as of December 31, 1996, and 29
franchisees and 35 licensees as of December 31, 1997. The Company receives
royalties, license and other fees from its System Affiliates, which combined
accounted for 36% and 55% of the Company's gross revenues for 1996 and 1997,
respectively.
The Company's and System Affiliates' MCR and other information
services integrate data obtained from national credit repositories, criminal
records, motor vehicle records and other public information databases. The
integration of this information, and delivery of its services, is performed by
the Company's proprietary and non-proprietary computer software, hardware and
state-of-the-art communication systems. The Company credits its success to its
technological sophistication and employs 15 persons who are assigned to the
continued development and maintenance of its technology. The Company is
committed to maintaining its technological competitive advantage, and it will
continue to devote resources to this effort. See "Use of Proceeds."
The Company intends to implement a consolidation plan in the MCR
business. The Company believes a favorable environment exists for acquisitions
because of the highly fragmented nature of the industry and the increased cost
of new technologies that generally cannot be afforded by smaller participants
in the market. The Company's consolidation plan is designed to expand its
existing business and take advantage of its core competencies including, among
other things, its highly developed customer service program, use of
sophisticated technology to achieve efficiencies in the MCR market, development
of close working relationships with mortgage lenders, knowledge of the MCR
market and its experienced management team. The Company's consolidation plan
envisions the purchase of unaffiliated companies active in the MCR market as
well as companies that are presently franchisees or licensees of the Company.
Consistent with its consolidation plan, the Company concluded the acquisition
of Mirocon, Inc., a former franchisee providing MCR and other services, in
December 1997. See "Business."
The Company's business is directly influenced by the mortgage lending
industry since its primary services are credit reports used by mortgage
lenders. The mortgage lending industry enjoyed a near record year in 1997 due
to low interest rates and a robust economy. Mortgage originations (including
refinancings) are estimated to have totaled approximately $870 billion in 1997,
almost 11% higher than the $785 billion in originations in 1996 and the
third-best year ever. The 1997 loan activity equates to the generation of an
estimated 11 million mortgage credit reports. See "Business--Industry."
2
<PAGE> 8
The Company's strategy is to enhance its position as a leading
provider of MCRs and associated information services. The principal components
of the Company's strategy are to: (i) implement its consolidation plan in
order to accelerate growth and leverage operating efficiencies, (ii) continue
to capitalize on its proprietary and non- proprietary technology to provide
prompt and accurate customer service, (iii) accelerate its market penetration
through engaging in additional sales and marketing activities to broaden its
customer base, (iv) increase revenue by bundling additional services with the
Company's MCRs and other services in order to facilitate "one-stop shopping" by
its customers, and (v) enhance the Company's relationships with key customers
through continued commitment to customer service and support and quality
control.
The Company was incorporated in the State of Colorado in 1985. The
Company's principal office is located at 3665 JFK Parkway, Building 1, Suite
200, Fort Collins, Colorado 80525, and its telephone number is (970) 226-3600.
3
<PAGE> 9
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities offered by the Company . . . . . . . . 1,200,000 shares of Common Stock and 1,200,000
Warrants. The Common Stock and Warrants will be
initially sold together. Each Warrant will
entitle the holder to purchase one share of Common
Stock at the Warrant Exercise Price during the
three-year period commencing on the date of this
Prospectus. Commencing one year from the date
hereof, the Warrants will be redeemable upon
thirty (30) days prior written notice at a
redemption price of $.05 per Warrant if the
closing high bid price of the Common Stock has
exceeded the Warrant Exercise Price by 50% or more
for at least 20 consecutive trading days
immediately preceding the date of mailing of the
notice of redemption, subject to certain other
conditions. See "Description of Securities."
Common Stock outstanding prior to
offering . . . . . . . . . . . . . . . . . . . . 1,800,000 shares(1)
Common Stock to be outstanding
after offering . . . . . . . . . . . . . . . . . 3,000,000 shares(1)
Use of proceeds . . . . . . . . . . . . . . . . . For acquisitions, repayment of indebtedness,
technological development, expansion of marketing
activities and services and working capital. See
"Use of Proceeds."
Proposed Nasdaq symbols:
Common Stock . . . . . . . . . . . . . . FDCC
Warrants . . . . . . . . . . . . . . . . FDCCW
__________________
</TABLE>
(1) Does not include up to (i) 27,000 shares of Common Stock issuable upon
exercise of outstanding options held by employees and directors which
have an exercise price of $o per share, (ii) 1,200,000 shares of
Common Stock issuable upon full exercise of the Warrants, (iii)
240,000 shares of Common Stock issuable upon full exercise of the
Representative's Options, and (iv) 180,000 shares of Common Stock
and/or Warrants issuable upon full exercise of the Underwriters'
over-allotment options.
4
<PAGE> 10
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<S> <C> <C>
STATEMENT OF INCOME DATA: Year Ended December 31,
-----------------------------------------------------------------------
1996 1997 1996 1997
---- ---- ---- ----
Historical Pro Forma(1)
------------------------------------- ------------------------------
- ----
Revenue . . . . . . . . . . . . . . $ 4,009 $ 3,520 $ 4,872 $ 4,370
Operating expenses . . . . . . . . . 3,568 2,724 4,298 3,413
Net income . . . . . . . . . . . . . 284 503 353 600
Basic earnings per share(2) . . . . . $ .16 $ .28 $ .20 $ .33
Weighted average number of
shares outstanding . . . . . . . . 1,800 1,800 1,800 1,800
OTHER STATISTICAL DATA:(3) 1996 1997
---- ----
Information services units 1,080 1,432
Gross system billings $ 27,340 $ 31,318
BALANCE SHEET DATA: December 31, 1997
------------------------------------------------
Actual As adjusted(4)
------ -----------
Working capital . . . . . . . . . . . $ 116 $ 4,655
Total assets . . . . . . . . . . . . 2,864 7,121
Long term debt, including current
portion . . . . . . . . . . . . . . . 1,210 400
Shareholders' equity . . . . . . . . 647 5,614
- ------------------
</TABLE>
(1) Gives pro forma effect to the acquisition of the business of Mirocon,
Inc. effective December 1, 1997. See "Business--Recent Acquisition,"
Note 2 to the Consolidated Financial Statements and Financial
Statements of Mirocon, Inc.
(2) No difference exists between basic and fully diluted earnings per
share.
(3) Represents the aggregate number of MCRs generated through the
Company's system for itself, and its System Affiliates, and the gross
system billings by the Company and its System Affiliates.
(4) Adjusted to reflect the sale by the Company of the 1,200,000 shares of
Common Stock and Warrants offered hereby at an assumed combined
offering price of $5.10 and application of the net proceeds. See "Use
of Proceeds."
5
<PAGE> 11
RISK FACTORS
This Prospectus contains statements which include forward looking
information. Those statements appear in a number of places in this Prospectus
and include statements regarding the intent, belief or current expectations of
the Company with respect to, among other things: (i) the Company's growth
strategy and the availability of companies which it believes may be acquired;
(ii) the Company's anticipated results of future operations and economies of
scale it believes may exist with acquisitions; (iii) regulatory matters
affecting or which in the future may affect the Company; (iv) matters related
to general economic conditions, particulary interest rates, and responses in
changes thereto by lenders and consumers; and (v) the Company's ability to
quickly react to changing interest rates. Prospective investors are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual events and
results thereof may differ materially from those discussed in the forward
looking statements as a result of various factors. Moreover, any investment in
the securities being offered involves a high degree of risk and may result in a
loss of the entire amount invested. Therefore, prospective investors should
carefully consider the following risks, as well as all other information set
forth in this Prospectus.
Demand for Mortgage Credit Reports. The Company's primary service is
its mortgage credit report ("MCR"). In general, the use of this service is
driven by consumer demand for credit (via new home mortgages and refinancings)
and, to a lesser extent, lenders' efforts to develop new, and monitor existing,
credit relationships. Consumer demand for mortgage credit tends to vary due to
interest rate fluctuations and general economic conditions. Management has
found that MCR demand tends to increase during periods of economic expansion or
when interest rates are declining, although consistent patterns cannot always
be determined due to the complexity of the economy. Consequently, revenue from
MCRs, the Company's primary service at present, is influenced materially by the
foregoing factors. Since the Company's expenses consist largely of labor,
repository and communication charges, its ability to control these costs as
economic and interest rate trends change is critical. Also, as MCRs are the
Company's primary service, the Company's lack of significant diversification in
other services hinders the Company's ability to withstand the negative impact
of a downturn in demand for MCRs. See "Business--Industry" and "--Mortgage
Credit Reports."
Recent Consolidation Plan. The Company historically franchised and
licensed territories to companies already engaged in providing mortgage credit
reporting services in those territories. The Company is now implementing a
consolidation plan to acquire certain of its System Affiliates and competitors
engaged in providing MCR services that either complement or will expand its
existing business. Implementation of this plan could involve a number of
risks, including diversion of management time and Company financial resources
in reviewing acquisition candidates and assimilation of the acquired companies,
adverse short-term effects on the Company's operating results and the
amortization of acquired intangible assets. Also, there are 48 System
Affiliates that have exclusive territory rights which expire at various times
through the year 2005. The Company will be required to purchase a System
Affiliate, or wait until the expiration of the applicable agreement with the
System Affiliate, before expanding into, or acquiring a competitor in, the same
territory. The impact of this plan on the Company's
6
<PAGE> 12
operations, both long-term and short-term, remains unknown. Although the
Company has identified and has held, and will continue to hold, discussions
from time-to-time with potential acquisition candidates, no agreement,
arrangement, plan or understanding exists as of the date hereof with respect to
any acquisitions. Accordingly, no assurance can be given that the Company will
be successful in acquiring System Affiliates or other companies, assets or
service lines or that if acquired, such companies, assets or service lines will
be economically beneficial to the Company. See "Business-- Business Strategy."
Competition. The MCR industry is highly fragmented. The Company
faces both direct and indirect competition for its services. There are large
numbers of companies engaged in the sale of one or more of the services offered
by the Company. A significant number of these competitors are small companies
operating on a local or regional basis, while some are large companies
operating on a national scale. Management believes there are approximately
1,400 companies in the United States providing MCR services, among which are
several large companies having far greater financial resources than the
Company, including CBC Companies, Inc., Equifax Credit Information Services,
Inc., The First American Financial Corp., and Trans Union Corporation. The
Company faces intense competition in MCR services from these entities, and, as
to its other services, from companies engaged in employment and tenant
application verification activities. See "Business--Competition."
Government Regulation; Privacy Issues; Legal Considerations. The
Company's business involves the collection of consumer and business credit data
and other information and the distribution of such information to lenders and
businesses making credit and other decisions. Concerns about individual
privacy and the collection, distribution and use of information about
individuals have led to substantial governmental regulation of the credit
reporting industry. The credit reporting industry is regulated under the
federal Fair Credit Reporting Act (the "FCRA") and by legislation in many
states. The credit reporting industry has recently been subject to increased
legislative attention. Legislation was recently enacted amending the FCRA to
refine the legal treatment of certain credit reporting practices, including
provisions codifying rules applicable to prescreening. In addition, bills are
pending in various state legislatures that are generally intended to regulate
how personal information is used in the marketplace. While management does not
believe that any of the proposed state bills, if passed as currently drafted,
would have a material adverse effect on the Company, there can be no assurance
that pending or additional federal or state consumer-oriented legislation will
not significantly limit demand for, or increase the costs of, certain of the
Company's services. See "Business--Government Regulation and Privacy Issues."
Under general legal concepts and, in some instances, under specific federal and
state statutes, the Company could be held liable to customers or to the
subjects of credit reports prepared by the Company for inaccurate information
or misuse of information. The Company maintains internal policies designed to
help ensure that credit information retrieved by it is accurate and that it
otherwise complies with the provisions of the FCRA. No assurance can be given
that any claims made against the Company can be successfully defended, that
insurance will cover any such claims or that uninsured losses from such claims
might arise thereby adversely impacting the operations and financial condition
of the Company. See "Business--Legal Considerations."
7
<PAGE> 13
Control of Management; Dependence Upon Key Personnel. Existing
shareholders of the Company will own approximately 60% of the outstanding
Common Stock upon completion of this offering and will be able to elect all of
the Company's Directors. The Company is highly dependent on the services of
its President, Jerald H. Donnan, who is subject to a three year employment
agreement which was effective July 1, 1997. See "Management--Employment
Agreements." To the extent that Mr. Donnan's services become unavailable,
there could be a material adverse effect on the operations of the Company. In
such an event, there can be no assurance that the Company will be able to
promote existing personnel or employ qualified persons on terms favorable to
the Company. The Company intends to secure a $1 million Key Man term life
insurance policy upon the life of Mr. Donnan as soon as possible following the
closing of this offering.
Dependence on Key Suppliers. The Company does not maintain its own
consumer credit database. Instead, the Company obtains consumer credit data
from large, national credit repositories such as Experian, Inc., TransUnion,
Inc. and Equifax, Inc. pursuant to "reseller" agreements with these entities.
Generally, the reseller agreements are terminable without cause by either party
within a short period of time upon written notice. Also, the agreements can be
terminated if the Company uses the information in violation of the FCRA or
other applicable laws, or in violation of the reseller agreement. In addition,
the reseller agreements typically do not provide any warranties as to the
accuracy or correctness of the information contained in the databases
maintained by credit repositories, and further provide that the Company will
hold the repositories harmless and indemnify them from claims or liabilities
arising from the use of inaccurate information contained in the databases.
While the Company believes its relationships with the various credit
repositories is good, there can be no assurance that its reseller agreements
with the credit repositories will not be terminated for any reason. The loss
of access to the databases of key credit repositories would materially and
adversely affect the Company's business and financial condition. See
"Business--Suppliers."
Intellectual Property Rights and Limitations. The Company's success
depends in part upon its technological expertise and proprietary information
and technologies. The Company relies on a combination of trademark,
servicemark, copyright, trade secret and contract protection to establish and
protect its proprietary rights in its services and technology; however, because
there is little in the design, development or delivery of the Company's
services that is protectable under law, the Company's services are and will
continue to be subject to replication by competitors. The Company generally
enters into confidentiality agreements with customers and limits access to and
distribution of its proprietary information. There can be no assurance that
these steps will be adequate to deter misappropriation or infringement of the
Company's proprietary technologies and that costly litigation may not ensue.
While the Company intends to defend its trade names and trademarks against
unauthorized use or infringement by others, the cost of defending such
intellectual property could be substantial in the event of infringement. The
Company believes that its marks may be of significant value to the Company's
business and reputation. Failure or inability to defend the trade names and
trademarks could adversely affect the Company. Although the Company believes
that its trade names, trademarks and technologies do not infringe any
proprietary rights of others, the growing use of copyrights and patents to
protect proprietary rights has increased the risk that
8
<PAGE> 14
third parties may assert claims of infringement in the future. The Company
does not maintain a formal intellectual property protection program. See
"Business--Intellectual Property."
Large Institutions' Special Requirements. The Federal National
Mortgage Association ("Fannie Mae") and Freddie Mac provide a secondary market
for residential mortgages. Both entities require that any mortgage purchased
be supported by a credit report on the mortgagee and prepared by an entity,
such as the Company, independent from the lender. The Company is aware that
these and other entities are increasingly using "automated" credit reporting
techniques which require credit report providers to render almost instantaneous
responses, often within 60 seconds or less. Although the Company is presently
able to provide such service, no assurance can be given that it will continue
to be able to provide the level of performance required by these or other large
institutional lenders or that it will be able to match the level of
technological service provided, or developed in the future, by competitors.
Risk of Data Center Failure. The Company's operations are dependent
upon its ability to protect its data center against damage from fire, power
loss, telecommunications failure, natural disasters or a similar event. The
Company anticipates moving into a new facility in Loveland, Colorado in April,
1998, which will be outfitted with backup power and duplicate telecommunication
facilities; nonetheless, in the event the Company experiences a natural
disaster, hardware or software malfunction or other interruption of its data
center operations, the Company's results of operations could be materially
adversely affected. Extended interruptions in the Company's services could be
significantly detrimental, and the Company's insurance may not be adequate to
compensate the Company for all resulting losses that may occur. See
"Business--Technology Center."
Effect of General Economic Conditions. The Company's business is
directly related to economic factors that affect the mortgage lending industry,
including interest rates, housing demand and general economic conditions. When
these factors adversely affect the mortgage lending industry, such factors will
likely exert downward pressure on the volume of MCRs requested, and may also
increase price competition among MCR suppliers. Although the Company believes
that current economic conditions favor continued growth in the markets it
serves, a future economic slowdown or recession could adversely affect the
Company's ability to maintain profitability. See "Business."
Need for Additional Financing. Proceeds from this offering are not
sufficient to enable the Company to complete its consolidation plan as
described under "Business--Business Strategy." Even if this offering is
successful, there is no assurance that the Warrants will be exercised, or that
other sources of equity or debt financing can be obtained by the Company.
Determination of Offering Prices; Absence of Public Market; Price
Fluctuations. The public offering prices of the Common Stock and Warrants, and
the exercise price of the Warrants, have been determined by the Company and the
Representative and do not necessarily bear any relationship to assets, book
value, earnings history or other investment criteria. Prior to this offering,
there has been no public market for any class of the Company's securities.
Although the Common Stock and Warrants have been approved for quotation on
9
<PAGE> 15
the Nasdaq SmallCap Market upon notice of issuance, there can be no assurance
that an active trading market will develop or that the market price of such
securities will not decline below the public offering price. Factors such as
quarterly fluctuations in results of operations, or market conditions in
general, may cause the market prices of the Company's securities to fluctuate,
perhaps substantially. In addition, in recent years the stock market has
experienced significant price and volume fluctuations. These fluctuations,
which are often unrelated to the operating performance of specific companies,
have had a substantial effect on the market price for many small capitalization
companies. Factors such as those cited above, as well as other factors which
may be unrelated to the operating performance of the Company, may adversely
affect the price of the Company's securities. See "Underwriting."
Shares Eligible for Future Sale. Sales of a substantial number of
shares of the Company's Common Stock in the public market following this
offering could adversely affect the market price of the Common Stock. The
1,800,000 shares of Common Stock now outstanding are eligible for sale in the
public market, subject to compliance with Rule 144 under the Securities Act of
1933 (the "Securities Act") (assuming all shares currently held in custody are
released in accordance with the terms of the custody agreement). Rule 144
provides that beneficial owners of shares who have held such shares for one
year may sell within a three-month period a number of shares not exceeding the
greater of 1% of the total outstanding shares or the average trading volume of
the shares during the four calendar weeks preceding such sale. In the absence
of agreements with the Representative, the outstanding restricted Common Stock
could be sold in accordance with Rule 144 commencing 90 days from the date of
this Prospectus. However, pursuant to the terms of the Underwriting Agreement,
the Representative has required the holders of such shares to enter into
lock-up agreements which restrict the sale or disposition of such shares for 18
months from the date of this Prospectus without the prior written consent of
the Representative. See "Principal Shareholders--Custodial Shares" and "Shares
Eligible for Future Sale."
Anti-takeover Provisions. The Company's Articles of Incorporation and
Bylaws (the "Incorporation Documents") contain provisions that may make it more
difficult for a third party to acquire, or may discourage acquisition bids for,
the Company. The Board of Directors of the Company is authorized, without
action of its shareholders, to issue authorized but unissued Common and
Preferred Stock. The existence of undesignated Preferred Stock and authorized
but unissued Common Stock enables the Company to discourage or to make it more
difficult to obtain control of the Company by means of a merger, tender offer,
proxy contest or otherwise. The Incorporation Documents provide further that
(i) directors may be elected for three-year terms, with approximately one-third
of the Board of Directors standing for election each year, (ii) to alter or
repeal the staggered board provision or other measures in the Incorporation
Documents relating to the matters listed in this paragraph, the affirmative
vote of the holders of not less than two- thirds of the votes entitled to be
cast by the holders of all stock entitled to vote in the election of directors
is required, (iii) the unanimous vote of the Board of Directors or the
affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast by the holders of all stock entitled to vote in the
election of directors is required to change the size of the Board of Directors,
(iv) directors may only be removed for cause by holders of not less than
two-thirds of the Common Stock, (v) a special meeting of
10
<PAGE> 16
shareholders may be called by shareholders only if at least 25% of the
shareholders of the Company request that a special meeting be called, (vi) any
action required or permitted to be taken by shareholders of the Company must be
effected at a duly called annual or special meeting of such shareholders and
may not be effected by consent in writing by such shareholders, and (vii) the
affirmative vote of the holders of two-thirds of the Company's capital stock
entitled to vote thereon is required to approve the merger, dissolution or sale
of all or substantially all of the assets of the Company. The Company has also
entered into employment agreements with its top two executive officers which
require significant severance pay upon termination of employment with the
Company without cause or due to a change in control of the Company. See
"Management--Employment Agreements" and "Description of Securities--Preferred
Stock."
Absence of Dividends. The Company has not declared nor paid, and does
not intend to declare or pay, any cash or other dividends in the foreseeable
future. Earnings, if any, will be retained to finance the Company's operations
and growth. See "Dividend Policy."
Warrant Exercise and Redemption Provisions. Each Warrant offered
hereby entitles the holder to purchase one share of Common Stock at a price of
$o per share (130% of the initial offering price) commencing on the date hereof
and expiring three years thereafter. Holders may exercise such Warrants only if
a current prospectus relating to the Common Stock underlying the Warrants is
then in effect and only if such shares are qualified for sale under applicable
state securities laws of the states in which holders of the Warrants reside. The
Company will use its best efforts to have a current prospectus in effect during
the Warrant exercise period. There can be no assurance the Company will be
successful in maintaining a current prospectus covering the shares underlying
the Warrants. The Warrants may be deprived of any value in the event this
Prospectus or another prospectus covering the shares issuable upon exercise of
the Warrants is not kept current or if such shares are not registered or
otherwise qualified in the states in which holders of the Warrants reside.
Although during this offering the Warrants will not knowingly be sold in any
jurisdiction in which they are not registered or otherwise qualified, purchasers
of the Warrants may relocate to a jurisdiction in which the Common Stock
underlying the Warrants is not so registered or qualified. In addition,
purchasers of the Warrants in the open market may reside in a jurisdiction in
which the Common Stock underlying the Warrants is not registered or qualified.
If the Company is unable or chooses not to register or qualify or maintain the
registration or qualification of the Common Stock underlying the Warrants for
sale in all of the states in which the Warrant holders reside, the Company would
not permit such Warrants to be exercised and Warrant holders in those states may
have no choice but to either sell their Warrants or let them expire.
Prospective investors and other interested persons who wish to know whether
Common Stock may be issued upon the exercise of Warrants by holders in a
particular state should send a written inquiry to the Company or the
Representative. Commencing one year from the date of this Prospectus, the
Warrants may be redeemed by the Company, in whole but not in part, upon not less
than 30 days' prior written notice at a price of $.05 per Warrant at such time
as the closing bid price of the Common Stock equals or exceeds $o (150% of the
Warrant Exercise Price) for 20 consecutive trading days. The redemption notice
must be provided not more than five business days after conclusion of the 20
consecutive trading days in which the closing bid
11
<PAGE> 17
price of the Common Stock equals or exceeds $o per share. While the Warrants
may be exercised during the notice period prior to the date of redemption, the
holder may be unable (for financial or other reasons) to exercise the Warrants
at the time of receipt of the notice of redemption. See "Description of
Securities--Warrants."
Securities Issuable Pursuant to Warrants, Options and Representative's
Options. At the date of this Prospectus, the Company has reserved 1,200,000
shares of Common Stock for issuance on exercise of the Warrants and 200,000
shares of Common Stock for issuance on exercise of options under the Company's
1997 Stock Incentive Plan, under which 27,000 options have been issued as of
the date of this Prospectus. At the completion of this offering, the
Representative will receive options (collectively, the "Representative's
Options") to purchase 120,000 shares of Common Stock at a price of $o (120% of
the aggregate price of the Common Stock), exercisable during a period of four
years commencing one year from the date of this Prospectus and Warrants to
purchase 120,000 shares of Common Stock on and subject to the same terms and
conditions as the Warrants issued to the public in this offering, except that
the Warrants underlying the Representative's Options will not be subject to
redemption by the Company. During the terms of the Warrants, the options and
the Representative's Options, the holders are given the opportunity to profit
from a rise in the market price of the Common Stock, and their exercise may
dilute the ownership interest of existing shareholders, including investors in
this offering. The existence of the Warrants, the options and the
Representative's Options may affect adversely the terms on which the Company
may obtain additional equity financing. Moreover, the holders are likely to
exercise their rights to acquire Common Stock at a time when the Company would
otherwise be able to obtain capital on terms more favorable that could be
obtained through the exercise of such securities. See "Description of
Securities" and "Underwriting."
Dilution. This offering will result in immediate substantial dilution
of $3.40 (67%) per share, which amount represents the difference between the
pro forma net tangible book value per share after the offering and the assumed
combined public offering price of $5.10 per share of Common Stock and Warrant.
In the event the Company issues shares of Common Stock in connection with
potential acquisitions, investors' ownership interest in the Company could also
be diluted. See "Dilution" and "Business--Business Strategy."
Broad Management Discretion in Use of Proceeds. The Company has
allocated $2.75 million, or approximately 54% of the estimated net proceeds to
be received in this offering, to acquisition of businesses similar to its own.
The Company's success will depend in part on the discretion and judgment of the
Company's management with respect to the application and allocation of these
proceeds in such acquisitions. Furthermore, management will retain broad
discretion over the allocation of proceeds received from the exercise of
Warrants, if any. See "Use of Proceeds," "Business--Business Strategy" and
"Management."
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<PAGE> 18
Limitation of Liability. The Company's Articles of Incorporation
provides that a director of the Company shall not be personally liable for
monetary damages to the Company or its shareholders for a breach of fiduciary
duty as a director, subject to limited exceptions. Although such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission, the presence of these provisions in the
Articles of Incorporation could prevent the recovery of monetary damages
against directors of the Company. See "Management--Indemnification of
Officers and Directors."
13
<PAGE> 19
DILUTION
The net tangible book value of the Company as of December 31, 1997 was
approximately $37,000, or $0.02 per share of Common Stock. Without taking into
account any other changes in tangible book value after December 31, 1997,
except to give pro forma effect to the sale by the Company of the shares of
Common Stock and Warrants in this offering at an assumed combined offering
price of $5.10, the pro forma net tangible book value of the Company at
December 31, 1997 would have been $5.1 million, or $1.70 per share of Common
Stock. This represents an immediate increase in net tangible book value of
$1.68 per share to existing holders of Common Stock and an immediate dilution
of $3.40 per share (67%) to purchasers of Common Stock in this offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1). . . . . . . . . . . . $ 5.10
Net tangible book value per share
before this offering. . . . . . . . . . . . . . . . . . . . . . $ .02
Increase per share attributable to new investors(2) . . . . . . . 1.68
------
Pro forma net tangible book value per share after
this offering . . . . . . . . . . . . . . . . . . . . . . . . . 1.70
------
Dilution per share to new investors . . . . . . . . . . . . . . . $ 3.40
======
Dilution as a percent of assumed public offering
price per share of Common Stock . . . . . . . . . . . . . . . . 67%
- ------------------ ===
</TABLE>
(1) Represents the assumed purchase price of one share of Common Stock and
one Warrant.
(2) After deduction of the underwriting discount and estimated offering
expenses.
The following table sets forth as of December 31, 1997 the difference
between the existing shareholders and the new investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid. The calculations in
this table exclude shares issuable, and proceeds receivable, upon the exercise
of the Warrants, stock options, the Representative's Options, and the
Underwriters' over- allotment options. See "Management--Stock Incentive Plan,"
"Description of Securities" and "Underwriting." To the extent such foregoing
options or Warrants are exercised, there may be further dilution to new
investors.
<TABLE>
<S> <C> <C> <C>
Shares Purchased Total Consideration Average
---------------- --------------------- Price
Number Percent Amount Percent Per Share
--------- -------- --------- -------- --------
Existing Shareholders 1,800,000 60% $ 647,000(1) 10% $ 0.36
New Investors 1,200,000 40% 6,120,000 90% 5.10
--------- ---- ----------- ----
Total 3,000,000 100% $ 6,767,000 100%
- ------------------ ========= ==== =========== ====
</TABLE>
(1) The amount shown is the net worth of the Company at December 31, 1997.
See the Consolidated Financial Statements.
14
<PAGE> 20
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,200,000 shares of Common Stock and Warrants offered hereby, after deduction
of the underwriting discount and estimated expenses payable by the Company in
connection with this offering, are expected to be approximately $5.1 million
(based on an assumed combined offering price of $5.10).
The Company intends to allocate $2.75 million of the net proceeds from
this offering for the purpose of making acquisitions pursuant to its
consolidation plan which is more fully discussed in "Business--Business
Strategy." There are no present agreements, plans, arrangements or
understandings with respect to any such acquisitions.
The Company intends to use approximately $435,000 of the net proceeds
to retire a note payable to a financial institution which bears interest at
2.75% over the New York prime rate and which matures in December 2005. The
note is secured by substantially all of the Company's assets and is personally
guaranteed by Jerald H. and Marcia R. Donnan. Approximately $375,000 is
intended to be used by the Company to reduce indebtedness incurred in previous
acquisitions, including the required payment of $160,000 incurred in the
Mirocon, Inc. acquisition. These obligations bear interest at an average of 8%
and are unsecured. See "Business--Recent Acquisition" and Note 2 to
Consolidated Financial Statements.
Approximately $500,000 of net proceeds will be allocated by the
Company to continue its software and technological support development
activities, including capital expenditures associated therewith. Approximately
$500,000 of the net proceeds will be allocated to the expansion of the
Company's marketing activities and services. The Company intends to allocate
the remaining $540,000 of net proceeds for general working capital purposes.
See "Business."
Proceeds, if any, from the exercise of Warrants will be used to
continue making acquisitions, to fund continued software and technological
support development and for working capital.
Pending the uses described above, the net proceeds to the Company will
be invested in short-term, government, government guaranteed or investment
grade securities.
15
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, and as adjusted to give effect to the sale by the Company of
1,200,000 shares of Common Stock and 1,200,000 Warrants at an assumed combined
offering price of $5.10 (after deducting the underwriting discount and
estimated offering expenses payable by the Company and application of the net
proceeds). The table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------
Actual As Adjusted(1)
------ --------------
(in thousands)
<S> <C> <C>
Long-term debt, including current maturities................ $1,210 $ 400
------ ------
Shareholders' equity:
Preferred Stock, 1,000,000 shares authorized;
none issued or outstanding.............................. -- --
Common Stock, 10,000,000 shares authorized;
1,800,000 shares issued and outstanding,................ 2 4,969
3,000,000 shares issued and outstanding, as adjusted....
Retained earnings......................................... 645 645
------ ------
Shareholders' equity...................................... 647 5,614
------ ------
Total capitalization............................... $1,857 $6,014
- ------------------ ====== ======
</TABLE>
(1) Does not include up to (i) 27,000 shares of Common Stock issuable upon
exercise of outstanding options held by employees and directors which
have an exercise price of $o per share, (ii) 1,200,000 shares of
Common Stock issuable upon full exercise of the Warrants, (iii)
240,000 shares of Common Stock issuable upon full exercise of the
Representative's Options, and (iv) 180,000 shares of Common Stock
and/or Warrants issuable upon full exercise of the Underwriters'
over-allotment options.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock. It
is the current policy of the Company not to pay cash dividends on its Common
Stock. Any payment of cash dividends in the future will be dependent upon the
Company's financial condition, results of operations, current and anticipated
cash requirements, restrictions on the payment of dividends under the terms of
any of the Company's future financing arrangements and plans for expansion, as
well as other factors that the Board of Directors deems relevant. The
Company's current bank loan agreements do not prohibit the payment of
dividends.
16
<PAGE> 22
SELECTED FINANCIAL DATA
The following consolidated selected financial data should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The consolidated
statements of income data for the years ended December 31, 1996 and 1997 and
the actual and adjusted consolidated balance sheet data as of December 31, 1997
are derived from the consolidated financial statements of the Company which
have been audited by Ehrhardt Keefe Steiner & Hottman PC, the Company's
independent auditors, as indicated in their report included herein. The
selected financial data provided below is not necessarily indicative of the
future results of operations or financial performance of the Company. The pro
forma data assumes the Company completed the acquisition of Mirocon, Inc. on
January 1, 1996.
<TABLE>
<CAPTION>
Historical Pro Forma
For the Year Ended For the Year Ended
December 31, December 31,
---------------------- -------------------
1996 1997 1996 1997
---- ---- ---- ----
STATEMENTS OF INCOME DATA: (in thousands, except (in thousands, except
per share data) per share data)
<S> <C> <C> <C> <C>
REVENUE
System Affiliates.............................. $1,447 $1,951 $1,374 $1,896
Information services........................... 2,066 735 3,002 1,640
Proceeds from the sale of Company
operated territories......................... 480 714 480 714
Training, license and other.................... 16 120 16 120
------ ------ ------ ------
Total revenue................................ 4,009 3,520 4,872 4,370
------ ------ ------ ------
OPERATING EXPENSES
Costs of services provided..................... 2,124 1,301 2,444 1,587
Costs of Company operated territories.......... 31 506 31 506
Selling, general and administrative............ 1,413 917 1,823 1,320
------ ------ ------ ------
Total operating expenses..................... 3,568 2,724 4,298 3,413
------ ------ ------ ------
Income from operations............................. 441 796 574 957
Other income....................................... 29 28 32 37
Interest expense................................... (108) (77) (139) (103)
------ ------ ------ ------
Income before income taxes......................... 362 747 467 891
Income tax expense................................. 78 244 114 293
------ ------ ------ ------
Net income......................................... $ 284 $ 503 $ 353 $ 598
====== ====== ====== ======
Basic earnings per share(1)........................ $ .16 $ .28 $ 0.20 $ 0.33
====== ====== ====== ======
Weighted average common stock outstanding.......... 1,800 1,800 1,800 1,800
====== ====== ====== ======
</TABLE>
17
<PAGE> 23
<TABLE>
<CAPTION>
BALANCE SHEET DATA: December 31, 1997
---------------------------------------------------------
Actual As adjusted(2)
------ -----------
(in thousands)
<S> <C> <C>
Working capital............................... $ 116 $ 4,655
Total assets.................................. 2,864 7,121
Total liabilities............................. 2,217 1,407
Shareholders' equity.......................... 647 5,614
- ------------------
</TABLE>
(1) No difference exists between basic and fully diluted earnings per
share.
(2) Adjusted to reflect the sale by the Company of the 1,200,000 shares of
Common Stock and Warrants offered hereby at an assumed combined
offering price of $5.10 and application of the net proceeds. See "Use
of Proceeds."
18
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company specializes in preparing mortgage credit reports that are
customized to meet each lender's individual needs. The Company also provides a
broad range of credit, employment and other information services to mortgage
lenders, consumer lenders, employers, landlords, and other businesses. See
"Business."
The Company provides its services in two different fashions. The
first involves services sold directly by the Company to third party customers
such as mortgage lenders, financial institutions, private enterprises, and
individuals (referred to as "information services"). Secondly, the Company
sells its services through franchisees and licensees ("System Affiliates").
The Company currently has 29 franchisees and 35 licensees. The System
Affiliates provide information services to customers using the Company's
technology and pay royalty, license and other fees to the Company.
During 1996 and 1997, the Company's primary emphasis, in addition to
expanding its market, was the completion of its technology center. This center
was necessary for the Company to provide its Bureau Express reports and other
on- line services to both third party users and System Affiliates. Associated
with this center were hardware costs of $111,000 and $563,000 in 1996 and 1997,
salaries to programmers of $400,000 and $468,000 in 1996 and 1997, and
communications costs of $157,000, primarily in 1997. The Company funded these
expenditures principally from the proceeds from the sale of certain Company
operated territories as described below.
In 1996, one Company developed territory (the "Indiana Territory") was
sold for $480,000, which had a financial reporting carrying value of $31,000.
In 1997, the Company sold certain areas (the "Texas Territories") for $714,000
which had a financial reporting carrying value of $506,000. The Company sold
both territories because they represented unique opportunities to maximize
current cash flow and fund the Company's technology center development. In
conjunction with the sales of these territories, the Company granted licenses
to the buyers to use its proprietary technology thereby assuring continued
revenue from these territories in the form of System Affiliates revenue.
The sale of these two territories resulted in a change in the mix of
revenues and decrease in certain expenses in 1997. Revenue associated with
information services, costs of services provided, and selling, general and
administrative expenses decreased in 1997 compared to 1996, while System
Affiliates revenue increased.
19
<PAGE> 25
FUTURE TRENDS
In June of 1997, having substantially completed the technology center
with proceeds from the sale of the two territories, the Company redirected its
focus from the expansion of System Affiliates revenue to sales of information
services to third party customers. The Company believes this will result in
increased profitability due to higher gross profit experienced from information
service sales compared to System Affiliates revenue. In 1997, the Company
realized gross profit, as a percentage of total revenue, equal to 68% from
sales of information services compared to 49% gross profit, as a percentage of
total revenue, from System Affiliates revenue. See Note 9 to the Consolidated
Financial Statements. The Company does not intend to license or franchise
territories to third parties in the foreseeable future.
In order to expand information services, the Company has devised a
consolidation plan whereby it has targeted both competitors and System
Affiliates as potential acquisition candidates. See "Business--Business
Strategy." The Company's first acquisition under its consolidation plan
occurred in December of 1997 when the Company acquired substantially all of the
assets of Mirocon, Inc., a former franchisee located in Loveland, Colorado. As
disclosed in the unaudited pro forma combined statement of income for the year
ended December 31, 1997, Mirocon, Inc. had in excess of $900,000 in information
services revenue while contributing $95,000 to pro forma combined net income.
The Company intends to realize additional cost savings by consolidating
Mirocon, Inc.'s operations into the Company's facilities.
The Company expects to realize other benefits when it acquires System
Affiliates or competitors, such as reducing and consolidating accounting,
administrative and technology maintenance functions at each location by
performing these duties at its present facilities. Currently, there are 29
franchisees and 18 licensees that have exclusive territory rights to market
the Company's MCR information services. Most of the Company's existing
franchise agreements expire at various times through the year 2005 while most
of the Company's license agreements expire at various times through the year
2001. The Company will be required to purchase a System Affiliate, or wait
until the expiration of the applicable agreement with the System Affiliate,
before expanding into, or acquiring a competitor in, the same territory.
As the Company implements its consolidation plan, it expects
information services revenue and gross profit to increase and System Affiliates
revenue to decrease as System Affiliates are either acquired or their
agreements with the Company expire. The Company also expects that revenue from
the sale or licensing of Company operated territories will substantially
decrease or be eliminated in future periods.
20
<PAGE> 26
REVENUE RECOGNITION
The Company's accounting policies for significant revenue recognition
are as follows:
System Affiliates Revenue
Pursuant to the various franchise and license agreements, System
Affiliates are required to pay the Company royalties based on a percentage of
gross billings. In addition, territories providing EMPfacts services are
required to pay $100 per month for national advertising conducted by the
Company. Royalties under the franchise and license agreements are accrued
based on the percentage of gross billings as reported by System Affiliates and
are included in accounts receivable.
Information Service Revenue
The Company recognizes revenue generated from direct sales of mortgage
credit reports and other information services when the information has been
provided to the customer, since substantially all required services have then
been performed.
Software Development Costs
Software development costs are those costs, which are primarily
payroll and related costs, that are directly related to the development of the
Company's proprietary software technology once technological feasibility has
been established.
In 1996, software development costs associated with internally
developed software used to support System Affiliates revenue and information
services were expensed as incurred by the Company.
In 1997, the Company adopted the provisions of a proposed Statement of
Position on Accounting for Costs of Computer Software Developed for Internal
Use ("SOP"). Direct costs incurred in the development of software which has
reached technological feasibility are capitalized. The Company ceases
capitalization of development costs once the software has been substantially
completed and is available for general use by System Affiliates, mortgage
lending institutions, and credit reporting agencies. Software development
costs are amortized over their estimated useful lives of the three years. The
proposed SOP, which is anticipated to be adopted in 1998, encourages early
adoption but does not allow retroactive restatement of previously issued
financial statements. Accordingly, management believes that adoption of the
proposed SOP in a year prior to its initial public offering (IPO) would be more
informative to users of financial statements rather than in a period after its
IPO. The effect of the change was to increase 1997 net income by approximately
$200,000 or $.11 per share of Common Stock. Had the Company adopted the SOP in
1996, net income would have been increased by approximately $178,000 to
$462,000 or $.26 per share of Common Stock.
21
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, as a
percentage of total revenues, those items included in the Company's
Consolidated Statements of Income and the Unaudited Pro Forma Combined
Statements of Income:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
--------------------- ---------------------
(Actual) (Pro Forma)(1)
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
System Affiliates.......................... 36.1% 55.4% 28.2% 43.4%
Information services....................... 51.5 20.9 61.6 37.5
Proceeds from the sale of
Company operated territories............. 12.0 20.3 9.9 16.4
Training, license and other................ .4 3.4 .3 2.7
------- ------- ------- -------
Total revenue.............................. 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
OPERATING EXPENSES
Costs of services provided................. 53.0 37.0 50.2 36.3
Costs of Company operated
territories.............................. 0.8 14.4 .6 11.6
Selling, general and administrative........ 35.2 26.0 37.4 30.2
------- ------- -------- -------
Total operating expenses............ 89.0% 77.4% 88.2% 78.1%
------- ------- -------- -------
Income from operations......................... 11.0% 22.6% 11.8% 21.9%
Other income................................... .7 .8 .7 .9
Interest expense............................... (2.7) (2.2) (2.8) (2.4)
------- ------- -------- -------
Income before income taxes..................... 9.0% 21.2% 9.6% 20.4%
------- ------- -------- -------
Income tax expense............................. (1.9)% (6.9)% (2.3)% (6.7)%
------- ------- -------- -------
Net income..................................... 7.1% 14.3% 7.3% 13.7%
======= ======= ======== =======
</TABLE>
- -------------------
(1) Gives effect to the Mirocon, Inc. acquisition. See "Business--Recent
Acquisition."
Years ended December 31, 1996 and 1997.
System Affiliates revenue increased $500,000, or 35%, from $1.45
million in 1996 to $1.95 million in 1997. The Texas Territories sold and
licensed accounted for $105,000 of the $500,000 increase in 1997. The
remaining increase of $395,000 is due to increased billing volume by System
Affiliates and resultant royalty, license and other fees.
22
<PAGE> 28
Company information services revenue decreased $1.33 million, or 64%,
from $2.07 million in 1996 to $735,000 in 1997. The sale of the Texas
Territories to a Dallas based mortgage credit reporting agency, which then
became a System Affiliate in January of 1997, resulted in this decrease. The
Texas Territories accounted for $1.47 million of the 1996 information services
revenue and none in 1997. The recent acquisition of Mirocon, Inc. in December
of 1997 contributed $85,000 to information services revenue in 1997.
Proceeds from the sale of Company operated territories increased by
$234,000, or 49%, from $480,000 in 1996 to $714,000 in 1997. Revenue generated
in 1996 represented the Indiana Territory sale, whereas revenue for 1997
consisted of the Texas Territories sale. With the Texas Territories sale, the
Company expensed approximately $506,000 in costs, consisting of accounts
receivable and intangibles, associated with those territories. The financial
reporting carrying value of the Indiana Territory was $31,000 which reflected
the net book value of certain fixed assets. The difference in the financial
reporting carrying value of the Indiana Territory and Texas Territories was due
to the fact that the Indiana Territory was organized and developed by the
Company with relatively low capitalized costs whereas the Texas Territories
were previously acquired from a franchisee at their market value.
Training, license and other revenue increased $104,000, or 650%, from
$16,000 in 1996 to $120,000 in 1997. The majority of this increase was a
one-time charge to System Affiliates for a marketing software interface.
Costs of services decreased $822,000, or 39%, from $2.12 million in
1996 to $1.30 million in 1997. This decrease directly relates to the costs of
information services revenue associated with the Texas Territories sale.
Included in the costs of services provided are direct costs such as salaries,
employment taxes, telephone, rent and repository costs. The total of these
direct costs in the Texas Territories incurred in 1996 were $736,000. In
addition, in 1997, $450,000 of salary related costs were capitalized as
software development costs related to the Company's change in accounting policy
described in Note 3 of the Consolidated Financial Statements. The costs of
services provided for in 1997 also include $157,000 of costs directly related
to the completion of the Company's technology center.
Selling, general and administrative expenses decreased $496,000, or
35%, from $1.41 million in 1996 to $917,000 in 1997. This decrease related to
costs associated with the operations of the Texas Territories sold, including
$307,000 of salaries to sales representatives and $164,000 related to
amortization of intangible assets acquired in the original purchase of the
Texas Territories.
Total operating costs decreased $850,000, or 24%, from $3.57 million
in 1996 to $2.72 million in 1997 resulting in an increase in operating income
of $355,000, or 80%, from $441,000 in 1996 to $796,000 in 1997.
Interest expense decreased $32,000, or 29%, from $109,000 in 1996 to
$77,000 in 1997 due to a reduction in long-term debt.
23
<PAGE> 29
Income taxes increased $166,000, or 213%, from $78,000 in 1996 to
$244,000 in 1997. The effective tax rate increased 11.2% in 1997 because in
1996 the Company was able to utilize research tax credits and the corporate
surtax exemption.
As a result of the foregoing factors, net income increased $219,000,
or 77%, from $284,000 in 1996 to $503,000 in 1997.
The impact from the acquisition of Mirocon, Inc. can be seen in the
pro forma combined statements of income for the years ended December 31, 1996
and 1997. The Company's historical net income increased on a pro forma basis
by approximately 19% in 1997 as a result of the Mirocon, Inc. acquisition.
Liquidity and Capital Resources
From inception through 1994, the Company funded its operations through
various debt financing obligations, including a line of credit and a Small
Business Administration loan, and working capital. Since 1995, the Company
has met its capital requirements from operating cash flow and from the sale of
certain territories as described above.
In December of 1997, the Company acquired Mirocon, Inc. for
approximately $519,000, of which $100,000 has been paid. The remainder is
evidenced by a note payable of $419,000. The Company has required contractual
payments under the note of approximately $135,000 in 1998. Upon the completion
of this offering, a payment of the lesser of $160,000 or the outstanding
balance on the note is required.
The Company had cash balances of $397,000 at December 31, 1997. In
1997, net cash provided from operations was approximately $1.18 million which
resulted from depreciation, amortization, and the financial carrying value in
assets related to territories sold in 1997. The Company also experienced an
increase in receivables of approximately $326,000. Net cash used in investing
activities was approximately $471,000. Cash payments on the Company's line of
credit and principal payments on long-term debt were approximately $321,000.
Capital expenditures amounted to approximately $563,000, which were partially
offset by the collection of $185,000 on notes receivable associated with the
Indiana Territory sale. Cash used by financing activities was approximately
$357,000. With the exception of scheduled long- term debt repayment of
$442,000, the Company has no other material capital commitments.
The Company's current consolidation plan calls for expansion of
information services through the acquisition of competitors and/or System
Affiliates. While the Company has not determined the number of acquisitions to
be made, it has identified a group of approximately 30 potential acquisition
candidates, although there are no agreements, arrangements or understandings
with any persons or entities as to any acquisition at the present time. The
current use of proceeds from this offering allocates $2.75 million for
acquisitions. Additional funding to complete the consolidation plan will be
required and may come from operations, future public or private equity or debt
financings, the issuance of Company securities to
24
<PAGE> 30
purchase the acquisition candidates, or any combination of the foregoing. No
assurances can be given that the Company will be able to fully implement its
consolidation plan.
Inflation
Although the Company cannot accurately anticipate the effect of
inflation on its operations, the Company does not believe that inflation has
had, or is likely in the foreseeable future to have, a material effect on its
results of operations or financial condition.
Year 2000 Compliance
The Company is aware of the issues associated with the programming
code in existing computer systems as the year 2000 approaches. The "year 2000"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test its systems for year 2000 compliance.
It is anticipated that all reprogramming efforts will be complete by December
31, 1998, allowing adequate time for
25
<PAGE> 31
testing. To date, confirmations have been received from the Company's primary
processing vendors that plans are being developed to address processing of
transactions in the year 2000. Management has not yet completed their full
assessment of the year 2000 compliance expense and related potential effect on
the Company's earnings, although management believes that the costs of
compliance and potential impact on operations will not be material.
Forward Looking Statements
Certain of the information discussed in the Prospectus, and in
particular in this section are forward-looking statements that involve risks
and uncertainties that might adversely affect the Company's operating results
in the future in a material way. Such risks and uncertainties include, without
limitation, the effect of national and regional economic and market conditions,
costs of labor and employee benefits, costs of marketing, costs of telephone
and repository's costs used in the operation of the business, intensity of
competition for locations as well as customers, changes in interest rates,
legal claims, and the availability of financing for the Company consolidation
and expansion plans. Most of these risks are beyond the control of the
Company. Notwithstanding that the safe harbor provided by the Private
Securities Litigation Reform Act of 1995 is inapplicable to offers and sales
pursuant to this Prospectus, investors should use caution when reviewing
forward-looking statements.
26
<PAGE> 32
BUSINESS
GENERAL
The Company provides a broad range of information services to mortgage
and consumer lenders, employers, landlords and other business customers located
throughout the United States. The Company specializes in preparing mortgage
credit reports ("MCRs") that are customized to each mortgage lender's
requirements and transmitted to lenders via the Internet, modem or facsimile.
The Company's larger customers include, among others, NationsBanc/Boatmen's
National, Chase Manhattan Residential, U.S. Home Mortgage, CoreStates Mortgage
and CTX Mortgage. In 1996, the Company was selected to be one of five approved
information vendors for Freddie Mac's automated underwriting system, Loan
Prospector. Based on publicly reported information concerning mortgage loans
originated and refinanced in the United States, management believes the Company
and its System Affiliates are one of the leading suppliers of MCRs in the
United States. The Company and its System Affiliates delivered approximately
1.08 million and 1.43 million MCRs representing gross system billings of
approximately $27.3 million and $31.3 million in 1996 and 1997, respectively.
MCRs supplied by the Company generally fall in three categories:
residential mortgage credit reports ("RMCRs") under which the Company verifies
credit, employment and other information and conducts an in-person or telephone
interview with the loan applicant; residential mortgage credit reports that do
not encompass applicant interviews ("RMCR Jrs."); and Bureau Express reports,
which provide only the merged credit information from the three primary credit
repositories in the United States without the verification performed in RMCRs
or RMCR Jrs. Through its expertise developed in mortgage credit reporting, the
Company has recently expanded its services to include EMPfacts, an employment
screening service, QUICKpeek Identifier, an instant employment screening
service, QUICKpeek Tenant, a credit and employment screening service for use by
leasing agents and landlords, and Corpdata, a credit reporting service on
businesses.
The Company intends to implement a consolidation plan in the MCR
business. The Company believes a favorable environment exists for acquisitions
because of the highly fragmented nature of the industry and the increased cost
of new technologies that generally cannot be afforded by smaller participants
in the market. The Company's consolidation plan envisions the purchase of
unaffiliated companies active in the MCR market as well as System Affiliates.
Consistent with this consolidation plan, the Company concluded the acquisition
of Mirocon, Inc. in December 1997. The Company's consolidation plan is
designed to expand its existing business and take advantage of its core
competencies including, among other things, its highly developed customer
service program, use of sophisticated technology to achieve efficiencies in the
MCR market, development of close working relationships with mortgage lenders,
knowledge of the MCR market and its experienced management team.
27
<PAGE> 33
INDUSTRY
The Company believes the mortgage credit reporting industry is highly
fragmented and consists of approximately 1,400 providers in the United States.
As the primary service of the Company is its MCRs, the Company's business is
directly related to the mortgage lending industry, which enjoyed a near record
year in 1997. Mortgage originations (including refinancings) have been
estimated at $870 billion in 1997, almost 11% higher than the $785 billion in
originations in 1996 and the third-best year ever. The 1997 loan activity
equates to the generation of an estimated 11 million mortgage credit reports1.
In 1997, there were about 4.3 million sales of existing homes and 10
million sales of new homes according to the Mortgage Bankers Association of
America. The Company estimates one million refinancings of existing homes
occurred in 1997. The Company also estimates, based on its historical
experience, that a significant number of applications for residential mortgage
credit were not funded for a variety of reasons during 1997.
According to the Mortgage Bankers Association of America, the outlook
for the remainder of the decade appears stable due to demographics,
particularly the impact of the aging of the baby boom generation, which is
entering its peak earnings period. Presently, home ownership rates are
approximately 66% for the 35-to-44 age group, 75% for the 45-to-54 age group
and 80% for the 55-to-64 age group. Although population growth and household
formation rates are projected to slow during the next 10 years, population
growth within the top earning groups -- ages 45-to-54 and 55-to-64 -- is
projected to increase. Management believes that interest rates will remain
relatively stable in 1998. Thus, if the foregoing home ownership and interest
rate trends continue, demand for MCRs should continue, although such results
cannot be assured.
The mortgage credit reporting industry provides a valuable service to
the lending industry due to its report formatting and verification services.
Millions of pieces of credit data are furnished unverified to the three major
credit repositories from lenders and creditors worldwide. Due to the volume of
information and lack of verification at the credit repository level,
significant inaccuracies of information can occur in an individual's credit
file which must be verified and accurately reported.
Historically, mortgage credit reporting entities have performed these
services by manual verification in the form of calling creditors, lenders,
employers, landlords, and other businesses directly to verify information, and
reviewing public files and other information sources. However, the industry
has been undergoing significant change in terms of how services are requested,
how information is delivered, and the format in which the data is returned.
These changes have been driven by the advances in computer software and
hardware, along with advances in communications technology. The mortgage
lending industry, along with other
- ---------------
(1) Source Department of Housing and Urban Development and the Mortgage Bankers
Association of America.
28
<PAGE> 34
users of credit information, expect quick turnaround of accurate reports in a
customized format in order to facilitate their lending decisions. Thus, the
Company believes that entities involved in mortgage credit reporting must
continually develop and maintain sophisticated computer and communication
technology to compete. Due to the costs and technical competence required to
keep abreast of technological advances in the industry, the Company believes
that the credit reporting industry will consolidate, and that the market may be
dominated by a handful of companies that have proven technological capabilities
and diversified product lines.
BUSINESS STRATEGY
The Company intends to expand its present business operations and to
develop new opportunities by, among other things, pursuing the following
strategies:
o Acquire System Affiliates and Competitors to Expand Business. The
Company intends to expand its business operations by purchasing
certain of its System Affiliates as well as purchasing competing
businesses. While the Company has not determined the number of
acquisitions to be made, it has identified approximately 30 potential
acquisition candidates from the approximately 1,400 mortgage credit
reporting companies in the United States, although there are no
agreements, arrangements or understandings with any persons or
entities as to any acquisition at the present time. The Company
believes its consolidation plan will result in substantial savings in
accounting, administrative and technology expenses, and that marketing
of its ancillary services can be accelerated through acquisitions.
The Company may use cash, stock, or a combination thereof, to effect
any such acquisitions.
o Capitalize on Sophisticated Technology. The Company believes its
technology is state-of-the-art, and to preserve this advantage, it
employs 15 technical persons, seven of whom are software programmers,
to continually upgrade its electronic capabilities and develop new
applications. The Company has budgeted a portion of the proceeds of
this offering to the continued maintenance and development of its
technology. If funds from operations or external financing sources
permit, the Company will devote additional resources to technological
development and implementation. The Company believes that speed and
accuracy of service, which are directly related to its technical
ability, are critical to the Company's growth and success.
o Accelerate Market Penetration. The Company intends to accelerate its
market penetration throughout the United States by expanding and
refining sales and marketing techniques used by it over the past
several years, including: (i) face-to-face selling with prospective
customers, consisting primarily of larger companies; (ii) in-house
telemarketing to existing and prospective customers who have shown an
interest in purchasing the Company's services; (iii) public relations
efforts; (iv) participation in trade shows and seminars; (v)
advertising in trade publications; (vi) maintaining a web page on the
Internet; and (vii) mailing of quarterly news releases to existing and
prospective customers.
29
<PAGE> 35
o Increase Revenue and Customer Convenience by Offering Additional
Services. The Company intends to increase revenue and customer
convenience by providing one-stop shopping for its customers through
expanded services. The Company will attempt to accomplish this by
"bundling" with its MCRs the services of third party vendors that
provide appraisals, title insurance, flood certification and title
searches. The Company's strategy is to receive a commission or
discount on such services in order to enhance its revenues while
better serving its customers. The Company has already begun to
implement this strategy as it is currently offering flood
determination certificates through a third party vendor.
o Increase Quality Customer Service and Support. The Company intends to
expand and enhance its customer service and support program by: (i)
providing customer service representatives on-call for 12 hours a day
Monday through Friday; (ii) performing additional in-house training of
all franchisees, licensees and customer service representatives with
regard to the Company's services; (iii) enhancing quality control
checks on the Company's services; and (iv) revising, when appropriate,
minimum acceptable performance guidelines for employees. In addition,
the Company realizes the importance of employees to the success of its
operations and, therefore, strives to provide a positive work
environment and benefit package for employees.
RECENT ACQUISITION
In December 1997, the Company acquired the business of one if its
franchisees, Mirocon, Inc., for $519,000, of which $100,000 has been paid. The
remaining $419,000 of the purchase price is evidenced by a note to the seller
which requires five monthly principal-only payments of $7,000 beginning in
February 1998 with the remaining balance of $384,000 to be amortized over 55
months bearing interest at 8% per annum commencing June 1998. The terms of the
note also provide that upon closing of this offering, the Company is to pay at
least $160,000 towards the remaining balance of the note, and any amount
remaining outstanding after such payment is to be paid in 24 equal monthly
installments without interest. See "Use of Proceeds." The Company believes
this acquisition is typical of similar acquisitions that it could make upon
availability of funding.
MORTGAGE CREDIT REPORTS
The Company specializes in preparing MCRs that are customized to each
mortgage lender's requirements and transmitted to lenders via the Internet,
modem or facsimile. MCRs supplied by the Company generally fall in three
categories: RMCRs, under which the Company verifies credit, employment and
other information and conducts an in-person or telephone interview with the
loan applicant; RMCR Jrs., which do not encompass applicant interviews; and
Bureau Express Reports, which provide only the merged credit information in a
user-friendly integrated report from the three primary national credit
repositories in the United States without the Company verification performed in
the RMCRs or RMCR Jrs. Bureau Express Reports are typically compiled by the
Company's proprietary system in less than 60 seconds,
30
<PAGE> 36
free of duplication. The system also provides a means to resolve
inconsistencies between the credit repositories' information.
The following graph sets forth information concerning the annual
volume of MCRs performed by the Company and its System Affiliates for the years
indicated:
MORTGAGE CREDIT REPORT VOLUME
[CHART]
The following graph sets forth information concerning the annual
volume of Bureau Express Reports performed by the Company and its System
Affiliates for the years indicated:
BUREAU EXPRESS REPORT VOLUME
[CHART]
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<PAGE> 37
The Company's MCR services are fully automated. Mortgage lenders
submit credit applications to the Company via facsimile or computer modem.
Depending on the type of MCR requested, applications are assigned to credit
investigators who poll the three credit repositories for credit reports, verify
credit information, residence history and employment history for the last two
years, check or verify legal proceedings and tax liens and conduct an interview
with the applicant regarding all the information obtained. If any
discrepancies are uncovered during the investigation, the Company contacts the
applicant and conducts a conference call with the reporting entity to clear up
the matter.
Once the report is completed, the Company delivers the report directly
to the mortgage lender's computer or by transmission via facsimile. In the
future, the Company hopes to receive most applications into its computer system
via the Internet. This technology has been implemented on a limited basis to
date, but the Company believes most mortgage lenders will eventually use the
Internet for most, if not all, of their communication needs. All report forms
are customized according to each lender's requirements and generated by the
Company's proprietary and non-proprietary computer system, thereby eliminating
the need for a stockpile of forms and effectively reducing overhead costs.
Credit reports are printed using state-of-the-art laser technology. Lenders
can choose to interface directly with the Company using their own mortgage
origination or processing software. The Company can also remotely laser print
completed credit reports in the lender's office. The Company provides its
customers with proprietary software which allows electronic ordering and
retrieval of reports. The Company effectively provides the lenders with all
report forms because the reports are generated by the computer system. The
Company also adapts its computer generated forms and reports to comply with
different state requirements.
To capture more of the market and to provide one stop shopping for its
customers, the Company is expanding its service line to include other services
required by mortgage lenders such as appraisals, title insurance, flood
certification and title searches, which the Company calls "bundled services."
Generally, the Company provides such bundled services through third party
providers, and the Company receives revenue by way of a commission or the
spread between the retail price paid by the customer and a wholesale price paid
by the Company. The Company also provides outsourcing to its customers,
generally on an "overflow basis." In effect, the Company acts as the loan
processor by compiling a complete loan application, with all required reports.
The lender needs only to approve the loan via its loan committee. This service
constitutes a small percentage of the Company's overall revenue. However, as
the trend to outsourcing of services continues, management of the Company
anticipates this service may constitute a larger portion of its revenue,
especially during periods of significant mortgage refinancings.
The Company certifies to lenders that its MCRs meet standards required
by Freddie Mac, Fannie Mae, the Veterans Administration, the Federal Housing
Administration, and the Rural Housing Service.
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<PAGE> 38
The Company has developed a program to assist lenders to low and
moderate income applicants with its Form 1003 Supplement. Determining such a
borrower's creditworthiness involves developing his/her credit history.
However, many low to moderate income borrowers do not always use the types of
credit traditionally reported to the credit repositories. Through the use of
the Company's Affordable Housing 1003 Supplement Form, the gap between
traditional and non-traditional credit is bridged. Credit history is developed
through verifying non-traditional credit such as utilities, car insurance,
child care, furniture rental, loans from employers, payments to savings
accounts, and automatic deductions from paychecks.
OTHER SERVICES
Although MCRs are, and are expected to remain, the Company's principal
business activity, it is developing additional services which it intends to
aggressively market in the future. The following describes the more important
of these services.
EMPfacts. Management of the Company believes employment screening is
a growing industry due in large part to the legal consequences of negligent
hiring, as well as the desire and necessity for employers to hire the best
applicants. The Company's EMPfacts employment screening services offer
state-of-the-art, accurate background checks that verify an applicant's
professional, educational and personal history. EMPfacts offers individual or
bundled screening services in the following areas:
o Substance Abuse Testing
o Motor Vehicle Record (MVR)
o Worker's Compensation History
o Public Records Information
o Fraud Searches
o Criminal History
o Education Verification
o Financial Reports
o Property Search
o Employment Verification
o Social Security Number Search
o Professional License Verification
o Psychological Testing
33
<PAGE> 39
The following graph sets forth information concerning the annual
volume of EMPfacts reports performed by the Company and its System Affiliates
for the years indicated:
EMPFACTS REPORT VOLUME
[CHART]
QUICKpeek Identifier. The Company's QUICKpeek Identifier system
enables customers, via Windows compatible software, to receive an instant
report, in 60 seconds or less, which can be viewed on screen or printed. By
entering a person's name, address and social security number, QUICKpeek
Identifier provides employment information, public records and fraud search,
financial summaries and residence information. The QUICKpeek Identifier
program commenced in January 1997. The Company is in the process of developing
various marketing strategies to further its implementation.
QUICKpeek Tenant. The Company has designed a system specifically for
leasing agents and landlords with respect to rental property. The system
checks and reports information regarding a proposed tenant through credit
repository inquiries, employment history, public records, residence history,
payment habits, criminal and eviction data. This program was also initiated in
1997.
In 1997, a combined 4,587 QUICKpeek Identifier and QUICKpeek Tenant
searches were performed.
Corpdata. The Company also offers Corpdata, its credit reporting
service on small, medium and large sized businesses. Commercial credit
repositories sometimes do not have information on businesses and users can
often expect to receive a "No Record" response when seeking information on
businesses. Corpdata obtains credit information and other data about such
businesses which can be customized to meet customer needs.
34
<PAGE> 40
SYSTEM AFFILIATES
From 1989 to 1993, the Company pursued a strategy of franchising its
MCR system. The Company earns fees based on each franchisee's use of its
system to generate reports for the franchisees' customers. In 1993, the
Company terminated its franchise program and began entering into licensing
agreements whereby licensees utilize the Company's systems to service their
customers in return for the payment to the Company of a percentage of their
gross billings. The Company presently has 29 franchisees and 35 licensees, the
majority of which are networked with the Company's Technology Center.
The Company's System Affiliates currently provide significant revenue
to the Company. For the years ended December 31, 1996 and 1997, System
Affiliates provided 36% and 55%, respectively, of the revenue of the Company.
Franchises. The following table sets forth certain information at
December 31,1997, about the geographic location of the Company's 29 franchises.
<TABLE>
<CAPTION>
MCR FRANCHISES
<S> <C> <C>
Number of
Franchises State
---------- -----
1 Arizona
2 California
1 Colorado
2 Florida
2 Georgia
1 Illinois
1 Indiana
1 Kansas
1 Michigan
1 Minnesota
1 Missouri
1 Nevada
Number of
Franchises State
---------- -----
1 New Jersey
1 New Mexico
1 North Carolina
1 North Dakota
1 Ohio
1 Pennsylvania
1 South Carolina
1 South Dakota
1 Tennessee
2 Texas(1)
1 Utah
1 Washington
1 Wisconsin
_________________
</TABLE>
(1) One of the Texas franchisees owns the Arizona and New Mexico
franchises.
35
<PAGE> 41
The Company has a standard Franchise Agreement that it has entered
into with its franchisees. While all agreements may not be completely uniform
due to modifications made pursuant to negotiations with each franchisee, in
general, the Franchise Agreements include the following provisions, among
others:
o Franchisees are permitted to use the Company's trademarks in a
specified territory for the purpose of providing MCRs.
o Franchisees are provided with an operational manual, interface
software and several months of training in connection with using the
Company's software and systems for producing MCRs.
o The term of the Franchise Agreement is generally 10 years and is
automatically extended unless (i) the franchisee declines to extend in
writing, or (ii) the Company declines to extend due to the franchisee
failing to comply with the Franchise Agreement, subject to a 30 day
cure period. In addition, the Franchise Agreement may also be
terminated by the Company upon notice if the franchisee becomes
insolvent, bankrupt or makes an assignment for the benefit of
creditors, or if the franchisee is in default under the Franchise
Agreement.
o The Franchise Agreements sometimes required an initial fee based on
the population of the franchisee's territory. In addition,
franchisees are required to pay a monthly royalty fee based on gross
revenues.
Also, franchisees are required to pay monthly fees as follows:
(a) 3% of all gross billings in connection with any out-sourced
"bundled services" provided by the Company; and
(b) a communication fee.
o Typically, franchisees may not transfer or assign the Franchise
Agreement and related rights without the written consent of the
Company. In addition, the Franchise Agreement generally provides for
a right of first refusal in favor of the Company when a franchisee
receives a bona-fide offer to purchase its business.
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<PAGE> 42
Licenses. The following table sets forth certain information about
the geographic location of the Company's 35 licenses in effect at December 31,
1997, of which 18 are MCR licenses and 17 are EMPfacts licenses.
<TABLE>
<CAPTION>
MCR LICENSES
<S> <C>
Number of
Licenses State
-------- -----
5 Alabama
1 Arkansas
1 California
1 Florida
1 Illinois
1 Iowa
Number of
Licenses State
--------- -----
1 Louisiana
1 Montana
1 New Hampshire
1 New York
3 Pennsylvania
1 Wyoming
EMPFACTS LICENSES
Number of
Licenses State
--------- -----
1 Alabama
1 Colorado
1 Florida
2 Illinois
1 Indiana
1 Iowa
1 Louisiana
Number of
Licenses State
--------- -----
1 Missouri
1 New Jersey
1 Ohio
2 Pennsylvania
1 Texas
2 Washington
1 Wisconsin
</TABLE>
The Company has a standard License Agreement that it enters into with
its licensees. While all licenses may not be completely uniform due to
modifications made pursuant to negotiations with each licensee, in general, the
License Agreements include the following provisions, among others:
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<PAGE> 43
o Licensees are permitted to use the Company's trademarks in a specified
territory for the purpose of providing MCRs and other Company
services.
o Licensees are provided with an operational manual and approximately a
week of training in connection with using the Company's software and
systems.
o The term of the License Agreement is generally three years unless
earlier terminated and is automatically extended for another three
years unless terminated by either party upon at least 60 days advance
written notice. In addition, the Company (i) has the right to suspend
services if the licensee fails to pay any amounts due pursuant to the
License Agreement within 30 days, (ii) has the right to immediately
terminate the license if the licensee utilizes any other mortgage
credit reporting software, and (iii) has the right to compete with the
licensee or grant other licenses in the licensee's territory if the
licensee breaches any material term of the License Agreement.
o The License Agreements can require an initial fee based on the
population of the licensee's territory, although such fee is waived in
many instances. In addition, licensees are required to pay monthly
fees as follows:
(a) the greater of a fixed amount or percentage of all gross
billings of the licensee from MCRs or other Company services;
(b) 3% of all gross billings in connection with any out-sourced
"bundled services" provided by the Company; and
(c) a communication fee.
As to both franchisees and licensees, the Company provides access to
its Technology Center (computer network system), updates to its software,
hardware and software support, training and marketing support, and the right to
use the Factual Data trademark and trade name. Some franchisees and licensees
service states outside of their office location.
The Company presently operates two offices, both located in Colorado,
which market services in the following jurisdictions: Alaska, Colorado,
District of Columbia, Hawaii, Texas, Virginia, New Hampshire and West Virginia.
Between the Company operated offices and System Affiliates, the Company
believes it provides service to lenders in all states in the continental United
States.
SUPPLIERS
The Company relies heavily on the three national credit repositories
- -- Experian, Inc. TransUnion, Inc. and Equifax, Inc. -- and is on-line with
these repositories 24 hours per day. Each repository credit file contains the
following information which the Company accesses by computer modem:
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<PAGE> 44
Identifying Information - name, address, former address, social
security number, and employment.
Credit History - balances and payment history of credit cards, finance
companies, banks, mortgage loans, accounts referred for collection and
accounts written off.
Public Records - tax liens, civil judgments, bankruptcies,
foreclosures.
Inquiries - credit grantors or authorized parties are listed as
inquiries when they have requested a copy of a credit file.
The Company also obtains other information, such as criminal and motor
vehicle history, from other third party suppliers from time to time. The
Company pays each repository a fee per completed inquiry.
New technology continues to be developed in the mortgage industry and
by major lenders to facilitate underwriting capability through artificial
intelligence systems. These systems require electronic information so that
decisions can be completed in minutes. The Company is one of five credit
vendors authorized to provide information to Freddie Mac's Loan Prospector
underwriting system which utilizes this advanced technology. Other value added
networks (private networks used to facilitate commercial communications) and
systems are currently being developed or tested by the Company.
TECHNOLOGY CENTER
The Company believes that the credit reporting industry will continue
to move to automated operations driven by comprehensive computer software,
hardware and communications programs and equipment. The Company is committed
to maintaining and developing leading technology to increase its customer
service. The following summarizes the Company's current technology.
Hardware. The Company's Technology Center is the nerve center for
customer and vendor communications. The Technology Center is designed to
provide services faster and less expensively than many competitors. Since
1996, the Company has experienced minimal downtime at its Technology Center due
to redundancy and on-line monitoring.
Systems in the Technology Center are non-proprietary Windows 95 or
Windows NT based Intel platforms. Each system has at least one backup, and can
be repaired or replaced easily and cheaply. The server platform is Windows NT
with a mirrored server that can replace the primary server in minutes if
necessary. Backup power is available to the servers to ensure up to 45 minutes
of uninterrupted power. Networking is achieved through four 100Base-TX
backbone connections to four 3COM Network switches.
The Company works closely with its vendors to ensure high speed and
reliability. High-speed repository bureau lines allow it to pull up to 18,000
files per hour. The Company's
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<PAGE> 45
systems automatically move to backup lines when necessary. System availability
is monitored continuously, and a technical support specialist can be paged
within 60 seconds if an outage is detected on either the primary or secondary
systems.
Service requests are delivered through the Company's computer system.
This system offers high speed and high volume capabilities. Call capacity is
greater than 10,000 calls per hour, up to the speed of the communications
equipment of its customers. Redundancy is achieved by sending fully redundant
connections to national hosts in Cheyenne, Wyoming as well as Amarillo, Texas.
The Company is connected to its outside offices through use of the Internet.
The Technology Center has primary and secondary Internet connections through
two different Internet Service Providers ("ISP"). Each office has a primary
dedicated connection to the Internet as well as a secondary dial-up connection
through two separate ISPs. Data flowing to and from the Technology Center is
secured by means of public key encryption technology and protected login
passwords.
Software. The Company uses proprietary software developed in-house
over the past 13 years. The Company believes its proprietary software allows
it to remain competitive in an increasingly competitive marketplace. The
Company's software was originally written in 1984, and began full production
use in 1985. From 1987 through 1997, the Company significantly developed and
expanded its software capability including its ability to completely customize
reporting forms to the various requirements of each customer. The Company has
moved to Microsoft Visual Studio for the majority of its new programs. The
Company employs 15 persons in its Technology Center of whom seven are software
programmers, and the others are full-time hardware and telecommunications
specialists.
COMPETITION
The MCR industry is highly fragmented. The Company faces both direct
and indirect competition for its services. There are a large number of
companies engaged in the sale of one or more of the services offered by the
Company, and the Company believes that this number will increase. A
significant number of these competitors are small companies operating on a
local scale while a limited number are large companies operating on a national
scale. Management believes there are approximately 1,400 companies in the
United States providing MCR services. Certain of these competitors, including
The First American Financial Corp., CBC Companies, Inc., TransUnion
Corporation, Equifax Credit Information Services, Inc., Informative Research
and Credit Data Kingston, are significantly larger and have greater financial
and marketing resources than the Company. The Company and its System
Affiliates combined are believed by management to account for less than 10% of
national MCRs delivered annually. The Company faces intense competition not
only from the above sources, but various companies engaged in employment and
tenant application verification services.
The primary competitive factors in most of the Company's existing and
contemplated related service areas are customer service, service accuracy, easy
to read reports, technological sophistication and speed of delivery, price and
name recognition. The Company believes that one of its most significant
advantages is its software and communications
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<PAGE> 46
technology. Management believes that the industry is moving towards an
automated credit reporting system which mandates quick turnaround of reliable,
user-friendly credit reports. The Company believes it has state-of-the-art
technology which allows it to compete favorably in the credit reporting
industry. In order to maintain this perceived advantage, the Company currently
has 15 employees assigned to the development and maintenance of the Company's
proprietary software and communications technology.
GOVERNMENT REGULATION AND PRIVACY ISSUES
The Company is a "consumer reporting agency" within the meaning of
that term as used in, and therefore is subject to, the provisions of the Fair
Credit Reporting Act (referred to herein as the "FCRA") and is regulated by the
Federal Trade Commission ("FTC") under the Federal Trade Commission Act. Under
the provisions of the FCRA, a consumer reporting agency may furnish a "consumer
report" in response to the order of a court having jurisdiction or in
accordance with written instructions of the consumer. Such information may
also be furnished to a person the Company has reason to believe intends to use
the information: (i) in connection with a credit transaction; (ii) for
employment purposes; (iii) in connection with the underwriting of insurance;
(iv) in connection with a determination of the consumer's eligibility for a
license or other benefit granted by a governmental instrumentality required by
law; (v) as a potential investor or servicer or current insurer, in connection
with a valuation of, or an assessment of the credit or prepayment risks
associated with, an existing obligation; or (vi) to a person who otherwise has
a legitimate business need for the information. The FCRA prohibits disclosure
of obsolete information concerning a consumer. Obsolete information generally
means information which is more than seven years old.
The FCRA requires a consumer reporting agency to maintain reasonable
procedures designed to ensure that the proscriptions on the use of obsolete
information are not violated, and that the information contained in a consumer
report is provided for a permissible purpose. In addition, a consumer
reporting agency must follow reasonable procedures to assure maximum possible
accuracy of the information concerning the consumer about whom the report
relates. The FCRA also requires a consumer reporting agency, upon request from
a consumer, to disclose all information about that consumer in its files,
together with the source and the recipients of the information. In some cases,
this information must be delivered to the consumer at no cost, and, in others,
the agency may charge a reasonable fee.
The FCRA provides that an investigative consumer report may not be
prepared on any consumer unless (1) such consumer receives notice thereof in
writing not later than three days after the date on which the report was first
requested, which must include a statement, among others, that the consumer has
the right to request complete disclosure of the nature and scope of the
investigation requested, or (2) the report is to be used for employment
purposes for which the consumer has specifically applied. The FCRA further
provides that if the consumer requests disclosure of the information, the
consumer reporting agency must make such disclosure in writing not later than
five days after the date on which the request for disclosure was received. A
consumer reporting agency may not be held liable for any violation of the FCRA
provisions relating to investigative consumer reports if that agency shows by a
41
<PAGE> 47
preponderance of the evidence that at the time of the violation such agency
maintained reasonable procedures to assure compliance with those provisions.
Of the Company's current services, employment and reference checks may be
investigative consumer reports for purposes of the FCRA.
The FCRA provides for civil liability sanctions against a consumer
reporting agency by a consumer for willful or negligent noncompliance with the
FCRA and criminal sanctions against officers and directors thereof who
knowingly and willfully disclose information in a report to a person not
authorized to receive the information.
State laws also impact the Company's business. There are a number of
states which have laws similar to the FCRA, and some states which have human
rights laws much like the Americans with Disabilities Act ("ADA"). In
addition, to the Company's knowledge, at least four states require companies
engaged in investigative reporting, such as EMPfacts, to be licensed in order
to conduct business within those states. A large number of states also
regulate the type of information which can be made available to the public
and/or impose conditions to the release of the information. For example some
state laws prohibit access to certain types of information, such as workers'
compensation histories or criminal histories, while others restrict access
without a signed release from the subject of the report. In addition, many
privacy and consumer advocates and federal regulators have become increasingly
concerned with the use of personal information. Attempts have been made and
will continue to be made by these groups to adopt new or additional federal and
state legislation to regulate the use of personal information. Existing
federal and/or state laws, future modifications thereto, or laws enacted in the
future regulating consumer reporting agencies or access and use of personal
information, in particular, and privacy and civil rights, in general, could
materially adversely impact the Company's operations.
The nature of the Company's business requires it to have certain
licenses and qualifications to do business in various states. Management
believes it has all material licenses, permits and qualifications necessary to
the conduct of its business.
LEGAL CONSIDERATIONS
Under general legal concepts and, in some instances, by specific
federal or state statute, the Company could be held liable to customers and/or
to the subjects of reports for inaccurate information prepared by the Company
(which is not corrected after proper notice) or for misuse of the information.
The FCRA contains civil liability provisions for willful and negligent
noncompliance with its requirements. The FCRA further provides in effect that,
except for liability for willful or negligent noncompliance with the FCRA and
false information furnished with malice or willful intent to injure a consumer,
neither a consumer reporting agency, any user of information nor any person who
furnishes information to a consumer reporting agency will be liable to the
consumer for defamation, invasion of privacy or negligence based on information
provided on such consumer under the provisions of the FCRA.
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<PAGE> 48
The Company has developed and implemented internal policies designed
to help ensure that background information retrieved by it concerning a
consumer is accurate and that it otherwise complies with the provisions of the
FCRA. In addition, each customer of the Company is required to sign an
agreement, wherein such customer agrees, among other matters, to accept
responsibility for using information provided by the Company in accordance with
the provisions of the FCRA and the ADA. The Company also has internal checks
in place regarding access and release of such information. Additionally, the
Company requires that all employees sign a written acknowledgment covering the
proper procedures for handling confidential information.
SOFTWARE DEVELOPMENT COSTS
The Company incurs research and development costs associated with the
development and improvement of software utilized in its credit information and
delivery system. In 1996, software development costs associated with
internally developed software used to support System Affiliate revenues and
information service sales were expensed as incurred by the Company.
In 1997, the Company adopted the provisions of a proposed Statement of
Position on Accounting for Costs of Computer Software Developed for Internal
Use. Direct costs incurred in the development of software which has reached
technological feasibility are capitalized. The Company ceases capitalization
of development costs once the software has been substantially completed and is
available for general use by System Affiliates, mortgage lending institutions
and other business customers. Software development costs are amortized over
their estimated useful lives of three years. See Note 3 to the Consolidated
Financial Statements for information concerning the Company's accounting
policies for software costs.
INTELLECTUAL PROPERTY
The Company has not yet adopted a formal intellectual property
protection program, and currently relies on a combination of trademark,
servicemark, copyright, trade secret and contract protection to establish and
protect its proprietary rights in its services and technology. There can be no
assurance that such measures will provide meaningful protection to the Company.
The Company currently maintains approximately 43 trademarks, servicemarks and
copyrights all of which it believes are properly filed and recorded. The
Company does not have any knowledge of infringement of its proprietary rights.
FACILITIES
The Company leases its corporate office which is located in Fort
Collins, Colorado. The lease expires in April 1998, at which time the Company
will locate its corporate office to a nearby building now under construction in
Loveland, Colorado and commence a 20 year operating lease. The new lease calls
for annual lease payments of the lesser of 11% of the total construction costs
for the premises once completed or $236,000, plus applicable taxes, maintenance
and insurance. The rent increases 15% every five years for the duration of the
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<PAGE> 49
lease. The Company anticipates the new space to be leased will be adequate to
meet the Company's office requirements for the foreseeable future.
The Company assumed the lease obligations of its franchisee, Mirocon,
Inc., when it purchased the assets of Mirocon, Inc. on December 1, 1997. The
lease requires monthly payments of $2,400 and expires on August 31, 2000.
However, the Company plans on exercising a provision of the lease which allows
early termination at the end of August 1998 upon the payment of $2,500.
INSURANCE
The Company maintains commercial general liability and property
insurance. The policy provides for a general liability aggregate limit of $2
million. In addition, the policy also provides for products/completed
operations, business auto and personal property coverage.
EMPLOYEES
The Company employs 37 persons on a full-time basis in its corporate
headquarters in Ft. Collins, Colorado. There are no union or collective
bargaining agreements between the Company and its employees and employee
relations are considered by management to be excellent. Approximately 14
employees have been employed by the Company for five years or more. The
Company retains consultants from time to time as needed.
HISTORY OF THE COMPANY
Factual Data Corp was incorporated in the State of Colorado in 1985.
The Company was established for the purpose of providing value added
information services nationally to financial institutions primarily in the
mortgage lending industry.
In late 1986, the Company began its conversion from a manual operation
to an automated processing system to reduce labor costs and speed the delivery
of services from an average 3 to 4 day turnaround to a more aggressive 1 to 2
day turnaround for a typical MCR. In 1986 a single software engineer began
work on the Company's software system for mortgage credit reporting. Today the
Company has 15 employees assigned to the development and maintenance of the
Company's software.
The Company recognized the importance of having national coverage in
order to compete for the larger national accounts while maintaining a local
presence and individualized MCR services. With limited capital resources, the
Company initially elected to franchise its MCR operations in order to achieve
the goal of national coverage. The first franchise, located in Loveland,
Colorado was sold in 1989. As of December 1, 1997, the Company, as part of its
new acquisition plan, purchased the business of this franchisee. In 1992, the
Company began licensing its proprietary software to existing consumer reporting
agencies ("CRAs"). The Company discontinued selling franchises in late 1995
and continued to license its software and techniques to existing CRAs through
1997.
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<PAGE> 50
In late 1996, a newly completed employment screening service, EMPfacts
was introduced. EMPfacts services are used by employers for screening
potential and current employees. Background checks include criminal records,
professional license and education verifications, employment and residence
verifications, worker's compensation, driver's license records, financial
summaries and public records information. Substance abuse testing and
psychological testing are provided through the use of third party services.
The QUICKpeek Identifier was added to the EMPfacts services in late
1996. Placed on the customer's computer system, this Windows(TM) based
software allows the customer on-line access to employment and residence
history, social security number confirmation, fraud investigation, and
financial and public records history.
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jerald H. Donnan 52 Chairman of the Board, Chief Executive Officer and President
Marcia R. Donnan 53 Executive Vice President
Todd A. Neiberger 33 Chief Financial Officer and a Director
Russell E. Donnan 33 Vice President
James N. Donnan 26 Vice President and a Director
Robert J. Terry 57 Director
Abdul H. Rajput 50 Director
</TABLE>
The Company's Articles of Incorporation provide for a Board of
Directors of not less than one nor more than seven directors. The current
Board of Directors consists of five members. All directors hold office until
the next annual meeting of shareholders, or until their successors have been
elected. Officers serve at the discretion of the Board of Directors, except
for Jerald H. Donnan and Marcia R. Donnan who are employed pursuant to
employment agreements. See "--Employment Agreements" below.
JERALD H. DONNAN, Chairman of the Board, Chief Executive Officer and
President, has been with the Company since its incorporation in January 1985.
He is responsible for oversight of corporate development and services, and is
responsible for operations, technical development and policies and procedures.
Mr. Donnan's early career experience includes 15 years with Avco Financial
Services, Inc. where he was responsible for lending and collecting a
multi-hundred million dollar portfolio and managing geographically diverse
branches with many of employees. Mr. Donnan was a founding member and past
president of the National Credit Reporting Association, a trade association
founded to promote ethical standards and fair competition within the credit
reporting industry.
MARCIA R. DONNAN, Executive Vice President, has been with the Company
since its incorporation in January 1985. She is responsible for compliance
with the FCRA and all other federal, state and local laws as they apply to the
gathering, processing and distribution of credit information. Staff training
and education are also areas of her primary responsibility. Ms.
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<PAGE> 52
Donnan spent 15 years in credit reporting with Credit Information Systems
(formerly Credit Bureau of Council Bluffs, Inc.) as operations manager, prior
to co-founding Factual Data Corp. in 1985. Ms. Donnan is active in two credit
reporting associations and she concluded a second term as a director of
Associated Credit Bureaus, Inc. in January, 1997.
TODD A. NEIBERGER, Chief Financial Officer and a Director, joined the
Company in March 1995. Mr. Neiberger graduated from the University of Northern
Colorado in 1987 with a degree in accounting. Mr. Neiberger has 10 years
experience in staff, senior and management level positions with various public
accounting firms. From 1994 through 1995, he served as the audit manager of
Rickards & Co. P.C., and from 1991 through 1993 he served as the tax manager
for Krutchen & Co., both Fort Collins, Colorado based certified public
accounting firms. From 1988 through 1990 he was employed with Lemke, Feis &
Co., P.C., a certified public accounting firm, as a staff and senior level
accountant in the audit and tax department. Mr. Neiberger is a Certified
Public Accountant and a member of the Colorado Society of Certified Public
Accountants and the American Institute of Certified Public Accountants.
RUSSELL E. DONNAN, Vice President, has been employed by the Company
since August 1993. He is responsible for technical project management for
software and support services. Before coming to Factual Data Corp, he was a
senior design engineer at Apple Computer in the Power Book division from
February 1992 to August 1993. He is experienced in the super computer field
and was previously employed by Convex Computer (1990-1992) and as a founding
member and employee of Key Computer (1988-1990), now a subsidiary of Amdahl
Corporation. Mr. Donnan graduated from Ohio State University in 1987 with a
degree in electrical engineering.
JAMES N. DONNAN, Vice President and a Director, has been employed by
the Company on a full-time basis since 1994, and prior to that, on a part-time
basis since 1986. He is responsible for management of the Company operated
mortgage credit reporting production offices and EMPfacts employment screening
operations. His duties also include overall sales, growth and customer service
development. Mr. Donnan graduated from Colorado State University in 1994 with
a degree in history.
ROBERT J. TERRY has been a Director since February 1998. From
February 1994 to his retirement in January 1998, Mr. Terry served as a
director, president and chief operating officer of Mail-Well, Inc., a publicly
traded envelope manufacturer and printing company. From January 1992 to
February 1994, Mr. Terry served as executive vice president of Mail-Well
Envelope, a subsidiary of Georgia Pacific. From June 1989 to December 1991,
Mr. Terry served as regional vice president for Butler Paper in Englewood,
Colorado. Mr. Terry obtained a Bachelor of Science degree in Business from
DePaul University in 1963 and attended the Executive Program at the University
of Michigan in 1988.
ABDUL H. RAJPUT has been a Director since February 1998. Since 1991,
Mr. Rajput has been employed in San Diego, California, by Bank of America, a
federal savings bank, a subsidiary of Bank America Corp., where he currently
holds the position of executive vice
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<PAGE> 53
president, administrative services. Since 1990, Mr. Rajput has also owned and
operated Factual Data Minnesota, Inc., one of the Company's franchises which
operates in Minnesota and Iowa. From 1980 to 1989, Mr. Rajput was employed by
Green Tree Financial Corp., St. Paul, Minnesota, initially as vice president
and then senior vice president for administration. Mr. Rajput also serves on
the board of directors of Security Pacific Housing Services, Inc. Mr. Rajput
obtained a Bachelor of Science degree in Mathematics and a Master of Science
degree in Statistics from the University of Sind, Pakistan, in 1968 and 1970,
respectively.
Russell and James Donnan are sons of Jerald and Marcia Donnan who are
husband and wife.
DIRECTOR COMPENSATION
Employee directors of the Company do not receive any fixed
compensation for their services as directors while non-employee directors
receive compensation of $7,500 annually plus a $500 travel allowance per
calendar quarter. Messrs. Terry and Rajput, the Company's two non-employee
directors, will each be issued options to purchase 5,000 shares of Common Stock
upon the completion of this offering. See "--Stock Incentive Plan."
BOARD COMMITTEES
The Company has two Committees, an Audit Committee and Compensation
Committee. Messrs. Terry and Rajput, the two independent directors, serve on
each committee. Mr. Jerald Donnan, President of the Company, also serves on
each committee.
The primary function of the Compensation Committee is to review and
make recommendations to the Board with respect to the compensation, including
bonuses, of the Company's officers and to administer the Stock Incentive Plan.
The function of the Audit Committee is to review and approve the scope of audit
procedures employed by the Company's independent auditors, to review and
approve the audit reports rendered by the Company's independent auditors and to
approve the audit fee charged by the independent auditors. The Audit Committee
reports to the Board of Directors with respect to such matters and recommends
the selection of independent auditors.
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded by the Company to
Jerald H. Donnan, its Chief Executive Officer and President, and Marcia R.
Donnan, its Executive Vice President, for services rendered during fiscal 1995,
1996 and 1997. Jerald H. Donnan and Marcia R. Donnan are husband and wife. No
person serving as an executive officer as of February 1, 1998 or any former
officer received compensation in excess of $100,000 during the reported years.
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<PAGE> 54
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
---------------------------- -------------------- --------
Other
Annual Restricted Other
Compens- Stock LTP Compen-
Name and Fiscal Salary Bonus sation Award(s) Options/ Payouts sation*
Principal Position Year (S) (S) ($) ($) SARs ($) (S)
- ------------------ ---- -------- ------ --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerald H. Donnan 1997 82,445 -- 82,445 -- -- -- 3,345
President, Chief 1996 48,031 -- 48,031 -- -- -- 3,300
Executive Officer 1995 45,000 -- 45,000 -- -- -- 3,350
Marcia R. Donnan 1997 93,773 -- 93,773 -- -- -- 3,173
Executive Vice 1996 89,217 -- 89,217 -- -- -- 5,217
President 1995 4,742 -- 4,742 -- -- -- 1,342
- ------------------
</TABLE>
*Consists of certain health and accident insurance benefits and automobile
expense reimbursements.
EMPLOYMENT AGREEMENTS
Jerald H. Donnan and Marcia R. Donnan are parties to three year
employment agreements with the Company effective July 1, 1997. In addition to
salaries of $99,600 (which increase to $111,600 in year two and $123,600 in
year three if the Company has net income in those years), of each Mr. and Ms.
Donnan are entitled to health and accident insurance benefits and certain
automobile reimbursements. Both employment agreements also provide that if the
employee is terminated without cause, then the employee will be entitled to six
months' severance pay based upon their pay (including bonuses) from the
previous year; provided, however, if the termination is due to a change in
control of the Company, then the severance pay increases to the product of 2.99
times the previous year's pay (including bonuses). The employment agreements
contain customary provisions as to death, disability and termination for cause.
STOCK INCENTIVE PLAN
In April 1997, the Company adopted the 1997 Stock Incentive Plan (the
"Stock Incentive Plan"). The purpose of the Stock Incentive Plan is to provide
continuing incentives to the Company's key employees, which may include
officers and members of the Board of Directors. The Stock Incentive Plan
provides for an authorization of 200,000 shares of Common Stock for issuance
thereunder. Under the Stock Incentive Plan, the Company may grant to
participants awards of stock options and restricted stock or any combination
thereof.
The Stock Incentive Plan is to be administered by the Compensation
Committee of the Board of Directors composed of at least one disinterested
member. Subject to the terms of the Stock Incentive Plan, the Compensation
Committee determines, among other matters, the persons to whom awards are
granted, the type of award granted, the number of shares granted, the vesting
schedule, employment requirements or performance goals relating to
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<PAGE> 55
restricted stock awards, the type of consideration to be paid to the Company
upon exercise of options and the terms of any option (which cannot exceed ten
years).
Under the stock option component of the Stock Incentive Plan, the
Company may grant both incentive stock options ("incentive stock options)
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and options which are not qualified as incentive stock
options; provided that incentive stock options cannot be granted to any
participant who is not an employee of the Company. Stock options may not be
granted at an exercise price of less than the fair market value of the Common
Stock on the date of grant. The exercise price of incentive stock options
granted to holders of more than 10% of the Common Stock must be at least 110%
of the fair market value of the Common Stock on the date of grant, and the term
of these options cannot exceed five years. Options granted under the Stock
Incentive Plan are not transferable otherwise than by will or the laws of
descent and distribution and, during the lifetime of the optionholder, options
are exercisable only by such optionholder. In addition, outstanding options
may not be exercised more than three months (but in no event beyond the
expiration date of the option) after the optionholder ceases to be an employee
of the Company, except that in the event of the death or permanent and total
disability of the optionholder, the option may be exercised by the holder (or
his estate, as the case may be) until the first to occur of the expiration of
the option period or the expiration of one year after the date of death or
permanent or total disability. The exercise price may be paid in cash, in
shares of Common Stock (valued at fair market value at the date of exercise) by
delivery of a promissory note or by a combination of such means of payment, as
may be determined by the Compensation Committee.
Upon a change in control (as defined in the Stock Incentive Plan) of
the Company, all stock options granted under the Stock Incentive Plan will
become exercisable in full, and all restricted stock grants will become
immediately vested and any applicable restrictions will lapse. Also, in the
event the number of outstanding shares of Common Stock is increased or
decreased or changed into or exchanged for a different number or kind of shares
of stock or other securities of the Company or of another company whether as
the result of stock split, stock dividend, combination or exchange of shares,
merger or otherwise, each share subject to an unexercised option shall be
substituted for the number and kind of shares of stock into which each share of
the outstanding Common Stock is to be changed for which each such share is to
be exchanged and the option price shall be increased or decreased
proportionately.
Upon completion of this offering, the Company will grant and issue
options to purchase up to 17,000 shares of Common Stock to 22 employees of the
Company which will vest annually in one-third increments beginning on the first
anniversary date of the grant of such options and options to purchase 10,000
shares of Common Stock to the two non- employee directors of the Company, all
exercisable at the initial public offering price of the Common Stock offered
herein.
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<PAGE> 56
LIFE INSURANCE POLICY
The Company intends to obtain a Key Man term life insurance policy for
$1,000,000 upon the life of Jerald H. Donnan following closing of the offering
described herein. The death benefits under this policy will be payable in full
to the Company.
CERTAIN TRANSACTIONS
Jerald H. Donnan and Marcia R. Donnan personally guaranteed a $500,000
loan from a financial institution in 1995. No separate consideration was paid
for such guarantee. The balance of the loan will be paid using a portion of
the proceeds from this offering. See "Use of Proceeds."
The Company has adopted a policy that future transactions between the
Company and its officers, directors and 5% or more shareholders are subject to
approval by a majority of the disinterested directors of the Company. Any such
transactions will be on terms believed to be no less favorable than could be
obtained from unaffiliated parties.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation authorize the Company to
indemnify its directors for certain breaches of fiduciary duty to the Company
and its shareholders, and other liabilities, subject to certain limitations.
Such indemnification does not apply to acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or the payment of
unlawful distributions to shareholders.
The Company has also entered into indemnification agreements with all
of its executive officers and directors. The agreements require the Company to
indemnify such persons in all situations where indemnification is allowable by
Colorado law, including partial indemnification if the person is only partially
successful in the defense of a qualified proceeding. The agreements also
require the Company to advance costs and expenses, subject to certain
requirements of Colorado law, and to pay or reimburse such persons for costs
and expenses relating to that person's serving as a witness in any proceeding
relating to the Company.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
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<PAGE> 57
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus by (i) each person who is known by the Company to own beneficially
more than 5% of the Company's outstanding Common Stock, (ii) each of the
Company's executive officers and directors, and (iii) all executive officers
and directors as a group. Common Stock not outstanding but deemed beneficially
owned by virtue of the right of an individual to acquire shares within 60 days
are treated as outstanding only when determining the amount and percentage of
Common Stock owned by such individual. Each person has sole voting and sole
investment power with respect to the shares shown except as noted.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering(2) Offering
------------------------- ---------------------------
Name(1) Number Percent Number Percent
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Jerald H. Donnan 630,000 35% 630,000 22.5%
Marcia R. Donnan 630,000 35 630,000 22.5
Russell E. Donnan 270,000 15 270,000 9.6
James N. Donnan 270,000 15 270,000 9.6
Todd A. Neiberger --- -- --- --
Robert J. Terry(3) 5,000 * 5,000 *
Abdul H. Rajput(3) 5,000 * 5,000 *
All officers and directors
as a group (seven persons) 1,810,000 100% 1,810,000 60.1%
- ------------------
</TABLE>
* Less than 1%
(1) The address for each of the Donnans and Mr. Neiberger is 3665 JFK
Parkway, Building 1, Suite 200, Fort Collins, Colorado 80525; the
address for Mr. Terry is 5402 South Cottonwood Court, Greenwood
Village, Colorado 80121; and the address for Mr. Rajput is Post Office
Box 8310, Rancho Santa Fe, California 82067.
(2) Shares beneficially owned prior to this offering include an aggregate
of 500,000 shares of Common Stock held in custody and subject to
release to the Company's shareholders prior to the date hereof in 2003
or earlier upon the Company reaching certain performance objectives.
For further information regarding the terms of such custody
arrangement, see immediately below.
(3) Represents options to be issued upon the completion of this offering
to purchase shares of Common Stock at $o per share which will be fully
exercisable upon issuance.
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<PAGE> 58
CUSTODIAL SHARES
As a condition to this offering, the Company's shareholders as of
December 31, 1997, have been required to deposit an aggregate of 500,000 shares
of Common Stock of the Company owned by such shareholders (on a pro-rata basis)
in custody pursuant to a custody agreement with American Securities Transfer &
Trust, Inc. and the Representative. The Common Stock deposited in the custody
account will be subject to release to the shareholders upon the earlier of:
(i) the Company achieving pre-tax net income (excluding extraordinary items) of
$3,000,000 in the four complete calendar quarters immediately subsequent to the
date of this Prospectus; (ii) the Company achieving pre-tax net income (but
excluding extraordinary items) of $8,000,000 in the four complete calendar
quarters commencing one year after the date of this Prospectus; (iii) a merger
or sale of all or substantially all of the Company's assets if such transaction
is approved by the holders of a majority of the Company's outstanding shares
not including shares held by parties to the custody agreement; or (iv) seven
years after the date of this Prospectus. The determination of earnings per
share will be made in accordance with generally accepted accounting principles
and will be based upon the audited financial statements of the Company. The
shares held in custody are not transferable or assignable, although they may be
voted by the holder. The earnings levels set forth above were determined by
negotiations between the shareholders and the Representative and should not be
construed to imply or predict any future earnings by the Company. See
"Underwriting" for information concerning an 18 month lock-up of all presently
outstanding shares.
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<PAGE> 59
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock,
of which 1,800,000 shares of Common Stock are currently issued and outstanding.
Holders of shares of Common Stock are entitled to dividends as and when
declared by the Company's Board of Directors from funds legally available
therefor, and upon liquidation, dissolution or winding up of the Company to
share ratably in all assets remaining after payment of liabilities. The
Company has not paid any dividends to date nor does it anticipate paying any
dividends on its Common Stock in the foreseeable future. It is the Company's
present policy to retain earnings, if any, for use in the development and
expansion of its business. The holders of shares of the Common Stock are
entitled to one vote for each share held of record by them, and do not have the
right to cumulate their votes for election of directors. The holders of shares
of Common Stock do not have preemptive rights.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Stock with
dividend, liquidation, conversion, voting or other rights that could aversely
affect the voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. The Company has no present intention to
issue any shares of its Preferred Stock, and no shares of Preferred Stock are
currently outstanding.
WARRANTS
One Warrant will entitle the holder to purchase one share of Common
Stock at an exercise price of $o (130% of the initial offering price of the
Common Stock) for a period of three years from the date hereof subject to the
Company's redemption rights described below. The Warrants will be issued
pursuant to the terms of a Warrant Agreement between the Company and American
Securities Transfer & Trust, Inc. (the "Warrant Agent"). The Company has
authorized and reserved for issuance the shares of Common Stock issuable on
exercise of the Warrants. The Warrants are exercisable to purchase a total of
1,200,000 shares of Common Stock of the Company unless the Underwriters'
over-allotment option relating to the Warrants is exercised, in which case the
Warrants are exercisable to purchase a total of 1,380,000 shares of Common
Stock.
The Warrant exercise price and the number of shares of Common Stock
purchasable upon exercise of the Warrants are subject to adjustment in the
event of, among other events, a stock dividend on, or a subdivision,
recapitalization or reorganization of, the Common Stock,
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<PAGE> 60
or the merger or consolidation of the Company with or into another corporation
or business entity.
Commencing one year from the date of this Prospectus and until the
expiration of the Warrants, the Company, in its discretion, may redeem
outstanding Warrants, in whole but not in part, upon not less than 30 days'
notice, at a price of $.05 per Warrant, provided that the closing bid price of
the Common Stock equals or exceeds $o (150% of the Warrant exercise price) for
20 consecutive trading days. The redemption notice must be provided not more
than five business days after conclusion of the 20 consecutive trading days in
which the closing bid price of the Common Stock equals or exceeds $o per share.
In the event the Company exercises its right to redeem the Warrants, the
Warrants will be exercisable until the close of business on the date fixed for
redemption in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder thereof
will be entitled only to the redemption price.
The Company must have on file a current registration statement with
the Securities and Exchange Commission pertaining to the Common Stock
underlying the Warrants in order for a holder to exercise the Warrants or in
order for the Warrants to be redeemed by the Company. The shares underlying
the Warrants must also be registered or qualified for sale under the securities
laws of the states in which the Warrant holders reside. The Company intends to
use its best efforts to keep the Registration Statement incorporating this
Prospectus current, but there can be no assurance that such Registration
Statement (or any other registration statement filed by the Company covering
shares underlying the Warrants) can be kept current. In the event the
Registration Statement covering the underlying Common Stock is not kept
current, or if the Common Stock underlying the Warrants is not registered or
qualified for sale in the state in which a Warrant holder resides, the Warrants
may be deprived of any value.
The Company is not required to issue any fractional shares of Common
Stock upon the exercise of Warrants or upon the occurrence of adjustments
pursuant to anti-dilution provisions. The Company will pay to holders of
fractional interests an amount equal to the cash value of such fractional
interests based upon the then-current market price of a share of Common Stock.
The Warrants may be exercised upon surrender of the certificate
representing such Warrants on or prior to the expiration date (or earlier
redemption date) of such Warrants at the offices of the Warrant Agent with the
form of "Election to Purchase" on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by payment of the full
exercise price by check payable to the order of the Company for the number of
Warrants being exercised. Shares of Common Stock issued upon exercise of
Warrants for which payment has been received in accordance with the terms of
the Warrants will be fully paid and non-assessable.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a shareholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration
date of the Warrants. Although this right
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<PAGE> 61
is intended to benefit Warrantholders, to the extent the Company exercises this
right when the Warrants would otherwise be exercisable at a price higher than
the prevailing market price of the Common Stock, the likelihood of exercise,
and the resultant increase in the number of shares outstanding, may impede or
make more costly a change in control of the Company.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws (the "Incorporation
Documents") contain provisions that may make it more difficult for a third
party to acquire, or may discourage acquisition bids for, the Company. The
Board of Directors of the Company is authorized, without action of its
shareholders, to issue authorized but unissued Common and Preferred Stock. The
existence of undesignated Preferred Stock and authorized but unissued Common
Stock enables the Company to discourage or to make it more difficult to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise. The Incorporation Documents provide further that (i) directors may
be elected for three- year terms, with approximately one-third of the Board of
Directors standing for election each year, (ii) to alter or repeal the
staggered board provision or other measures in the Incorporation Documents
relating to the matters listed in this paragraph, the affirmative vote of the
holders of not less than two-thirds of the votes entitled to be cast by the
holders of all stock entitled to vote in the election of directors is required,
(iii) the unanimous vote of the Board of Directors or the affirmative vote of
the holders of not less than two-thirds of the votes entitled to be cast by the
holders of all stock entitled to vote in the election of directors is required
to change the size of the Board of Directors, (iv) directors may only be
removed for cause by holders of not less than two-thirds of the Common Stock,
(v) a special meeting of shareholders may be called by shareholders only if at
least 25% of the shareholders of the Company request that a special meeting be
called, (vi) any action required or permitted to be taken by shareholders of
the Company must be effected at a duly called annual or special meeting of such
shareholders and may not be effected by consent in writing by such
shareholders, and (vii) the affirmative vote of the holders of two-thirds of
the Company's capital stock entitled to vote thereon is required to approve the
merger, dissolution or sale of all or substantially all of the assets of the
Company.
LISTING
The Common Stock and Warrants have been approved for quotation on the
Nasdaq SmallCap Market on notice of issuance.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The transfer agent, Warrant Agent and registrar for the Company's
Common Stock and Warrants is American Securities Transfer & Trust, Inc.
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<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
3,000,000 shares of Common Stock, assuming no exercise of the Warrants, the
Underwriters' over-allotment options, the Representative's Options or any other
options or warrants. Of these shares, the 1,200,000 shares of Common Stock
sold in this offering will be freely tradeable without restriction or
registration under the Securities Act, except that any shares purchased by an
"affiliate" of the Company (as defined in the rules and regulations promulgated
under the Securities Act) will be subject to the resale limitations under Rule
144 under the Securities Act. The remaining 1,800,000 shares of outstanding
Common Stock were issued and sold by the Company in private transactions and/or
in reliance upon exemptions from registration under the Securities Act. Such
shares may be sold only pursuant to an effective registration statement filed
by the Company under the Securities Act, or an applicable exemption, including
the exemption contained in Rule 144 of the Securities Act.
In general, under Rule 144, a shareholder, including an affiliate of
the Company, may sell shares of Common Stock after at least one year has
elapsed since such shares were acquired from the Company or an affiliate of the
Company. The number of shares of Common Stock which may be sold within any
three-month period is limited to the greater of one percent of the then
outstanding Common Stock or the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of such
sale was filed under Rule 144. Certain other requirements of Rule 144
concerning availability of public information, manner of sale and notice of
sale must also be satisfied. In addition, a shareholder who is not an
affiliate of the Company (and who has not been an affiliate of the Company for
90 days prior to the sale) and who has beneficially owned shares acquired from
the Company or an affiliate of the Company for over two years may resell the
shares of Common Stock without compliance with the foregoing requirements under
Rule 144.
The Company's existing shareholders have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock owned by them for a period of
18 months after the date of this Prospectus without the prior written consent
of the Representative. A portion of the shares owned by existing shareholders
is subject to a custody arrangement and may, under certain circumstances, be
released as late as seven years after the date of this Prospectus. In the
absence of agreements with the Representative, the outstanding restricted
Common Stock could be sold in accordance with Rule 144 commencing 90 days from
the date of this Prospectus.
No predictions can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price of the Common Stock or Warrants prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock or Warrants, or the
perception that such sales may occur, could have a material adverse effect on
prevailing market prices of the Common Stock and Warrants.
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<PAGE> 63
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriter named below, for which Schneider Securities, Inc. is acting as the
representative (the "Representative") has agreed to purchase from the Company
the number of shares of Common Stock and Warrants set forth opposite their
names, and will purchase the shares of Common Stock and Warrants at the price
to public less the underwriting discount set forth on the cover page of this
Prospectus:
<TABLE>
<S> <C>
Number of
Underwriter Shares and Warrants
----------- -------------------
Schneider Securities, Inc.
Total 1,200,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations
are subject to conditions precedent and that the Underwriters are committed to
purchase all securities offered hereby (other than those covered by the over-
allotment options described below) if the Underwriters purchase any such
securities.
The Representative has advised the Company that the Underwriters
propose to offer the securities offered hereby, initially together, directly to
the public at the price to public set forth on the cover page of this
Prospectus, and that it may allow to certain dealers which are members of the
National Association of Securities Dealers, Inc., concessions not in excess of
$o. After the securities are released for sale to the public, the Underwriters
may change the initial price to public and other selling terms, although no
change in such terms will change the amount of proceeds to be received by the
Company as set forth on the cover page of this Prospectus.
The Company has agreed to pay the Representative a nonaccountable
expense allowance of 3% of the aggregate public offering price of the
securities offered, including Common Stock and Warrants sold on exercise of
either over- allotment option, of which $30,000 has been previously paid to the
Representative. The Company has also agreed to pay all expenses in connection
with qualifying the securities offered hereby for sale under the laws of such
states as the Representative may designate.
The Company has granted the Underwriters options, exercisable for 45
days after the date of this Prospectus, to purchase up to 180,000 additional
shares of Common Stock and/or Warrants at the same price as the initial
securities offered. The Underwriters may purchase
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<PAGE> 64
the Common Stock and Warrants solely to cover over-allotments, if any, in
connection with the sale of the securities offered hereby.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934 (the "1934 Act").
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the securities
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock or Warrants to be higher than they would otherwise be in the
absence of such transactions.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock or Warrants. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Company's existing shareholders have agreed not to offer, sell or
otherwise dispose of any shares of capital stock owned by them for a period of
18 months after the date of this Prospectus without the prior written consent
of the Representative.
In connection with this offering, the Company will sell to the
Representative for a total purchase price of $100, purchase options (the
"Representative's Options") entitling the Representative or its assigns to
purchase one share of Common Stock and one Warrant for each 10 shares and 10
warrants sold to the public (excluding the over- allotment options). The
Representative's Options to purchase Common Stock and Warrants shall be
exercisable commencing one year from the date of this Prospectus and shall
expire five years from such date. The Warrants included in the
Representative's Options will be identical to the public Warrants (i.e., one
Warrant will be exercisable to purchase one share of Common Stock at the
exercise price to be paid by the public during the three year term of the
Warrants), except that the Warrants underlying the Representative's Options
will not be subject to redemption by the Company. The Representative's Options
will contain certain anti-dilution provisions and provide for the cashless
exercise of such options utilizing securities of the Company (which may include
the implicit value of the Representative's Options or Warrants being
surrendered). The exercise price of the Representative's Options to purchase
Common Stock and Warrants is 120% of the public offering price or $o per share
and $.12 per Warrant. The Company shall set aside and at all times have
available a sufficient number of securities to be issued upon exercise of the
Representative's Options. The Representative's Options and underlying
securities will not be transferable to anyone for a period of one year after
the date of this Prospectus, except to officers and directors of the
Representative, co-underwriters, selling
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<PAGE> 65
group members and their officers or partners. Thereafter, the Representative's
Options and underlying securities will be transferable provided such transfer
is in accordance with the provisions of the Securities Act.
Upon any solicited exercise of the Warrants after one year from the
date of this Prospectus, the Company will pay the Representative a fee of 5% of
the aggregate exercise price for Warrant exercises if (i) the market price of
the Common Stock on the date the Warrant is exercised is greater than the then
exercise price of the Warrant, (ii) the exercise of the Warrant was solicited
by a member of the National Association of Securities Dealers, Inc. as
designated in writing on the Warrant Certificate subscription form (provided
that any request for exercise will be presumed to be unsolicited unless the
customer states in writing that the transaction was solicited and designates
the broker-dealer to receive compensation); (iii) the Warrant is not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant;
and (iv) the solicitation of exercise of the Warrant was not in violation of
Regulation M promulgated under the 1934 Act. A portion of the 5% fee may be
reallowed by the Representative to participating broker-dealers.
Regulation M under the 1934 Act, as amended, will prohibit the
Representative from engaging in any market making activities with regard to the
Company's securities during the period commencing as of the date on which the
Representative becomes a participant in the solicitation of the exercise of
Warrants until the termination of such solicitation activity. As a result, the
Representative may be unable to make a market in the Company's securities
during certain periods while the Warrants are exercisable.
The Company and the Representative have entered into an agreement
which provides that, if the Representative arranges for the purchase or sale of
substantially all of the assets of the Company, or for a merger, consolidation
or acquisition accepted by the Company during the five-year period commencing
on the date of this Prospectus, the Representative will receive a fee based on
a sliding scale ranging from 5% of the first $1 million of consideration and
decreasing to 3% of the consideration in excess of $2 million.
The Company and the Representative have entered into an agreement
which provides that the Company and its affiliates must give the Representative
a right of first refusal for a period of four years after the date of this
Prospectus to purchase for its or their account, or to sell on behalf of the
Company or its affiliates, any debt or equity securities of the Company
(excluding bank indebtedness) or Common Stock owned by such selling affiliate.
Prior to this offering, there has not been a public market for the
Common Stock or Warrants. The public offering prices of the Common Stock and
Warrants have been determined by arm's-length negotiation between the Company
and the Representative. There is no direct relation between the offering price
of the Common Stock and Warrants or the exercise price of the Warrants and the
assets, book value or net worth of the Company. Among the factors considered
by the Company and the Representative in pricing the securities offered were
the results of operations, the current financial condition and future prospects
of
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<PAGE> 66
the Company, the experience of management, the amount of ownership to be
retained by present shareholders, and the general condition of the economy and
the securities markets.
In connection with this offering, the Company and the Underwriters
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, and if such indemnification is
unavailable or insufficient, the Company and the Underwriters have agreed to
damage contribution arrangements based upon relative benefits received from
this offering and relative fault resulting in such damages.
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<PAGE> 67
LEGAL MATTERS
The validity of the securities offered will be passed upon the Company
by Jones & Keller, P.C., Denver, Colorado. Certain legal matters will be
passed upon for the Representative by Berliner Zisser Walter & Gallegos, P.C.,
Denver, Colorado.
EXPERTS
The consolidated balance sheet of the Company at December 31, 1997,
and the consolidated statements of income, shareholders' equity and cash flows
for each of the two years ended December 31, 1996 and 1997 included in this
Prospectus have been included herein in reliance on the report of Ehrhardt
Keefe Steiner & Hottman PC, independent certified public accountants, given on
the authority of that firm as experts in accounting and auditing.
The balance sheets of Mirocon, Inc. as of December 31, 1996 and
November 30, 1997, and the statements of income, shareholders' equity and cash
flows for the year ended December 31, 1996 and the eleven months ended November
30, 1997, have been included herein in reliance on the report of Ehrhardt Keefe
Steiner & Hottman PC, independent certified public accountants, given on the
authority of that firm as experts in accounting and auditing.
The pro forma combined statements of income of Mirocon, Inc. and the
Company for the years ended December 31, 1996 and 1997 have not been audited or
reviewed by the independent certified public accountants and they do not
express an opinion or purport to give any other form of assurance on them.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall encompass any and all amendments
thereto) on Form SB-2 (the "Registration Statement") under the Securities Act,
with respect to the Common Stock and Warrants offered hereby. This Prospectus,
which is part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted in accordance with the
rules and regulations of the Securities and Exchange Commission. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is hereby made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and such exhibits and schedules filed as a part thereof, which may be
inspected, without charge, at the Public Reference Section of the Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the regional offices of the Securities and
Exchange Commission located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The
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Securities and Exchange Commission maintains a web site that contains reports,
proxy and information statements regarding registrants that file electronically
with the Securities and Exchange Commission. The address of this web site is
(http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Securities
and Exchange Commission, upon payment of the prescribed fees.
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<PAGE> 69
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
FACTUAL DATA CORP.
Independent Auditors' Report........................................................................................F - 2
Financial Statements
Consolidated Balance Sheet...................................................................................F - 3
Consolidated Statements of Income............................................................................F - 4
Consolidated Statement of Changes in Shareholders' Equity....................................................F - 5
Consolidated Statements of Cash Flows........................................................................F - 6
Notes to Consolidated Financial Statements..........................................................................F - 8
MIROCON, INC.
Independent Auditors' Report.......................................................................................F - 21
Financial Statements
Balance Sheets..............................................................................................F - 22
Statements of Income........................................................................................F - 23
Statement of Changes in Shareholders' Equity................................................................F - 24
Statements of Cash Flows....................................................................................F - 25
Notes to Financial Statements......................................................................................F - 26
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME .................................................................F - 30
</TABLE>
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Factual Data Corp.
Fort Collins, Colorado
We have audited the accompanying consolidated balance sheet of Factual Data
Corp. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1996 and 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Factual Data Corp.
and Subsidiaries as of December 31, 1997 and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 3, during 1997 the Company changed its method of
accounting for Costs of Computer Software Developed for Internal Use.
Ehrhardt Keefe Steiner & Hottman PC
January 22, 1998
Denver, Colorado
F - 2
<PAGE> 71
FACTUAL DATA CORP.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash $ 396,752
Accounts receivable, net (Note 7)................................... 633,017
Note receivable (Note 4)............................................ 117,160
Prepaid expenses.................................................... 7,438
Deferred tax asset (Note 10)........................................ 64,577
---------------
Total current assets............................................ 1,218,944
Property and equipment, net (Notes 5 and 7)............................. 995,907
Other assets (Notes 2 and 6)............................................ 649,234
---------------
$ 2,864,085
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable (Note 7).............................................. $ 16,140
Current portion of long-term debt (Note 7).......................... 282,396
Accounts payable.................................................... 590,467
Accrued payroll and expenses........................................ 152,513
Income taxes payable................................................ 61,154
---------------
Total current liabilities....................................... 1,102,670
Long-term debt (Note 7)................................................. 927,988
Deferred income taxes (Note 10)......................................... 186,354
Commitments (Note 11)
Shareholders' equity (Note 8)...........................................
Common stock, 10,000,000 shares authorized; 1,800,000 issued and
outstanding 2,500
Retained earnings................................................... 644,573
---------------
Total shareholders' equity...................................... 647,073
---------------
$ 2,864,085
===============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE> 72
FACTUAL DATA CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenue
System affiliates .................................... $ 1,446,559 $ 1,950,668
Information services ................................. 2,066,254 734,946
Proceeds from the sale of Company operated territories 480,000 714,365
Training, license and other .......................... 16,000 119,692
----------- -----------
Total revenue .................................... 4,008,813 3,519,671
----------- -----------
Operating Expenses
Costs of services provided ........................... 2,123,357 1,301,085
Costs of Company operated territories ................ 31,302 506,101
Selling, general and administrative .................. 1,412,974 916,521
----------- -----------
Total operating expenses ......................... 3,567,633 2,723,707
----------- -----------
Income from operations ................................... 441,180 795,964
Other income (expense)
Other income ......................................... 29,437 28,806
Interest expense ..................................... (108,919) (77,497)
----------- -----------
Income before income taxes ............................... 361,698 747,273
Income tax expense (Note 10) ............................. 78,063 244,339
----------- -----------
Net income ............................................... $ 283,635 $ 502,934
=========== ===========
Basic earnings per share ................................. $ .16 $ .28
=========== ===========
Weighted average shares outstanding ...................... 1,800,000 1,800,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE> 73
FACTUAL DATA CORP.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
Total
Common Stock (Note 8) Stock Retained Shareholders'
--------------------- Subscriptions Earnings Equity
Shares Amount Receivable (Deficit) (Deficit)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ....................... 1,800,000 $ 2,500 $ (500) $(141,996) $(139,996)
Net income for the year ended December 31, 1996 .... -- -- -- 283,635 283,635
--------- --------- --------- --------- ---------
Balance at December 31, 1996 ....................... 1,800,000 2,500 (500) 141,639 143,639
Collection of stock subscription ................... -- -- 500 -- 500
Net income for the year ended December 31, 1997 .... -- -- -- 502,934 502,934
--------- --------- --------- --------- ---------
Balance at December 31, 1997 ....................... 1,800,000 $ 2,500 $ -- $ 644,573 $ 647,073
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE> 74
FACTUAL DATA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income .......................................................... $ 283,635 $ 502,934
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization .................................... 246,540 355,084
Deferred income taxes ............................................ 57,670 128,867
Basis on territories sold ........................................ -- 391,330
Gain on sale of assets ........................................... (93,951) (29,504)
Issuance of note receivable for sale of company operated territory
(230,000) --
Changes in operating assets and liabilities
Accounts receivable ........................................... 141,437 (325,503)
Prepaid expenses .............................................. (1,668) 10,217
Other assets .................................................. -- (23,460)
Accounts payable .............................................. (106,224) 111,590
Accrued payroll, payroll taxes and expenses ................... (63,411) 24,275
Accrued taxes and other ....................................... 20,386 30,017
----------- -----------
(29,221) 672,913
----------- -----------
Net cash provided by operating activities ................. 254,414 1,175,847
----------- -----------
Cash flows from investing activities
Purchase of property and equipment .................................. (111,882) (563,364)
Proceeds from sale of property and equipment ........................ 136,940 29,504
Payments received on note receivable ................................ -- 185,000
Increase in note receivable ......................................... -- (72,160)
Acquisition of a business ........................................... -- (50,000)
----------- -----------
Net cash provided by (used in) investing activities ....... 25,058 (471,020)
----------- -----------
Cash flows from financing activities
Line-of-credit, net ................................................. 66,000 (66,000)
Principal payments on long-term debt ................................ (341,481) (255,078)
Collection from common stock subscription ........................... -- 500
Deferred offering costs incurred net of accounts payable ............ -- (36,491)
----------- -----------
Net cash used in financing activities ..................... (275,481) (357,069)
----------- -----------
Net increase in cash ................................................... 3,991 347,758
Cash, at beginning of period ........................................... 45,003 48,994
----------- -----------
Cash, at end of period ................................................. $ 48,994 $ 396,752
=========== ===========
Continued on following page.
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE> 75
FACTUAL DATA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued from previous page.
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the years ended December 31, 1996 and
1997 was $108,919 and $78,578, respectively.
Supplemental disclosure of non-cash investing and financing activities:
During 1996, the Company received a note receivable of $230,000
related to the sale of certain fixed assets and Company operated
territory rights which had a total purchase price of $480,000.
During 1997, the Company financed fixed assets purchases totaling
$50,918 with notes payable.
During 1997, the Company incurred $61,739 in offering costs that were
included in accounts payable.
During 1997, the Company acquired a business for a cost of $50,000
cash and a note payable of $468,919 (Note 2).
See notes to consolidated financial statements.
F - 7
<PAGE> 76
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Factual Data Corp was incorporated in the state of Colorado in 1985. The Company
was established for the purpose of providing information services nationally to
financial lending institutions primarily in the mortgage lending industry. In
April of 1997, the shareholders of Factual Data Corp (Predecessor) and Lenders
Resources, Inc. (Affiliate) exchanged all of their outstanding shares of common
stock in exchange for 1.8 million shares of common stock in a newly formed
holding company Factual Data Corp. (Successor).
The Company provides information services to lenders from its Company operated
offices and 65 franchised and licensed offices located in 45 states. Franchised
and licensed offices of the Company are referred to as system affiliates and
related revenue derived from such system affiliates is referred to as system
affiliate revenues.
In exchange for system affiliate revenue from its system affiliates, the Company
provides certain on-going services that include sophisticated technology
systems, training, marketing/sales assistance, management, techniques, and
policy and procedure manuals.
The Company's sophisticated technology platforms used to develop new products
and services allowed the Company to begin providing employee background
information under EMPfactsSM and QuickPeek IdentifierSM reports for employers
and landlords.
Principles of Consolidation
The accompanying financial statements are referred to as consolidated financial
statements throughout; however, the financial statements for the year ended
December 31, 1996 reflect the combined results of predecessor and affiliate. The
combined financial statements present, in substance, the same results as the
consolidated financial statements with the primary difference relating to the
legal descriptions and rights associated with the outstanding equity securities.
The Company's 1997 consolidated financial statements include the accounts of
Factual Data Corp and Lenders Resources Incorporated. All intercompany accounts
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid
short-term investments with an original maturity of three months or less to be
cash equivalents. As of the balance sheet date, balances of cash and cash
equivalents at financial banking institutions exceeded the federally insured
limit by $247,308. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash and cash
equivalents. The Company had no cash equivalents at December 31, 1997.
F-8
<PAGE> 77
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers and system affiliates related to providing
information services. The Company's customers and system affiliates are located
throughout the United States.
Because of the credit risks involved, management has provided an allowance for
doubtful accounts of $4,000 which reflects its opinion of amounts which will
eventually become uncollectible. In the event of complete nonperformance by the
Company's customers or system affiliates, the maximum exposure to the Company is
the outstanding accounts receivable balance at the date of non-performance.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of the assets which
range from three to fifteen years.
Intangible Assets
Intangible assets are stated at cost, and consist of goodwill, customer lists,
covenants not to compete and deferred offering costs. Goodwill and customer
lists are amortized using the straight-line method over fifteen years. Covenants
not to compete are amortized over the life of the agreements, which extend over
five years.
Deferred offering costs consist of costs associated with the Company's proposed
initial public offering. These costs will be netted against the proceeds of the
offering if successful or charged to expense if the offering is unsuccessful.
Software Development Costs
In 1996, software development costs associated with internally development
software used to support system affiliate revenues and information service sales
were expensed as incurred by the Company.
In 1997, the Company adopted the provisions of proposed Statement of Position on
Accounting for Costs of Computer Software Developed for Internal Use. Direct
costs incurred in the development of software which has reached technological
feasibility are capitalized. The Company ceases capitalization of development
costs once the software has been substantially completed and is available for
general use by system affiliates and mortgage lending institutions. Software
development costs are amortized over their estimated useful lives of three
years.
F-9
<PAGE> 78
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred income taxes result from temporary differences. Temporary differences
are differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. The Company's temporary differences result
primarily from depreciation of fixed assets, amortization of intangibles and
accrued vacation.
Revenue Recognition
System Affiliate
Pursuant to the various franchise and license agreements, network affiliates are
required to pay the Company royalties based on a percentage of sales. In
addition, territories providing EMPfactsSM services are required to pay $100 per
month for national advertising conducted by the Company.
Royalties as allowed by the franchise and license agreements are accrued based
on the percentage of adjusted gross billings, as reported by system affiliates
and are included in accounts receivable.
Advertising fees paid to the Company are included in the Company's balance
sheet. At December 31, 1997, the Company had collected fees in excess of the
amount expended for advertising by approximately $22,000.
Information Services
The Company recognizes revenue generated from mortgage credit reports and other
information services when the information has been provided to the customer, as
substantially all required services have been performed.
Initial Territory License Fees
Initial territory license fees are recognized as revenue when all material
services and conditions required to be performed by the Company are
substantially completed, which is generally when the territory commences
operations. Initial territory license fees collected by the Company before all
material services and conditions are substantially performed are recorded as
deferred territory license revenue.
F-10
<PAGE> 79
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (continued)
Software License Fees
The Company recognizes revenue from the licensing of computer software when the
customer accepts the configured master. Subsequent to customer acceptance, the
Company has no significant post contract support obligations.
Advertising Costs
The Company expenses advertising and promotional expenses as incurred.
Valuation of Long-Lived Assets
The Company assesses valuation of long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be disposed of. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, receivables,
prepaid expenses, accounts payable and accrued expenses approximate their fair
values as of December 31, 1997 because of the relatively short maturity of these
instruments.
The carrying amounts of notes payable and debt outstanding also approximate
their fair values as of December 31, 1997 because interest rates on these
instruments approximate the interest rate on debt with similar terms available
to the Company.
F-11
<PAGE> 80
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic Earnings Per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standard No. 128. The Company has presented only basic
earnings per share as it had no dilutive potential common shares outstanding
during 1996 or 1997. Basic earnings per share has been computed based on the
weighted average number of shares outstanding.
Reclassifications
Certain reclassifications have been made to the financial statements for the
year ended December 31, 1996 to conform with the 1997 presentation.
NOTE 2 - ACQUISITION OF ASSETS
Effective December 1, 1997, the Company purchased the assets of its Loveland
franchise, Mirocon, Inc. The results of operations of Mirocon, Inc. from
December 1, 1997 to December 31, 1997 have been included in the 1997 financial
statements. The acquisition has been accounted for under the purchase method of
accounting.
The purchase price totaled $519,419 which has been allocated to the assets
purchased based on the fair market values on the date of acquisition, as
follows:
<TABLE>
<S> <C>
Computer equipment................................................. $ 19,200
Furniture and fixtures............................................. 4,800
Non-compete agreement.............................................. 50,000
Customer lists..................................................... 445,419
---------------
519,419
Notes payable less discount of $1,081.............................. (469,419)
---------------
Cash paid at closing............................................... $ 50,000
===============
</TABLE>
F-12
<PAGE> 81
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITION OF ASSETS (CONTINUED)
The following table depicts the historical and unaudited pro forma results of
the Company's 1997 acquisition.
<TABLE>
<CAPTION>
(Unaudited)
Year Ended Recorded Consolidated
December 31, 1996 Amounts (1) Mirocon Total Adjustments(3) Total
- ------------------------------ --------------- -------------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Revenue ...................... $ 4,008,813 $ 935,727 $ 4,944,540 $ (72,290) $4,872,250
=============== ============== =============== ============== ==========
Net income after taxes ....... $ 283,635 $ 53,580 $ 337,215 $ 16,041 $ 353,256
=============== ============== =============== ============== ==========
Basic earnings per share ..... $ .16 $ .03 $ .19 $ .01 $ .20
=============== ============== =============== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
Year Ended Recorded Consolidated
December 31, 1997 Amounts (1) Mirocon (2) Total Adjustments (3) Total
- ----------------------------- =============== ============== =============== ============== ==========
<S> <C> <C> <C> <C> <C>
Revenue...................... $ 3,519,671 $ 904,587 $ 4,424,258 $ (54,265) $4,369,993
=============== ============== =============== ============== ==========
Net income after taxes....... $ 502,934 $ 68,432 $ 571,366 $ 26,302 $ 597,668
=============== ============== =============== ============== ==========
Basic earnings per share..... $ .28 $ .03 $ .31 $ .02 $ .33
=============== ============== =============== ============== ==========
</TABLE>
(1) Includes the results of operations for Factual Data Corp. for the year
ended December 31, 1997.
(2) Represents activity for the eleven months ended November 30, 1997.
(3) Adjustments relate to amortization of the non-compete agreement and
customer lists, officers' salaries and bonuses, franchise fee expense, and
interest expense on acquisition debt which would have been required had the
Company completed the acquisition as of January 1, 1996.
NOTE 3 - CHANGE IN ACCOUNTING POLICY
In 1997 the Company adopted the provisions of a Proposed Statement of Position
for Costs of Computer Software Developed for Internal Use. The Company expends
significant capital on internally developed software that is used to support
operations of both sales of services to financial lending institutions as well
as support for System Affiliates. The proposed SOP, which is anticipated to be
adopted in 1998 encourages early adoption but does not allow retroactive
restatement of previously issued financial statements. Accordingly, management
believes that adoption of the proposed SOP in a year prior to its initial public
offering (IPO) would be more informative to users of financial statements rather
than in a period after its IPO. The effect of the change was to increase 1997
net income by approximately $200,000 or $.11 per common share. Had the Company
adopted the SOP in 1996, net income would have been increased by approximately
$178,000 to $461,813 or $.26 per common share.
F-13
<PAGE> 82
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NOTES RECEIVABLE
Notes receivable consists of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Note receivable related to the sale of operating territory;
18% interest rate, balance due on or before June 30, 1998 ............... $ 45,000
Note receivable from a corporation, interest rate at 8%; due on demand ... 72,160
------------
$ 117,160
============
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Computer equipment and software.................................... $ 960,415
Furniture and fixtures............................................. 575,732
Software development costs......................................... 452,915
Leasehold improvements............................................. 20,938
Vehicles........................................................... 132,496
------------
2,142,496
Less accumulated depreciation.................................. (1,146,589)
------------
$ 995,907
============
</TABLE>
NOTE 6 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Deposits and other................................................. $ 39,276
Customer lists (Note 2)............................................ 445,419
Goodwill........................................................... 9,040
Covenant not to compete (Note 2)................................... 50,000
Deferred offering costs and other.................................. 110,730
------------
654,465
Less accumulated amortization.................................. (5,231)
------------
$ 649,234
============
</TABLE>
F-14
<PAGE> 83
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE
Line-of-Credit
<TABLE>
<CAPTION>
December 31,
1997
-----------
<S> <C>
The Company has a $100,000 line-of-credit. The line-of-credit expires
on May 5, 1998 and accrues interest at the bank's index rate (10% at
December 31, 1997). The line is collateralized by substantially all
the assets of one of the Company's subsidiaries and is personally
guaranteed by officers of the
Company....................................................................... $ -
Unsecured note payable to an individual, monthly payment of interest
only of 10%. Due on demand. .................................................. 16,140
-----------
$ 16,140
===========
</TABLE>
Long-Term Obligations
<TABLE>
<CAPTION>
December 31,
1997
-----------
<S> <C>
Long-term debt obligations consist of the following:
Unsecured note payable to a corporation incurred in the acquisition of
a business. Note is payable in the following terms; $50,000 (Note 2)
principal payment on January 15, 1998, five principal payments of
$7,000 each commencing on February 1, 1998 and ending on June 1, 1998.
Interest begins accruing June 1, 1998 at a rate of 8%. Monthly
payments of $8,396 for interest and principal through January 2003.
The contract contains a clause which states that if Factual Data Corp.
closes an initial public offering, the corporation receives the lesser
of $160,250 or any unpaid principal and interest on the note at the
time of the closing .......................................................... $ 469,419
Note payable to a financial institution, monthly principal and
interest payments of $7,102 through December 2005. Interest at 2.75%
over New York prime (Prime was 8.5% at December 31, 1997). The note is
collateralized by accounts receivable, inventory and equipment. The
note is also personally guaranteed by certain
shareholders ................................................................. 435,035
Unsecured note payable to a corporation, monthly principal and
interest payments of $6,000 through November 1999. Interest at
10.50% ....................................................................... 150,896
</TABLE>
F-15
<PAGE> 84
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE (CONTINUED)
Long-Term Obligations (continued)
<TABLE>
<CAPTION>
December 31,
1997
-----------
<S> <C>
Unsecured note payable to a individual, monthly principal payments are
the greater of $750 or 5% of gross billable revenue of a certain
corporate-owned franchise with the balance due August 31, 2002.
Interest at 8.5% ............................................................. 61,619
Unsecured note payable to a former franchisee, monthly principal and
interest payments of $5,000 through September 1998. Interest is at
5.5% ......................................................................... 43,986
Various notes payable to financial institutions. Monthly principal and
interest payments ranging from $394 to $1,578. Interest rates vary
from 6.85% to 11%. Notes mature at various times ranging from April
1997 to June 2001. Notes are collateralized by certain fixed assets
and automobiles .............................................................. 49,429
-----------
1,210,384
Less current portion (282,396)
-----------
$ 927,988
===========
</TABLE>
As of December 31, 1997, future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Long-term
Debt
-----------
<S> <C>
Year ending December 31,
1998.............................................. $ 282,396
1999.............................................. 229,556
2000.............................................. 149,113
2001.............................................. 155,292
2002.............................................. 161,241
Thereafter........................................ 232,786
-----------
Total long-term obligations....................... $ 1,210,384
===========
</TABLE>
F-16
<PAGE> 85
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - SHAREHOLDERS' EQUITY
In April 1997, predecessor and affiliate, (two entities, owned 100% by direct
family members) merged with a new entity, Factual Data Corp. (Successor). All
shares and per share amounts have been restated to reflect this reincorporation
as of January 1, 1996.
Stock Option Plan
Management of the Company is currently in the process of adopting a stock option
plan whereby the Board of Directors can issue both tax qualified and
nonqualified options to officers, employees, consultants and others. Under the
plan, 200,000 shares of the Company's stock would be reserved for options to be
issued in the future. At December 31, 1997, no options have been granted under
the plan.
Subsequent to year end options to acquire 27,000 shares of common stock at $5.00
per share have been issued to employees of the Company.
NOTE 9 - BUSINESS SEGMENTS
Operating results and other financial data are presented for the principal
business segments of the Company for the years ended December 31, 1996 and 1997.
Total revenue in one business segment includes information services, in another
segment, system affiliate revenue and training, license, and other revenues and
the third segment is sales of Company operated territories, as reported in the
Company's consolidated financial statements.
Identifiable assets by business segment are those assets used in the Company's
operation of each segment.
<TABLE>
<CAPTION>
System Affiliates
and License, Sales of Company
Information Training and Operated
Services Other Territories Totals
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
December 31, 1996
Net sales......................................... $ 2,066,254 $ 1,462,559 $ 480,000 $ 4,008,813
Cost of services and territory sales.............. $ 1,223,251 $ 900,106 $ 31,302 $ 2,154,659
Gross profit...................................... $ 843,003 $ 562,453 $ 448,698 $ 1,854,154
Total assets...................................... $ 981,755 $ 537,504 $ 240,031 $ 1,759,290
Depreciation and amortization..................... $ 136,995 $ 37,068 $ 72,477 $ 246,540
Capital expenditures.............................. $ 21,289 $ 90,593 $ -- $ 111,882
</TABLE>
F-17
<PAGE> 86
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
System Sales of
Affiliates Company
Information and Owned
Services Training Territories Totals
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Net sales .................................... $ 734,946 $2,070,360 $ 714,365 $3,519,671
Cost of services and territory sales ......... $ 236,640 $1,064,445 $ 506,101 $1,807,186
Gross profit ................................. $ 498,306 $1,005,915 $ 208,264 $1,712,485
Total assets ................................. $1,364,049 $1,500,036 $ -- $2,864,085
Depreciation and amortization ................ $ 111,100 $ 214,824 $ 29,160 $ 355,084
Capital expenditures ......................... $ 2,069 $ 561,295 $ -- $ 563,364
</TABLE>
NOTE 10 - INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the tax rates in effect for the year in which the differences
occur. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that based on available evidence, are not expected to
be realized.
The components of the provision for income tax expense for the year ended
December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
------- --------
<S> <C> <C>
Current ................................ $20,393 $115,472
Deferred ............................... 57,670 128,867
------- --------
$78,063 $244,339
======= ========
</TABLE>
The deferred income tax assets and liabilities result primarily from differing
depreciation and amortization periods of certain assets, research and
development credits, and the recognition of certain expenses for financial
statement purposes and not for tax purposes.
F-18
<PAGE> 87
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (CONTINUED)
The net current and long-term deferred tax assets (liabilities) in the
accompanying balance sheet include the following items:
<TABLE>
<CAPTION>
December 31,
1997
---------
<S> <C>
Current deferred tax asset .................. $ 75,853
Current deferred tax liability .............. (11,276)
---------
$ 64,577
=========
Long-term deferred tax asset ................ $ --
Long-term deferred tax liability ............ (186,354)
---------
$(186,354)
=========
</TABLE>
The Company has research and development credit carryforwards of approximately
$31,000 at December 31, 1997, which if unused will expire in 2001.
Rate Reconciliation
The reconciliation of income tax expense by applying the Federal statutory tax
rates to the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1996 1997
---- ----
<S> <C> <C>
Federal statutory rate ............................................... 34.0% 34.0%
State tax on income, net of federal income tax benefit ............... 3.3 3.3
Federal surtax exemption ............................................. (5.3) --
Research tax credits ................................................. (6.5) (3.6)
Other, net ........................................................... (4.0) (1.0)
---- ----
21.5% 32.7%
==== ====
</TABLE>
F-19
<PAGE> 88
FACTUAL DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS
In 1996, the Company leased office space for its corporate owned franchise
locations under operating lease agreements which provide for the payment of rent
totaling approximately $1,900 per month. Rent expense under these operating
leases totaled $23,795 during the year ended December 31, 1996. These franchises
were sold January 1, 1997.
The Company leases its corporate office space under an operating lease agreement
which provides for the payment of $6,735 per month. This lease expires April
1998, at which time the corporate office will relocate to a nearby office and
begin a 20 year operating lease. The new corporate office lease calls for annual
payments of the lesser of 11% of the total construction costs for the premise
once completed or $236,000. The rent increases 15% every 5 years for the
duration of the lease. This lease expires approximately May of 2018. Rent
expense under all operating leases totaled $149,823 and $147,452 for the years
ended December 31, 1996 and 1997, respectively.
The Company assumed the lease obligations for Mirocon, Inc. when it acquired the
operating assets on December 1, 1997. The facility lease calls for monthly
payments of $2,427 and expires on August 31, 2000. If the Company defaults on
this lease, the seller of the franchise is contingently liable. The Company
intends on relocating the office of Mirocon, Inc. to its new corporate office in
April 1998. In conjunction with its relocation the Company intends to exercise
its buyout option under the Mirocon, Inc. office lease effective September 1,
1998 for approximately $2,500.
Future minimum annual lease payments are as follows:
Year Ended December 31,
<TABLE>
<S> <C>
1998............................. $ 198,634
1999............................. 255,507
2000............................. 245,798
2001............................. 226,378
2002............................. 226,378
Thereafter....................... 4,603,874
----------
$5,756,569
==========
</TABLE>
F-20
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Mirocon, Inc.
Loveland, Colorado
We have audited the accompanying balance sheets of Mirocon, Inc. as of December
31, 1996 and November 30, 1997, and the related statements of income, changes in
shareholders' equity and cash flows the year ended December 31, 1996 and for the
eleven months ended November 30, 1997, respectively. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mirocon, Inc. as of December
31, 1996 and November 30, 1997 and the results of their operations and their
cash flows the year ended December 31, 1996 and for the eleven months ended
November 30, 1997 in conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
January 13, 1998
Denver, Colorado
<PAGE> 90
MIROCON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, November 30,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ..................................................... $378,557 $194,793
Accounts receivable (net of allowance for doubtful
accounts of $0 (1996) and $10,427 (1997)) .................................... 74,450 125,755
-------- --------
Total current assets ...................................................... 453,007 320,548
Property and equipment (Note 2) ................................................... -- 7,000
Other assets
Intangible assets, net (Note 3) ............................................... 5,426 3,868
-------- --------
Total other assets ........................................................ 5,426 3,868
-------- --------
$458,433 $331,416
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Advances from shareholders (Note 4) ........................................... $108,923 $ --
Accounts payable .............................................................. 25,278 31,284
Accrued payroll, payroll taxes and expenses ................................... 19,242 35,363
-------- --------
Total current liabilities ................................................. 153,443 66,647
Commitments (Notes 5 and 6)
Shareholder's equity
Capital stock, no par value, 50,000 shares authorized,
20,000 shares issued and outstanding in 1996 and 1997 ........................ 87,741 87,741
Retained earnings ............................................................. 217,249 177,028
-------- --------
Total shareholders' equity ................................................ 304,990 264,769
-------- --------
$458,433 $331,416
======== ========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 91
MIROCON, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the
For the Year Eleven
Ended Months Ended
December 31, November 30,
1996 1997
--------- ---------
<S> <C> <C>
Revenue
Information services ..................................... $ 935,727 $ 904,587
--------- ---------
Total revenue ........................................ 935,727 904,587
--------- ---------
Operating Expenses
Costs of services provided ............................... 392,490 340,422
Selling, general and administrative ........................ 463,582 468,973
--------- ---------
Total operating expenses ............................. 856,072 809,395
--------- ---------
Income from operations ....................................... 79,655 95,192
Other income (expense)
Other income ............................................. 2,394 8,240
Interest expense ......................................... (469) --
--------- ---------
Net income ................................................... 81,580 103,432
Pro forma adjustment - provision for income taxes (Note 1).... 28,000 35,000
--------- ---------
Pro forma net income ......................................... $ 53,580 $ 68,432
========= =========
Pro forma basic earnings per share ........................... $ 2.68 $ 3.42
========= =========
Weighted average number of shares outstanding ................ 20,000 20,000
========= =========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 92
MIROCON, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------- Retained
Shares Amount Earnings Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance - December 31, 1995 ...................... 20,000 $ 87,741 $ 237,452 $ 325,193
1996 shareholder distributions ................... -- -- (101,783) (101,783)
Net income for the year .......................... -- -- 81,580 81,580
--------- --------- --------- ---------
Balance - December 31, 1996 ...................... 20,000 87,741 217,249 304,990
1997 shareholder distributions ................... -- -- (143,653) (143,653)
Net income for the year .......................... -- -- 103,432 103,432
--------- --------- --------- ---------
Balance - November 30, 1997 ...................... 20,000 $ 87,741 $ 177,028 $ 264,769
========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-24
<PAGE> 93
MIROCON, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
For the Year Eleven
Ended Months Ended
December 31, November 30,
1996 1997
-------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income........................................................... $ 81,580 $ 103,432
-------------- ------------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization..................................... 3,555 2,258
Changes in operating assets and liabilities.......................
Accounts receivable, net....................................... 16,152 (51,305)
Accounts payable............................................... 2,627 6,006
Accrued payroll, payroll taxes and expenses.................... (1,263) 16,121
-------------- ------------
21,071 (26,920)
-------------- ------------
Net cash provided by operating activities.................. 102,651 76,512
-------------- ------------
Cash flows from investing activities
Capital expenditures................................................. -- (7,700)
-------------- ------------
Net cash used in investing activities...................... -- (7,700)
-------------- ------------
Cash flows from financing activities
Advances from (repayment to) shareholders, net....................... 143 (108,923)
Distributions to shareholders........................................ (101,783) (143,653)
-------------- ------------
Net cash used in financing activities...................... (101,640) (252,576)
-------------- ------------
Net increase (decrease) in cash and cash equivalents.................... 1,011 (183,764)
Cash and cash equivalents, at beginning of period....................... 377,546 378,557
-------------- ------------
Cash and cash equivalents, at end of period............................. $ 378,557 $ 194,793
============== ============
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid during the year was $469 for 1996 and $0 for 1997.
See notes to financial statements.
F-25
<PAGE> 94
MIROCON, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Mirocon, Inc. (Mirocon) was incorporated in the state of Colorado in 1989. The
Company was established for the purpose of providing information services to
financial lending institutions primarily in the mortgage lending industry in the
Northern Colorado area under the Factual Data trade name through a license
agreement.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers highly
liquid short-term instruments purchased with an original maturity of three
months or less to be cash equivalents. As of December 31, 1996 and November 30,
1997, balances of cash and cash equivalents at financial banking institutions
exceeded the federally insured limit by $139,173 and $62,502, respectively.
Accounts Receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers for information services. The Company's customers
are located in the Northern Colorado area.
Because of the credit risks involved, management has provided an allowance for
doubtful accounts which reflects its opinion of amounts which will eventually
become uncollectible. In the event of complete non-performance by Mirocon's
customers, the maximum exposure to Mirocon is the outstanding accounts
receivable balance at the date of non-performance.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
accelerated methods based on the estimated useful lives of the assets which
range from three to seven years.
Intangible Assets
The goodwill and non-compete agreement were acquired when the current
shareholders purchased the licensed territory and other related assets in 1989.
The non-compete agreement was amortized over 3 years, the length of the
agreement. Goodwill is recorded as the difference between net assets and the
related purchase price and was amortized over the estimated useful life of five
years. The EMPfacts license represents fees paid to the licensor for the rights
to use basic EMPfacts and/or CORPdata software systems and management services
provided by the licensor.
F-26
<PAGE> 95
MIROCON, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company has elected to be taxed under Subchapter S of the Internal Revenue
Code. Under these provisions, the Company is not subject to income taxes as a
separate entity. Income or loss of the Company is required to be included in the
income tax returns of the shareholders.
Included in the statement of operations are pro forma income tax adjustments
computed using the statutory rates in effect, which represent the federal and
state tax provisions that would have been required had the Company been taxed as
a C-corporation. Mirocon's effective statutory rate based on pretax income was
34% for both the year ended December 31, 1996 and the eleven months ended
November 30, 1997.
Revenue Recognition
Information Service
Mirocon recognizes revenue generated from mortgage credit reports and other
information services when the information has been provided to the customer, as
substantially all required services have been performed.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, receivables, accounts payable, accrued expenses, and advances from
shareholders approximate their fair values as of December 31, 1996 and November
30, 1997 because of the relatively short maturity of these instruments.
F-27
<PAGE> 96
MIROCON, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, November 30,
1996 1997
--------- ---------
<S> <C> <C>
Furniture and fixtures ........................... $ 29,445 $ 29,445
Computer equipment and software .................. 59,582 67,282
Computer software ................................ 28,457 28,457
--------- ---------
117,484 125,184
Less accumulated depreciation ................ (117,484) (118,184)
--------- ---------
$ -- $ 7,000
========= =========
</TABLE>
NOTE 3 - INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31, November 30,
1996 1997
-------- --------
<S> <C> <C>
EMPfacts license ................................. $ 8,500 $ 8,500
Covenant not to compete .......................... 60,000 60,000
Goodwill ......................................... 2,500 2,500
Loan origination fees ............................ 958 958
Organization costs ............................... 780 780
Other intangibles ................................ 4,238 4,238
-------- --------
76,976 76,976
Less accumulated amortization ................ (71,550) (73,108)
-------- --------
$ 5,426 $ 3,868
======== ========
</TABLE>
NOTE 4 - ADVANCES FROM SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The advances from shareholders represents the shareholder's personal funds
advanced to Mirocon to be used for working capital as needed. The balance of the
advances was $108,923 at December 31, 1996 with the full balance being repaid in
1997.
F-28
<PAGE> 97
MIROCON, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS
The Company entered into a lease agreement for its office space on September 1,
1990. The lease expires August 31, 2000 and the Company is currently paying
$2,427 per month. The Company's lease has been assumed by the purchasor in
conjunction with the sale of primarily all operating assets of the Company (Note
7); however, the Company remains contingently liable under the assignment of the
lease. The purchaser of the Company's operating assets intends to exercise the
buyout option under the lease assumed effective September 1, 1998 for
approximately $2,500.
Future minimum rental payments under the lease commitments are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998........................................ $ 29,130
1999........................................ 29,130
2000........................................ 19,420
-------------
$ 77,680
=============
</TABLE>
NOTE 6 - PROFIT SHARING PLAN
The Company provides a SEP IRA profit sharing program for its employees. In
order to receive the profit sharing annual contribution, employees must work
full time for the calendar year.
The Company contributed $6,018 and $4,100 for 1996 and 1997, respectively.
NOTE 7 - SUBSEQUENT EVENTS
Effective December 1, 1997, the Company sold primarily all operating assets for
a total purchase price of $519,419 which consisted of a $50,000 cash payment at
closing and a note receivable of $469,419. The sale also included a covenant not
to compete with the acquirer for a period of five years.
F-29
<PAGE> 98
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The following unaudited pro forma combined statements of income for the years
ended December 31, 1996 and 1997, give effect to the business combination of
Factual Data Corp. and Mirocon, Inc. effective January 1, 1996, including the
related pro forma adjustments described in the notes thereto. The transaction
between Factual Data Corp. and Mirocon, Inc. has been accounted for as a
combination of companies under the purchase method. A separate Proforma combined
balance sheet is not included as the acquisition took place December 1, 1997 and
is included in the historical balance sheet of Factual Data Corp. at December
31, 1997. These pro forma statements are not necessarily indicative of the
results of operations as they might have been had the transaction become
effective on the above mentioned date.
The pro forma combined statements of income for the year ended December 31, 1997
and 1996 include the results of operations of Factual Data Corp. and Mirocon,
Inc.
The unaudited pro forma combined statements of income should be read in
conjunction with the separate historical financial statements and notes thereto
of Factual Data Corp. and Mirocon, Inc.
F-30
<PAGE> 99
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Factual
Data Mirocon Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
System affiliates............................................... $ 1,446,559 $ -- $ 1,446,559
Information services............................................ 2,066,254 935,727 3,001,981
Proceeds from the sale of Company operated territories.......... 480,000 -- 480,000
Training, license and other..................................... 16,000 -- 16,000
------------ ------------ ------------
Total revenue................................................. 4,008,813 935,727 4,944,540
Operating Expenses
Costs of services provided...................................... 2,123,357 392,490 2,515,847
Costs of Company operated territories........................... 31,302 -- 31,302
Selling, general and administrative............................. 1,412,974 463,582 1,876,556
------------ ------------ ------------
Total operating expenses...................................... 3,567,633 856,072 4,423,705
Income from operations............................................. 441,180 79,655 520,835
Other income (expense)
Other income.................................................... 29,437 2,394 31,831
Interest expense................................................ (108,919) (469) (109,388)
------------ ------------ ------------
Income before income taxes......................................... 361,698 81,580 443,278
Income tax expense (benefit)....................................... 78,063 28,000 106,063
------------ ------------ ------------
Net income......................................................... $ 283,635 $ 53,580 $ 337,215
============ ============ ============
Basic earnings per share........................................... 0.16 .03 0.19
============ ============ ============
Weighted average pro forma shares outstanding...................... 1,800,000 1,800,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------- Pro Forma
Debit Credit Combined
------------ ------------ -------------
<S> <C> <C> <C>
Revenue
System affiliates............................................... $ 72,290 (1) $ -- $ 1,374,269
------------ ------------ -------------
Information services............................................ -- -- 3,001,981
Proceeds from the sale of Company operated territories.......... -- -- 480,000
Training, license and other..................................... -- -- 16,000
------------ ------------ -------------
Total revenue................................................. 72,290 -- 4,872,250
Operating Expenses
Costs of services provided...................................... -- 72,290(1) 2,443,557
Costs of Company operated territories........................... -- -- 31,302
Selling, general and administrative............................. 39,695 (4) 93,000(2) 1,823,251
------------ ------------ -------------
Total operating expenses...................................... 39,695 165,290 4,298,110
Income from operations............................................. 111,985 165,290 574,140
Other income (expense)
Other income.................................................... -- -- 31,831
Interest expense................................................ 29,000 (3) -- (138,388)
------------ ------------ -------------
Income before income taxes......................................... 140,985 165,290 467,583
Income tax expense (benefit)....................................... (47,935)(5) 56,199(5) 114,327
------------ ------------ -------------
Net income......................................................... $ 93,050 $ 109,091 $ 353,256
============ ============ =============
Basic earnings per share........................................... .05 .06 0.20
============ ============ =============
Weighted average pro forma shares outstanding...................... 1,800,000
=============
</TABLE>
F-31
<PAGE> 100
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Factual
Data Mirocon Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
System affiliates............................................... $ 1,950,668 $ - $ 1,950,668
Information services............................................ 734,946 904,587 1,639,533
Proceeds from the sale of Company operated territories.......... 714,365 - 714,365
Training, license and other..................................... 119,692 - 119,692
------------ ------------ ------------
Total revenue................................................. 3,519,671 904,587 4,424,258
------------ ------------ ------------
Operating Expenses
Costs of services provided...................................... 1,301,085 340,422 1,641,507
Costs of Company operated territories........................... 506,101 - 506,101
Selling, general and administrative............................. 916,521 468,973 1,385,494
------------ ------------ ------------
Total operating expenses...................................... 2,723,707 809,395 3,533,102
Income from operations............................................. 795,964 95,192 891,156
Other income (expense).............................................
Other income.................................................... 28,806 8,240 37,046
Interest expense................................................ (77,497) - (77,497)
------------ ------------ ------------
Income before income taxes......................................... 747,273 103,432 850,705
Income tax expense (benefit)....................................... 244,339 35,000 279,339
------------ ------------ ------------
Net income......................................................... $ 502,934 $ 68,432 $ 571,366
============ ============ ============
Basic earnings per share........................................... 0.28 .03 0.31
============ ============ ============
Weighted average pro forma shares outstanding...................... 1,800,000 1,800,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------- Pro Forma
Debit Credit Combined
------------ ------------ -------------
<S> <C> <C> <C>
Revenue
System affiliates............................................... $ 54,265 (1) $ - $ 1,896,403
Information services............................................ - - 1,639,533
Proceeds from the sale of Company operated territories.......... - - 714,365
Training, license and other..................................... - - 119,692
------------ ------------ -------------
Total revenue................................................. 54,265 - 4,369,993
------------ ------------ -------------
Operating Expenses
Costs of services provided...................................... - 54,265(1) 1,587,242
Costs of Company operated territories........................... - - 506,101
Selling, general and administrative............................. 39,695 (4) 105,547(2) 1,319,642
------------ ------------ -------------
Total operating expenses...................................... 39,695 159,812 3,412,985
Income from operations............................................. 93,960 159,812 957,008
Other income (expense).............................................
Other income.................................................... - - 37,046
Interest expense................................................ 26,000 (3) - (103,497)
------------ ------------ -------------
Income before income taxes......................................... 119,960 159,812 890,557
Income tax expense (benefit)....................................... (40,786)(5) 54,336(5) 292,889
------------ ------------ -------------
Net income......................................................... $ 79,174 $ 105,476 $ 597,668
============ ============ =============
Basic earnings per share........................................... .04 .06 0.33
=========== ============ =============
Weighted average pro forma shares outstanding...................... 1,800,000
=============
</TABLE>
F-32
<PAGE> 101
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The acquisition of the operating assets of Mirocon, Inc., included property and
equipment, a non-compete agreement and customer lists for a total purchase price
of $519,419. Factual Data Corp. issued a note payable for $469,419 and paid
$50,000 cash at closing. The purchase price has been allocated as follows:
<TABLE>
<CAPTION>
Asset Category Valuation
--------------------------------- ---------------
<S> <C>
Property and equipment........... $ 24,000
Non-compete agreement............ 50,000
Customer lists................... 445,419
---------------
$ 519,419
===============
</TABLE>
The following adjustments are related to the business combination between
Factual Data Corp. and Mirocon, Inc.
1. To eliminate royalty and franchise fees.
2. To eliminate officer's salaries and bonus, for a Mirocon officer who did
not continue employment with Factual Data Corp. and was not replaced.
3. To record interest expense on acquisition debt, which reflects an 8% annual
rate.
4. To record amortization expense on non-compete agreement and customer list.
5. Pro-forma income tax adjustment at the statutory rate of 34%.
F-33
<PAGE> 102
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
UNTIL o, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OR WARRANTS, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
1,200,000 SHARES OF
COMMON STOCK
AND
1,200,000 REDEEMABLE
COMMON STOCK PURCHASE
WARRANTS
FACTUAL DATA CORP.
________________
PROSPECTUS
________________
SCHNEIDER SECURITIES, INC.
FEBRUARY , 1998
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws requires the Registrant to indemnify, to the
fullest extent authorized by applicable law, any person who is or is threatened
to be made a party to any civil, criminal, administrative, investigative, or
other action or proceeding instituted or threatened by reason of the fact that
he is or was a director or officer of the Registrant or is or was serving at
the request of the Registrant as a director of officer of another corporation,
partnership, joint venture, trust or other enterprise.
The Registrant's Articles of Incorporation provides that, to the fullest
extent permitted by Colorado law, directors and officers of the Registrant
shall not be liable to the Registrant or any of its shareholders for damages
caused by a breach of fiduciary duty by such director or officers.
Sections 7-109-102 and 103 of the Colorado Business Corporation Act
("CBCA") authorize the indemnification of directors and officers against
liability incurred by reason of being a director or officer and against
expenses (including attorney's fees) judgments, fines and amounts paid in
settlement and reasonably incurred in connection with any action seeking to
establish such liability, in the case of third-party claims, if the officer or
director 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 in the case of
actions by or in the right of the corporation, if the officer or director acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation and if such officer or director shall not
have been adjudged liable to the corporation, unless a court otherwise
determines. Indemnification is also authorized with respect to any criminal
action or proceeding where the officer or director also had no reasonable cause
to believe his conduct was unlawful.
All executive officers and directors of the Company have entered into
indemnification agreements with the Company which provide for certain defense
costs and reimbursements.
The above discussion of the Registrant's Articles of Incorporation, bylaws
the CBCA and the indemnification agreements is only a summary and is qualified
in its entirety by the full text of each of the foregoing.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, in which each Underwriter agrees, under certain
circumstances, to indemnify the directors and officers of the Registrant and
certain other persons against certain civil liabilities.
The Company is in the process of receiving quotes for a Directors' and
Officers' Liability Insurance policy. The terms of such a policy, if obtained,
will be disclosed by amendment.
II-1
<PAGE> 104
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby, all of which expenses, except
for the Commission registration fee and the National Association Securities
Dealers, Inc. and Nasdaq SmallCap Market filing fees, are estimated:
<TABLE>
<S> <C>
Commission registration fee....................................................... $ 5,677
National Association of Securities Dealers, Inc. filing fee....................... 2,425
Nasdaq SmallCap Market filing fee................................................. 7,500
Representative's Non-Accountable Expense Allowance................................ 183,600
Printing expenses................................................................. 80,000
Legal fees and expenses........................................................... 80,000
Accounting fees and expenses...................................................... 100,000
Blue sky fees and expenses........................................................ 20,000
Directors and officers liability insurance........................................ 50,000
Transfer agent fees............................................................... 5,000
Miscellaneous..................................................................... 6,798
-----------
Total.................................................................... $ 541,000
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In April 1997, the Registrant issued 1,800,000 shares of its Common
Stock to its four founders (i.e., Jerald H., Marcia C., Russell E. and James N.
Donnan) in exchange for all of their shares of FDC Group, Inc. and Lenders
Resource Incorporated. Both of these companies are now wholly owned
subsidiaries of the Registrant. Contemporaneous with the completion of the
offering described herein, the Registrant will issue options to purchase 17,000
shares of the Registrant's Common Stock to 22 of its employees and options to
purchase 10,000 shares to the two independent directors of the Company.
No underwriters were involved in these transactions. The issuances
were or will be made in transactions exempt from the requirements of Section 5
of the Securities Act, pursuant to Section 3(a)(9) and/or Section 4(2) thereof.
With regard to the Registrant's reliance upon such exemption, the Company made
certain inquiries to establish that such issuances qualified for the exemption.
In particular, the Registrant received written representations from each
purchaser/recipient that, among other things, he or she was an experienced and
sophisticated investor not in need of the protection afforded investors by the
Securities Act and that he or she had made available all information necessary
in order to make an informed investment decision to acquire the securities.
The Registrant further obtained a representation from each purchaser/recipient
of his or her intent to acquire the securities for purposes of investment only
and not with a view toward any distribution or public resale, and each of the
certificates representing the securities has been embossed with a restrictive
legend restricting transfer of the securities.
II-2
<PAGE> 105
ITEM 27. EXHIBITS
The following exhibits are filed herewith:
1.1 Form of Underwriting Agreement.
1.3 Form of Selected Dealers Agreement.
1.4 Form of Warrant Exercise Fee Agreement.
1.5 Form of Custody Agreement.
3.1 Articles of Incorporation of the Registrant and amendment.
3.2 Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate of the Registrant.*
4.2 Specimen Warrant Certificate of the Registrant.*
4.3 Form of Representative's Option for the Purchase of Common
Stock.
4.3A Form of Representative's Option for the Purchase of Warrants.
4.4 Form of Warrant Agreement.
5.1 Opinion of Jones & Keller as to the legality of the issuance
of the Common Stock and Warrants.*
10.1 Office Lease between FDC Office I, LLC and Lenders Resource
Incorporated dated August 14, 1997 and as amended December 26,
1997.
10.2 Registrant's 1997 Stock Incentive Plan, as amended, with form
of Stock Option Agreement.
10.3 Employment Agreement with Jerald H. Donnan, as amended.
10.4 Employment Agreement with Marcia R. Donnan, as amended.
10.5 Form of Indemnification Agreement.
10.6A Form of Franchise Agreement.
10.6B Form of License Agreements.
10.6C Credit Reporting Service Agreement with Trans Union
Corporation.
II-3
<PAGE> 106
10.6D Agreement for Service--Consumer Reporting Agencies with
Equifax Credit Information Services, Inc.
10.6E Reseller Services Agreement with Experian Information
Solutions, Inc.
10.6F Assets Purchase Agreement between the Company and Mirocon,
Inc. dated December 1, 1997.
10.6G Flood Zone Determination Agreement between the Company and GE
Capital Corporation dated February 19, 1996.
21. Subsidiaries of the Registrant.
23.1 Consent of Ehrhardt Keefe Steiner & Hottman PC.
23.2 Consent of Jones & Keller, P.C. (filed as part of Exhibit 5.1)*
- -------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by a
final adjudication of such issue.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act; (ii)
to reflect in the Prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information in the Registration Statement; and (iii) to include
any additional or changed material information with respect to the plan of
distribution.
II-4
<PAGE> 107
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to the directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities
Act, treat the information omitted from the form of
prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act as part of this Registration Statement
as of the time it was declared effective.
(b) For determining any liability under the Securities
Act, treat each post-effective amendment that
contains a form of prospectus as a new registration
statement for the securities at that time as the
initial bona fide offering of those securities.
II-5
<PAGE> 108
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Fort Collins, State of Colorado, on this 27th
day of February, 1998.
FACTUAL DATA CORP.
By: /s/ Jerald H. Donnan
---------------------------------
Jerald H. Donnan, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ Jerald H. Donnan Chairman of the Board of February 27, 1998
--------------------------------------- Directors, President and Chief
Jerald H. Donnan Executive Officer (Principal
Executive Officer)
By: /s/ Todd Neiberger Chief Financial Officer and a February 27, 1998
---------------------------------------- Director (Principal Financial and
Todd Neiberger Accounting Officer)
By: /s/ James N. Donnan Vice President and a Director February 27, 1998
--------------------------------------
James N. Donnan
By: /s/ Robert J. Terry Director February 27, 1998
----------------------------------------
Robert J. Terry
By: /s/ Abdul H. Rajput Director February 27, 1998
----------------------------------------
Abdul H. Rajput
</TABLE>
II-6
<PAGE> 109
EXHIBIT INDEX
1.1 Form of Underwriting Agreement.
1.3 Form of Selected Dealers Agreement.
1.4 Form of Warrant Exercise Fee Agreement.
1.5 Form of Custody Agreement.
3.1 Articles of Incorporation of the Registrant and amendment.
3.2 Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate of the Registrant.*
4.2 Specimen Warrant Certificate of the Registrant.*
4.3 Form of Representative's Option for the Purchase of Common
Stock.
4.3A Form of Representative's Option for the Purchase of Warrants.
4.4 Form of Warrant Agreement.
5.1 Opinion of Jones & Keller as to the legality of the issuance
of the Common Stock and Warrants.*
10.1 Office Lease between FDC Office I, LLC and Lenders Resource
Incorporated dated August 14, 1997 and as amended December 26,
1997.
10.2 Registrant's 1997 Stock Incentive Plan, as amended, with form
of Stock Option Agreement.
10.3 Employment Agreement with Jerald H. Donnan, as amended.
10.4 Employment Agreement with Marcia R. Donnan, as amended.
10.5 Form of Indemnification Agreement.
10.6A Form of Franchise Agreement.
<PAGE> 110
10.6B Form of License Agreements.
10.6C Credit Reporting Service Agreement with Trans Union
Corporation.
10.6D Agreement for Service--Consumer Reporting Agencies with
Equifax Credit Information Services, Inc.
10.6E Reseller Services Agreement with Experian Information
Solutions, Inc.
10.6F Assets Purchase Agreement between the Company and Mirocon,
Inc. dated December 1, 1997.
10.6G Flood Zone Determination Agreement between the Company and GE
Capital Corporation dated February 19, 1996.
21. Subsidiaries of the Registrant.
23.1 Consent of Ehrhardt Keefe Steiner & Hottman PC.
23.2 Consent of Jones & Keller, P.C. (filed as part of Exhibit 5.1)*
- -------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
1,200,000 SHARES OF COMMON STOCK
1,200,000 WARRANTS
FACTUAL DATA CORP.
UNDERWRITING AGREEMENT
, 1998
Schneider Securities, Inc.
1120 Lincoln Street
Suite 900
Denver, Colorado 80203
Dear Sirs:
Factual Data Corp., a Colorado corporation (the "Company") hereby
confirms its agreement with you (who are sometimes hereinafter referred to as
the "Representative") and with the other members of the underwriting group (the
"Underwriters") named on Schedule 1 hereto as follows:
1. Introductory. Subject to the terms and conditions contained
herein, the Company proposes to issue and sell to the Underwriters 1,200,000
shares of common stock (the "Common Stock") and 1,200,000 redeemable warrants
(the "Warrants"). In addition, solely for the purpose of covering
over-allotments, the Company grants to the Representative the option to purchase
up to an additional 180,000 shares of Common Stock and/or 180,000 Warrants (the
"Additional Securities"), which option to purchase shall be exercisable, in
whole or in part, from time to time during the forty-five (45) day period
commencing on the date on which the Registration Statement (as hereinafter
defined) is initially declared effective (the "Effective Date") by the
Securities and Exchange Commission (the "Commission"). Unless otherwise noted,
the Common Stock, together with the additional 180,000 shares of Common Stock
issuable on exercise of the over-allotment option, is referred to hereinafter as
the "Common Stock" and the Warrants and the 180,000 Warrants issuable on
exercise of the over-allotment option are referred to hereinafter as the
"Warrants".
Each Warrant will entitle the holder to purchase one share of Common
Stock (a "Warrant Share") at a price equal to $ during the
thirty-six (36) month exercise period of the Warrants, subject to the Company's
right of redemption. The Warrants may be redeemed by the Company commencing
one year from the Effective Date of the Registration Statement upon at least 30
days prior written notice, in whole but not in part, at a price of $.05 per
Warrant provided the
<PAGE> 2
closing bid price for the Company's Common Stock is at least 150% of the
exercise price of the Warrant during each day of the twenty (20) trading day
period ending five days preceding the date of the written notice. The terms and
provisions of the Warrants shall be governed by a warrant agreement between the
Company and its transfer agent (the "Warrant Agreement"), which Warrant
Agreement will contain, among other provisions, anti-dilution protection for
warrantholders on terms acceptable to the Representative. The Common Stock,
Warrants and Additional Securities are more fully described in the Prospectus
referred to below. All references to the Company below shall be deemed to
include, where appropriate, the Company's subsidiaries, if any.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
a. The Company has filed with the Commission a
registration statement, and may have filed one or more amendments
thereto, on Form SB-2 (Registration No. 333- ), including in
such registration statement and each such amendment a facing sheet,
the information called for by Part I, audited consolidated financial
statements for the past two fiscal years or such other period as may
be appropriate, the information called for by Part II, the
undertakings to deliver certificates, file reports and file
post-effective amendments, the required signatures, consents of
experts, exhibits, a related preliminary prospectus (a "Preliminary
Prospectus") and any other information or documents which are required
for the registration of the Common Stock and Warrants, the Warrant
Shares, the purchase options referred to in Section 2(n) (the
"Representative's Options"), and the securities referred to in Section
2(n) underlying the Representative's Options (the "Representative's
Option Securities"), under the Securities Act of 1933, as amended (the
"Act"). As used in this Agreement, the term "Registration Statement"
means such registration statement, including incorporated documents,
all exhibits and consolidated financial statements and schedules
thereto, as amended, when it becomes effective, and shall include
information with respect to the Common Stock, the Warrants, the
Warrant Shares, the Representative's Options, and the Representative's
Option Securities and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to
Rule 430A of the General Rules and Regulations promulgated under the
Act (the "Regulations"), which information is deemed to be included
therein when it becomes effective as provided by Rule 430A; the term
"Preliminary Prospectus" means each prospectus included in the
Registration Statement, or any amendments thereto, before it becomes
effective under the Act and any prospectus
-2-
<PAGE> 3
filed by the Company with the consent of the Representative pursuant
to Rule 424(a) of the Regulations; and the term "Prospectus" means the
final prospectus included as part of the Registration Statement,
except that if the prospectus relating to the securities covered by
the Registration Statement in the form first filed on behalf of the
Company with the Commission pursuant to Rule 424(b) of the Regulations
shall differ from such final prospectus, the term "Prospectus" shall
mean the prospectus as filed pursuant to Rule 424(b) from and after
the date on which it shall have first been used.
b. When the Registration Statement becomes effective,
and at all times subsequent thereto, to and including the Closing Date
(as defined in Section 3) and each Additional Closing Date (as defined
in Section 3), and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the
Representative or any dealer, and during such longer period until any
post-effective amendment thereto shall become effective, the
Registration Statement (and any post-effective amendment thereto) and
the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment or supplement to the
Registration Statement or the Prospectus) will contain all statements
which are required to be stated therein in accordance with the Act and
the Regulations, will comply with the Act and the Regulations, and
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and no event will have
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has
not then been set forth in such an amendment or supplement; and no
Preliminary Prospectus, as of the date filed with the Commission,
included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading; except that no representation
or warranty is made in this Section 2(b) with respect to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Company as stated in Section 8(b) with
respect to the Underwriters by or on behalf of the Underwriters
expressly for inclusion in any Preliminary Prospectus, the
Registration Statement, or the Prospectus, or any amendment or
supplement thereto.
c. Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction have issued an order (a "Stop
Order") suspending the effectiveness of the Registration Statement,
preventing or suspending the use of any Preliminary Prospectus, the
-3-
<PAGE> 4
Prospectus, the Registration Statement, or any amendment or supplement
thereto, refusing to permit the effectiveness of the Registration
Statement, or suspending the registration or qualification of the
Common Stock, the Warrants, the Warrant Shares, the Representative's
Options, or the Representative's Option Securities, nor has any of
such authorities instituted or threatened to institute any proceedings
with respect to a Stop Order.
d. Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement or the
Prospectus has been properly described therein. Any contract,
agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the
Commission as an exhibit to or has been incorporated as an exhibit by
reference into the Registration Statement.
e. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Colorado, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and assets
and to carry on the business in the manner described in the
Prospectus. The Company is duly qualified to do business and is in
good standing in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its
business makes such qualifications necessary. The Company has no
subsidiaries except as disclosed in the Prospectus.
f. The authorized capital stock of the Company consists
of 10,000,000 shares of Common Stock, of which 1,800,000 shares of
Common Stock are issued and outstanding, 27,000 shares of Common Stock
are reserved for issuance upon the exercise of currently outstanding
options and 173,000 shares of Common Stock are reserved for issuance
upon the exercise of the remaining options authorized under the
Company's option plans; and 1,000,000 shares of Preferred Stock, none
of which are issued or outstanding. Of the outstanding shares of
Common Stock, 500,000 shares are subject to a custody agreement,
release under which will occur upon the earlier of (i) the Company
achieving designated certain financial performance criteria as set
forth in the custody agreement or (ii) , 2005 (seven
years from the date of the Prospectus), all or more fully set forth in
a custody agreement (the "Custody Agreement") by and among Jerald H.
Donnan, Marcia R. Donnan, Russell E. Donnan, James N. Donnan,
American Securities Transfer & Trust, Inc., the
-4-
<PAGE> 5
Company and the Representative. Each outstanding share of Common
Stock is validly authorized, validly issued, fully paid, and
nonassessable, without any personal liability attaching to the
ownership thereof, and has not been issued and is not owned or held in
violation of any preemptive rights of stockholders. There is no
commitment, plan, or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share of
capital stock of the Company or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as set forth above, and as may be
properly described in the Prospectus.
g. The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly
present with respect to the Company the consolidated financial
position, the results of operations, and the other information
purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles, except to the extent that certain footnote
disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
consistently applied throughout the periods involved, are correct and
complete, and are in accordance with the books and records of the
Company. The accountants whose report on the audited consolidated
financial statements is filed with the Commission as a part of the
Registration Statement are, and during the periods covered by their
report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants with respect to the
Company within the meaning of the Act and the Regulations. No other
financial statements are required by Form SB-2 or otherwise to be
included in the Registration Statement or the Prospectus. There has
at no time been a material adverse change in the consolidated
financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company from the
latest information set forth in the Registration Statement or the
Prospectus, except as may be properly described in the Prospectus.
h. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation pending, or, to the knowledge of the Company,
threatened, or in prospect with respect to the Company or any of its
operations, businesses, properties, or assets, except as may be
properly described in the Prospectus or such as
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<PAGE> 6
individually or in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business,
properties, or assets of the Company. The Company is not in violation
of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree except as may be properly described in the
Prospectus or such as in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, or assets of the Company; nor is the Company
required to take any action in order to avoid any such violation or
default.
i. The Company has good and marketable title in fee
simple absolute to all real properties and good title to all other
properties and assets which the Prospectus indicates are owned by it,
free and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages except as may be properly described in the
Prospectus or such as in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, or assets of the Company. No real property
owned, leased, licensed, or used by the Company lies in an area which
is, or to the knowledge of the Company will be, subject to zoning,
use, or building code restrictions which would prohibit, and no state
of facts relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing, or use of any real
or personal property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of such real
property in the business of the Company as presently conducted or as
the Prospectus indicates it contemplates conducting, except as may be
properly described in the Prospectus or such as in the aggregate do
not now have and will not in the future have a material adverse effect
upon the operations, business, properties, or assets of the Company.
j. Neither the Company nor any other party is now or is
expected by the Company to be in violation or breach of, or in default
with respect to complying with, any material provision of any
contract, agreement, instrument, lease, license, arrangement, or
understanding which is material to the Company, and each such
contract, agreement, instrument, lease, license, arrangement, and
understanding is in full force and is the legal, valid, and binding
obligation of the parties thereto and is enforceable as to them in
accordance with its terms. The Company enjoys peaceful and
undisturbed possession under all leases and licenses under which it is
operating. The Company is not a party to or bound by any contract,
agreement, instrument, lease, license, arrangement, or understanding,
or subject to any charter or other restriction, which has had or may
in the future have a material
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<PAGE> 7
adverse effect on the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the
Company. The Company is not in violation or breach of, or in default
with respect to, any term of its Articles of Incorporation (or other
charter document) or by-laws.
k. All patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights,
franchises, technology, know-how and other intangible properties and
assets (all of the foregoing being herein called "Intangibles") that
the Company owns or has pending, or under which it is licensed, are in
good standing and uncontested. Except as otherwise disclosed in the
Registration Statement, the Intangibles are owned by the Company, free
and clear of all liens, security interests, pledges, and encumbrances.
"Factual Data" is a registered trademark used by the Company to
identify its services and such mark is protected by registration in
the name of the Company on the principal register of the United States
Patent Office. There is no right under any Intangible necessary to
the business of the Company as presently conducted or as the
Prospectus indicates it contemplates conducting (except as may be so
designated in the Prospectus). The Company has not infringed, is not
infringing, and has not received notice of infringement with respect
to asserted Intangibles of others. To the knowledge of the Company,
there is no infringement by others of Intangibles of the Company. To
the knowledge of the Company, there is no Intangible of others which
has had or may in the future have a materially adverse effect on the
financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company.
l. Neither the Company nor any director, officer, agent,
employee, or other person associated with or acting on behalf of the
Company has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated
any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment. The Company has not accepted any
material advertising allowances or marketing allowances from suppliers
to the Company and, to the extent any advertising allowance has been
accepted, the Company has provided proper documentation to the
supplier with respect to advertising as to which the advertising
allowance has been granted.
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<PAGE> 8
m. The Company has all requisite power and authority to
execute and deliver, and to perform thereunder each of this Agreement,
the Warrants, the Representative's Options, the Warrant Exercise Fee
Agreement described in Section 5(ff) (the "Warrant Exercise Fee
Agreement") and the Custody Agreement. All necessary corporate
proceedings of the Company have been duly taken to authorize the
execution and delivery, and performance thereunder by the Company of
this Agreement, the Warrants, the Representative's Options, the
Warrant Exercise Fee Agreement and the Custody Agreement. This
Agreement has been duly authorized, executed, and delivered by the
Company, is a legal, valid, and binding obligation of the Company, and
is enforceable as to the Company in accordance with its terms. Each
of the Warrants, the Representative's Options, the Warrant Exercise
Fee Agreement and the Custody Agreement has been duly authorized by
the Company and, when executed and delivered by the Company, will each
be a legal, valid, and binding obligation of the Company, and will be
enforceable against the Company in accordance with its respective
terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution and
delivery, or performance thereunder by the Company of this Agreement,
the Warrants or the Representative's Options except filings under the
Act which have been or will be made before the Closing Date and such
consents consisting only of consents under "blue sky" or securities
laws which are required in connection with the transactions
contemplated by this Agreement and which have been obtained at or
prior to the date of this Agreement. No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its
properties or assets are subject, is required for the execution or
delivery, or performance thereunder of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee Agreement or
the Custody Agreement; and the execution and delivery, and performance
thereunder of this Agreement, the Warrants, the Representative's
Options, the Warrant Exercise Fee Agreement and the Custody Agreement
will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, arrangement, or understanding,
or violate or result in a breach of any term of the Articles of
Incorporation or by-laws of the Company, or violate, result in a
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<PAGE> 9
breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject.
n. The Common Stock, the Warrants, the Warrant Shares,
purchase options (the "Representative's Options") entitling the
Representative or its assigns to purchase the Representative's Option
Securities, and the Representative's Option Securities are validly
authorized and reserved for issuance. The Common Stock, when issued
and delivered in accordance with this Agreement, the Warrant Shares,
when issued and delivered upon exercise of the Warrants, the
Representative's Option Securities, when issued and delivered upon
exercise of the Representative's Options and the Representative's
Option Shares issuable on exercise of warrants included in the
Representative's Option Securities, upon payment of the exercise price
therefor, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders, and the Underwriters will receive good title to the
Common Stock and the Warrants purchased, the Representative will
receive good title to the Representative's Options purchased and any
purchaser of the Warrant Shares or Representative's Option Securities
will receive good title thereto, all such title free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts.
o. The Common Stock, the Warrants, the Warrant Shares,
the Representative's Options and the Representative's Option
Securities conform to all statements relating thereto contained in the
Registration Statement and the Prospectus.
p. Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
and except as may otherwise be properly described in the Prospectus,
the Company has not (i) issued any securities or incurred any
liability or obligation, primary or contingent, for borrowed money,
(ii) entered into any transaction not in the ordinary course of
business, or (iii) declared or paid any dividend on its capital stock.
q. Neither the Company nor any of its officers,
directors, or affiliates (as defined in the Regulations), has taken or
will take, directly or indirectly, prior to the termination of the
distribution of securities contemplated by this Agreement, any action
designed to stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in the
future reasonably be expected to cause or result in, stabilization or
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<PAGE> 10
manipulation of the price of any security of the Company, to
facilitate the sale or resale of the Common Stock and Warrants.
r. The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement.
s. The Company has obtained from each officer, director
and person who beneficially owns shares of the Company's capital stock
or derivative securities convertible into shares of the Company's
capital stock his or her enforceable written agreement that for a
period of 18 months from the Effective Date, he or she will not,
without the Representative's prior written consent, offer, pledge,
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of capital stock or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock (except
that, subject to compliance with applicable securities laws, any such
officer, director or stockholder may transfer his or her stock in a
private transaction, provided that any such transferee shall agree, as
a condition to such transfer, to be bound by the restrictions set
forth in this Agreement and further provided that the transferor,
except in the case of the transferor's death, shall continue to be
deemed the beneficial owner of such shares in accordance with
Regulation 13d-(3) of the Exchange Act). For a period of three (3)
years, commencing 18 months from the Effective Date, all public sales
by officers, directors and stockholders of the Company prior to the
Effective Date shall be effected through or with the Representative on
an exclusive basis, provided that the Representative offers the best
price reasonably available to the selling stockholders. In addition,
for a period of three years commencing 18 months from the Effective
Date in the case of private transactions in the Company's Common
Stock, each such selling security holder specified above shall offer
the Representative the exclusive opportunity to purchase or sell the
securities on terms at least as favorable as the selling security
holder can obtain elsewhere. If the Representative fails to accept in
writing any such proposal for sale by the selling security holders
within three (3) business days after receipt of a notice containing
such proposal, then the Representative shall have no claim or right
with respect to any such sales contained in such notice. If,
thereafter, such proposal is modified in any material respect, the
selling security holders shall adopt the same procedure as with
respect to the original proposal. An appropriate legend shall be
marked on the face of stock
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<PAGE> 11
certificates representing all of such securities. Public or private
sales of Common Stock by such persons shall not include gifts,
intra-family transfers or transfers for estate planning purposes,
which shall be exempt from the foregoing provisions. The Company, on
behalf of itself, and all officers, directors and holders of five
percent or more of the Common Stock of the Company, have provided the
Representative their enforceable written agreements not to sell,
transfer, or hypothecate capital stock or derivative securities of the
Company (i) through a "Regulation S" transaction for a minimum period
of five years from the Effective Date without the prior written
consent of the Representative, or (ii) through a "Regulation D"
transaction for a minimum period of 24 months from the Effective Date.
t. Except as otherwise provided in the Registration
Statement, no person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because
of the filing or effectiveness of the Registration Statement.
u. The Company is eligible to use Form SB-2 for
registration of the Common Stock, the Warrants, the Warrant Shares,
the Representative's Options and the Representative's Option
Securities.
v. No unregistered securities of the Company, of an
affiliate of the Company or of a predecessor of the Company have been
sold within three years prior to the date hereof, except as described
in the Registration Statement.
w. Except as set forth in the Registration Statement,
there is and at the Closing Date there will be no action, suit or
proceeding before any court, arbitration tribunal or governmental
agency, authority or body pending or, to the knowledge of the Company,
threatened which might result in judgments against the Company not
adequately covered by insurance or which collectively might result in
any material adverse change in the condition (financial or otherwise),
the business or the prospects of the Company or would materially
affect the properties or assets of the Company.
x. The Company has filed all federal and state tax
returns which are required to be filed by it and has paid all taxes
shown on such returns and all assessments received by it to the extent
such taxes have become due. All taxes with respect to which the
Company is obligated have been paid or adequate accruals have been set
up to cover any such unpaid taxes.
y. Except as set forth in the Registration Statement:
i. The Company has obtained all permits,
licenses and other authorizations which are required under the
Environmental Laws for the ownership,
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<PAGE> 12
use and operation of each location operated or leased by the
Company (the "Property"), all such permits, licenses and
authorizations are in effect, no appeal nor any other action
is pending to revoke any such permit, license or
authorization, and the Company is in full compliance with all
terms and conditions of all such permits, licenses and
authorizations.
ii. The Company and the Property are in
compliance with all Environmental Laws including, without
limitation, all restrictions, conditions, standards,
limitations, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws
or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
iii. The Company has not, and to the best
knowledge of the Company's executive officers, no other person
has, released, placed, stored, buried or dumped any Hazardous
Substances, Oils, Pollutants or Contaminants or any other
wastes produced by, or resulting from, any business,
commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property or any
property formerly owned, operated or leased by the Company
except for inventories of such substances to be used, and
wastes generated therefrom, in the ordinary course of business
of the Company (which inventories and wastes, if any, were and
are stored or disposed of in accordance with applicable laws
and regulations and in a manner such that there has been no
release of any such substances into the environment).
iv. Except as provided to the Representative,
there exists no written or tangible report, synopsis or
summary of any asbestos, toxic waste or Hazardous Substances,
Oils, Pollutants or Contaminants investigation made with
respect to all or any portion of the assets of the Company
(whether or not prepared by experts and whether or not in the
possession of the executive officers of the Company).
v. Definitions: As used herein:
(1) Environmental Laws means all
federal, state and local laws, regulations, rules and
ordinances relating to pollution or protection of the
environment, including, without limitation, laws
relating to Releases or threatened Releases of
Hazardous Substances, Oils, Pollutants or
Contaminants into the indoor or outdoor environment
(including, without
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<PAGE> 13
limitation, ambient air, surface water, groundwater,
land, surface and subsurface strata) or otherwise
relating to the manufacture, processing,
distribution, use, treatment, storage, Release,
transport or handling of Hazardous Substances, Oils,
Pollutants or Contaminants.
(2) Hazardous Substances, Oils, Pollutants
or Contaminants means all substances defined as such
in the National Oil and Hazardous Substances Pollutant
Contingency Plan, 40 C.F.R. Section 300.6, or defined
as such under any Environmental Law.
(3) Release means any release, spill,
emission, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environmental
(including, without limitation, ambient air, surface
water, groundwater, and surface or subsurface strata)
or into or out of any property, including the movement
of Hazardous Substances, Oils, Pollutants or
Contaminants through or in the air, soil, surface
water, groundwater or any property.
z. Any pro forma financial or other information and
related notes included in the Registration Statement, each Preliminary
Prospectus and the Prospectus comply (or, if the Prospectus has not
been filed with the Commission, as to the Prospectus, will comply) in
all material respects with the requirements of the Act and the rules
and regulations of the Commission thereunder and present fairly the
pro forma information shown, as of the dates and for the periods
covered by such pro forma information. Such pro forma information,
including any related notes and schedules, has been prepared on a
basis consistent with the historical financial statements and other
historical information, as applicable, included in the Registration
Statement, the Preliminary Prospectus and the Prospectus, except for
the pro forma adjustments specified therein, and give effect to
assumptions made on a reasonable basis to give effect to historical
and, if applicable, proposed transactions described in the
Registration Statement, each Preliminary Prospectus and the
Prospectus. All of the above representations and warranties shall
survive the performance or termination of this Agreement.
3. Purchase, Sale, and Delivery of the Common Stock and the
Warrants. On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to the Underwriters,
severally and not jointly, and the Underwriters,
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<PAGE> 14
severally and not jointly, agree to purchase from the Company the number of
shares of Common Stock and Warrants set forth opposite the Underwriters' names
in Schedule 1 hereto.
The purchase price per share of Common Stock to be paid by the
Underwriters shall be $ and the purchase price per Warrant
to be paid by the Underwriters shall be $.09. The initial public offering
price of the Common Stock shall be $ and the initial public
offering price of the Warrants shall be $.10.
Payment for the Common Stock and Warrants by the Underwriters shall be
made by certified or official bank check in clearing house funds, payable
to the order of the Company at the offices of Schneider Securities, Inc., 1120
Lincoln Street, Suite 900, Denver, Colorado 80203, or at such other place in
Denver, Colorado as the Representative shall determine and advise the Company
by at least two full days' notice in writing, upon delivery of the Common Stock
and Warrants to the Representative. Such delivery and payment shall be made at
10:00 a.m., Mountain Time, on the third business day following the time of the
initial public offering, as defined in Section 10(a). The time and date of
such delivery and payment are herein called the "Closing Date."
In addition, the Company hereby grants to the Representative the
option to purchase all or a portion of the Additional Securities as may be
necessary to cover over-allotments, at the same purchase price per Additional
Security as the price per share of Common Stock or Warrant provided for in this
Section 3. The Representative may purchase Common Stock and/or Warrants when
exercising such option, in its sole discretion. This option may be exercised
by the Representative on the basis of the representations, warranties,
covenants, and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, at any time and from time to time on or
before the 45th day following the Effective Date of the Registration Statement,
by written notice by the Representative to the Company. Such notice shall set
forth the aggregate number of Additional Securities as to which the option is
being exercised, and the time and date, as determined by the Representative,
when such Additional Securities are to be delivered (such time and date are
herein called an "Additional Closing Date"); provided, however, that no
Additional Closing Date shall be earlier than the Closing Date nor earlier than
the third business day after the date on which the notice of the exercise of
the option shall have been given nor later than the eighth business day after
the date on which such notice shall have been given; and further provided, that
not more than two Additional Closings shall be noticed and held following
purchase of Additional Securities by the Representative.
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<PAGE> 15
Payment for the Additional Securities shall be made by certified or
official bank check in clearing house funds payable to the order of the Company
at the offices of Schneider Securities, Inc., 1120 Lincoln Street, Suite 900,
Denver, Colorado, or at such other place in Denver, Colorado as you shall
determine and advise the Company by at least two full days' notice in writing,
upon delivery of certificates representing the Additional Securities to you.
Certificates for the Common Stock and Warrants and any Additional
Securities purchased shall be registered in such name or names and in such
authorized denominations as you may request in writing at least two full
business days prior to the Closing Date or Additional Closing Date, as
applicable. The Company shall permit you to examine and package such
certificates for delivery at least one full business day prior to any such
closing with respect thereto.
If for any reason one or more Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 10 hereof) to purchase and pay for
the number of shares of Common Stock and Warrants agreed to be purchased by
such Underwriter, the Company shall immediately give notice thereof to the
Representative, and the non-defaulting Underwriters shall have the right within
24 hours after the receipt by the Representative of such notice, to purchase or
procure one or more other Underwriters to purchase, in such proportions as may
be agreed upon among the Representative and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, the Common Stock and Warrants
which such defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such Common Stock and Warrants, the number of shares of Common Stock and
Warrants which each non-defaulting Underwriter is otherwise obligated to
purchase under the Agreement shall be automatically increased pro rata to
absorb the remaining Common Stock and Warrants which the defaulting Underwriter
or Underwriters agreed to purchase; provided, however, that the non- defaulting
Underwriters shall not be obligated to purchase the Common Stock and Warrants
which the defaulting Underwriter or Underwriters agreed to purchase in excess
of 10% of the total number of shares of Common Stock and Warrants which such
non-defaulting Underwriter agreed to purchase hereunder, and provided further
that the non- defaulting Underwriters shall not be obligated to purchase any
Common Stock and Warrants which the defaulting Underwriter or Underwriters
agreed to purchase if such additional purchase would cause the Underwriter to
be in violation of the net capital rule of the Commission or other applicable
law. If the total number of Common Stock and Warrants which the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance
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<PAGE> 16
with the two preceding sentences, the Company shall have the right, within 24
hours next succeeding the 24-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to the
Representative for the purchase of such Common Stock and Warrants on the terms
herein set forth. In any such case, either the Representative or the Company
shall have the right to postpone the Closing for not more than seven business
days after the date originally fixed as the Closing in order that any necessary
changes in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company shall make arrangements within the 24-hour periods stated above for the
purchase of all the Common Stock and Warrants which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be
terminated without further act or deed and without any liability on the part of
the Company any non-defaulting Underwriter, except the Company shall be liable
for actual expenses incurred by the Representative as provided in Section 10
hereof, and without any liability on the part of any non-defaulting Underwriter
to the Company.
Nothing contained herein shall relieve any defaulting Underwriter of
its liability, if any, to the Company or to the remaining Underwriters for
damages occasioned by its default hereunder.
4. Offering. The Underwriters are to make a public offering of
the Common Stock and Warrants as soon, on or after the effective date of the
Registration Statement, as the Representative deems it advisable so to do. The
Common Stock and Warrants are to be initially offered to the public at the
initial public offering prices as provided for in Section 3 (such prices being
herein called the "public offering prices"). After the initial public
offering, you may from time to time increase or decrease the prices of the
Common Stock and/or Warrants, in your sole discretion, by reason of changes in
general market conditions or otherwise.
5. Covenants of the Company. The Company covenants that it will:
a. Use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If the
Registration Statement has become or becomes effective with a form of
Prospectus omitting certain information pursuant to Rule 430A of the
Regulations, or filing of the Prospectus is otherwise required under
Rule 424(b), the Company will file the Prospectus, properly completed,
pursuant to Rule 424(b) within the time period prescribed and will
provide evidence satisfactory to you of such timely filing.
b. Notify you immediately, and confirm such notice in
writing, (i) when the Registration Statement and any post-effective
amendment thereto become effective, (ii) of the receipt of any
comments from the Commission or the "blue sky" or securities authority
of any
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<PAGE> 17
jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Prospectus, or any amendment or supplement
thereto, and (iii) of the receipt of any notification with respect to
a Stop Order or the initiation or threatening of any proceeding with
respect to a Stop Order. The Company will use its best efforts to
prevent the issuance of any Stop Order and, if any Stop Order is
issued, to obtain the lifting thereof as promptly as possible.
c. During the time when a prospectus relating to the
Common Stock and Warrants or the Additional Securities is required to
be delivered hereunder or under the Act or the Regulations, comply so
far as it is able with all requirements imposed upon it by the Act, as
now existing and as hereafter amended, and by the Regulations, as from
time to time in force, so far as necessary to permit the continuance
of sales of or dealings in the Common Stock and Warrants and
Additional Securities in accordance with the provisions hereof and the
Prospectus. If, at any time when a prospectus relating to the Common
Stock and Warrants or Additional Securities is required to be
delivered hereunder or under the Act or the Regulations, any event
shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Representative, the
Registration Statement or the Prospectus, as then amended or
supplemented, contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or if, in the
opinion of either of such counsel, it is necessary at any time to
amend or supplement the Registration Statement or the Prospectus to
comply with the Act or the Regulations, the Company will immediately
notify you and promptly prepare and file with the Commission an
appropriate amendment or supplement (in form and substance
satisfactory to you) which will correct such statement or omission or
which will effect such compliance and will use its best efforts to
have any such amendment declared effective as soon as possible.
d. Deliver without charge to you such number of copies
of each Preliminary Prospectus as you may reasonably request and, as
soon as the Registration Statement or any amendment thereto becomes
effective or a supplement is filed, deliver without charge to you two
signed copies of the Registration Statement or such amendment thereto,
as the case may be, including exhibits, and two copies of any
supplement thereto, and deliver without charge to you such number of
copies of the Prospectus, the Registration Statement, and amendments
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<PAGE> 18
and supplements thereto, if any, without exhibits, as you may
reasonably request for the purposes contemplated by the Act.
e. Endeavor in good faith, in cooperation with you, at
or prior to the time the Registration Statement becomes effective, to
qualify the Common Stock and Warrants and Additional Securities for
offering and sale under the "blue sky" or securities laws of such
jurisdictions as you may designate; provided, however, that no such
qualification shall be required in any jurisdiction where, as a result
thereof, the Company would be subject to service of general process or
to taxation as a foreign corporation doing business in such
jurisdiction to which it is not then subject. In each jurisdiction
where such qualification shall be effected, the Company will, unless
you agree in writing that such action is not at the time necessary or
advisable, file and make such statements or reports at such times as
are or may be required by the laws of such jurisdiction.
f. Make generally available (within the meaning of
Section 11(a) of the Act and the Regulations) to its security holders
as soon as practicable, but not later than fifteen (15) months after
the date of the Prospectus, an earnings statement (which need not be
certified by independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions
of Section 11(a) of the Act and the Regulations) covering a period of
at least 12 months beginning after the effective date of the
Registration Statement.
g. For a period of 12 months after the date of the
Prospectus, not, without your prior written consent, offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock (or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock) except as
provided in Section 3 and except for (i) the issuance of Warrant
Shares issuable upon the exercise of Warrants or issuance of Common
Stock underlying options outstanding on the date hereof which are
properly described in the Prospectus, (ii) the issuance of
Representative's Option Securities, or (iii) the grant of options
pursuant to the Company's existing stock option plans, or (iv) the
issuance of capital stock in connection with any acquisitions
undertaken by the Company.
h. For a period of five years after the Effective Date
of the Registration Statement, furnish you, without charge, the
following:
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i. Within 90 days after the end of each fiscal
year, three copies of consolidated financial statements
certified by independent certified public accountants,
including a balance sheet, statement of operations, and
statement of cash flows of the Company and its then existing
subsidiaries, with supporting schedules, prepared in
accordance with generally accepted accounting principles, at
the end of such fiscal year and for the 12 months then ended;
ii. As soon as practicable after they have been
sent to stockholders of the Company or filed with the
Commission, three copies of each annual and interim financial
and other report or communication sent by the Company to its
stockholders or filed with the Commission;
iii. As soon as practicable, two copies of every
press release and every material news item and article in
respect of the Company or its affairs which was released by
the Company;
iv. Notice of any regular quarterly or special
meeting of the Company's Board of Directors concurrently with
the sending of such notice to the Company's directors; and
v. Such additional documents and information
with respect to the Company and its affairs and the affairs of
any of its subsidiaries as you may from time to time
reasonably request.
i. Designate an Audit Committee and a Compensation
Committee, the members of which shall be subject to your reasonable
approval, which will generally supervise the financial affairs of the
Company and review executive compensation, respectively.
j. Furnish to you as early as practicable prior to the
Closing Date and any Additional Closing Date, as the case may be, but
not less than two full business days prior thereto, a copy of the
latest available unaudited interim consolidated financial statements
of the Company which have been read by the Company's independent
certified public accountants, as stated in their letters to be
furnished pursuant to Section 7(e).
k. File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the
Effective Date of the Registration Statement, unless such filing shall
comply with the Act and the Regulations and unless you shall
previously have been advised of such filing and furnished with a copy
thereof, and you and counsel for
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<PAGE> 20
the Representative shall have approved such filing in writing within a
reasonable time of receipt thereof.
l. Comply with all periodic reporting and proxy solicitation
requirements which may from time to time be applicable to the Company as a
result of the Company's registration under the Exchange Act on a Registration
Statement on Form 8-A .
m. Comply with all provisions of all undertakings contained in
the Registration Statement.
n. Prior to the Closing Date or any Additional Closing Date, as
the case may be, issue no press release or other communication, directly or
indirectly, and hold no press conference and grant no interviews with respect to
the Company, the financial condition, results of operations, business,
properties, assets, or liabilities of the Company, or this offering, without
your prior written consent.
o. File timely with the Commission and the National Association
of Securities Dealers, Inc. (the "NASD"), if required, a report on Form 10-C in
accordance with the Rules and Regulations of the Commission under the Exchange
Act.
p. On or prior to the Closing Date, sell to the Representative
for a total purchase price of $100, Representative's Options entitling the
Representative or its assigns to purchase (i) 120,000 shares of Common Stock at
a price equal to 120% of the public offering price of the Common Stock, and (ii)
120,000 Warrants at a price equal to 120% of the public offering price of the
Warrants, with the terms of the Representative's Options, including exercise
period, anti-dilution provisions, exercise price, exercise provisions,
transferability, and registration rights, to be in the form filed as an exhibit
to the Registration Statement.
q. Until expiration of the Representative's Options, keep
reserved sufficient shares of Common Stock and Warrants for issuance upon
exercise of the Representative's Options, and shares of Common Stock for
issuance upon exercise of the warrants contained in the Representative's
Options.
r. If the Representative, any employee of the Representative or
any company controlled by or under control of the Representative acts as the
introducing broker or finder during the five year period commencing on the
Effective Date with regard to (i) the sale of all or substantially all of the
assets and properties of the Company, (ii) the merger or consolidation of the
Company (other than a merger or consolidation effected for the purpose of
changing the Company's domicile) or (iii) the acquisition by the Company of the
assets or stock of another business entity, which agreement or understanding is
thereafter
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<PAGE> 21
consummated during such five-year period or within one year of expiration of
such five-year period, pay to the Representative or such person(s) as the
Representative may designate an amount equal to 5% of the first $1,000,000 or
portion thereof in value or consideration received or paid by the Company, 4% of
the second $1,000,000 or portion thereof in value or consideration received or
paid by the Company and 3% of such value or consideration received by the
Company in excess of the first $2,000,000 of such value or consideration
received or paid by the Company. The fee payable to the Representative will be
in the same form of consideration as that paid by or to the Company, as the case
may be, in any such transaction. It is understood that the designation of the
Representative to act as a finder is not exclusive and that the Representative
shall not be entitled to the foregoing amounts unless it participates in the
introduction.
s. Within six months of the Closing Date, engage a financial
public relations firm to assist the Company in preparing regular announcements
and disseminating such information to the financial community, such engagement
to extend for a period of at least one year from the date of retention of such
firm.
t. Adopt procedures for the application of the net proceeds it
receives from the sale of the Common Stock and Warrants and apply the net
proceeds from the sale of the Common Stock and Warrants substantially in the
manner set forth in the Registration Statement, which does not contemplate
repayment of debt to officers, directors, stockholders or affiliates of the
Company, unless any deviation from such application is in accordance with the
Registration Statement and occurs only after approval by the Board of Directors
of the Company and then only after the Board of Directors has obtained the
written opinion of recognized legal counsel experienced in federal and state
securities laws as to the propriety of any such deviation.
u. Within the time period which the Prospectus is required to be
delivered under the Act, comply, at its own expense, with all requirements
imposed upon it by the Act, as now or hereafter amended, by the Rules and
Regulations, as from time to time may be enforced, and by any order of the
Commission, so far as necessary to permit the continuance of sales or dealing in
the Common Stock and Warrants.
v. At the Closing, deliver to the Representative true and
correct copies of the Articles of Incorporation of the Company and all
amendments thereto, all such copies to be certified by the Secretary of the
Company; true and correct copies of the by-laws of the
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<PAGE> 22
Company and of the minutes of all meetings of the directors and stockholders of
the Company held prior to the Closing which in any way relate to the subject
matter of this Agreement or the Registration Statement.
w. Use all reasonable efforts to comply or cause to be complied
with the conditions precedent to the several obligations of the Underwriters in
Section 7 hereof.
x. File with the Commission all required information concerning
use of proceeds of the Public Offering in Forms 10-QSB and 10-KSB in accordance
with the provisions of the Act and to provide a copy of such reports to the
Representative and its counsel.
y. Supply to the Representative and the Representative's counsel
at the Company's cost, two bound volumes each containing material documents
relating to the offering of the Common Stock and Warrants within a reasonable
time after the Closing, not to exceed 90 days.
z. As soon as possible prior to the Effective Date, and as a
condition of the Underwriter's obligations hereunder, (i) have the Company
listed on an accelerated basis, and to maintain such listing for not less than
ten years from the Closing Date, in Standard & Poor's Standard Corporation
Records; and (ii) have the Common Stock and Warrants quoted on The Nasdaq
SmallCap Market(SM) as of the Effective Date, on the Closing Date, on the
Additional Closing Date and thereafter for at least ten years provided the
Company is in compliance with The Nasdaq SmallCap Market(SM) maintenance
requirements.
aa. As soon as possible prior to the Effective Date and at such
time as the Company qualifies for listing on the Nasdaq National Market, take
all steps necessary to have the Company's Common Stock and Warrants, to the
extent eligible, listed on the Nasdaq National Market.
bb. Continue, for a period of at least five years following the
Effective Date of the Registration Statement, to appoint such auditors as are
reasonably acceptable to the Representative, which auditors shall (i) prepare
consolidated financial statements in accordance with Regulation S-B or, if
applicable, Regulation S-X under the General Rules and Regulations of the Act
and (ii) examine (but not audit) the Company's consolidated financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-QSB quarterly
report and the mailing of quarterly financial information to security holders.
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<PAGE> 23
cc. Within 90 days of the Effective Date of the Registration
Statement, obtain a "key man" life insurance policy in the amount of $1,000,000
on the life of Jerald H. Donnan, with the Company designated as the beneficiary
of such policy, and pay the annual premiums thereon for a period of not less
than five years from the Effective Date of the Registration Statement.
dd. Cause its transfer agent to furnish the Representative a
duplicate copy of the daily transfer sheets prepared by the transfer agent
during the six-month period commencing on the Effective Date of the Registration
Statement and instruct the transfer agent to timely provide, upon the request of
the Representative, duplicate copies of such transfer sheets and/or a duplicate
copy of a list of stockholders, all at the Company's expense, for a period of 4
1/2 years after such six-month period.
ee. Refrain from filing a Form S-8 Registration Statement for a
period of 18 months from the Effective Date of the Registration Statement
without the Representative's prior written consent. The Company will also
obtain from each holder of options to acquire Common Stock of the Company such
person's written enforceable agreement not to sell shares of Common Stock
pursuant to the exemption afforded by Rule 701 under the 1933 Act for a minimum
period of 18 months from the Effective Date without the prior written consent of
the Representative.
ff. On the Closing Date, enter into a Warrant Exercise Fee
Agreement with the Representative whereby the Company will agree to pay the
Representative a fee of 5% of the aggregate exercise price of each Warrant
exercised commencing one year after the Effective Date, of which a portion may
be allowed by the Representative to the dealer who solicited the exercise (which
may also be the Representative), subject to applicable NASD guidelines.
gg. Afford the Representative the right, but not the obligation,
commencing on the Effective Date and surviving for a period of five years, to
designate an observer to attend meetings of the Board of Directors. The
designee, if any, and the Representative will receive notice of each meeting of
the Board of Directors in accordance with Colorado law, of which no less than
four in-person meetings will be held each year. Any such designee will receive
reimbursement for all reasonable costs and expenses incurred in attending
meetings of the Board of Directors, including but not limited to, food, lodging
and transportation, together with such other fee or compensation as is paid by
the Company to other members of the Board of Directors. Moreover, to the extent
permitted by law, the Representative and its
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<PAGE> 24
designee shall be indemnified for the actions of such designee as an observer to
the Board of Directors and in the event the Company maintains a liability
insurance policy affording coverage for the acts of its officers and/or
directors, to the extent permitted under such policy, each of the Representative
and its designee shall be an insured under such policy.
hh. The Company, on behalf of itself and on behalf of its
officers and directors, hereby grants and covenants to provide the
Representative a non-assignable right of first refusal, which right of first
refusal shall extend for a period of four years after the Effective Date. The
right of first refusal shall entitle the Representative to purchase for its
account, or to sell for the account of the Company, any of the Company's
subsidiaries or any selling security holders or officers, directors or
affiliates of such persons, any debt or equity securities of the Company or
common stock owned by such selling security holders with respect to which the
Company, any of its subsidiaries or successors (other than a successor entity
which has acquired the Company and in which the stockholders of the Company own
less than 25% of the outstanding shares) or selling security holders may seek to
offer and sell pursuant to a registration statement under the Act or in a
private transaction other than with a lending institution. The Company, its
subsidiaries and any selling security holders will consult with the
Representative with regard to any such offering and will offer the
Representative the opportunity to purchase or sell any such securities on terms
not more favorable to the Company than it can secure elsewhere. If the
Representative fails to accept in writing such proposal for financing made by
the Company, its subsidiaries or such selling security holders within 30 days
after the receipt by the Representative of a notice containing such proposal,
then the Representative shall have no further claim or right with respect to the
financing proposal contained in such notice. If thereafter such proposal is
modified, the Company, its subsidiaries or affiliates shall adopt the same
procedure as with respect to the original proposal, except that upon
re-presentation, such term for response by the Representative shall be 15 days.
Should the Representative not avail itself of such opportunity, the right of
first refusal shall not be affected thereby, and the right of first refusal
shall continue in effect for the remaining period thereof. The Company further
agrees that any breach by the Company of the Representative's right of first
refusal shall be enforceable through injunctive relief. The offer or sale by
the Company of equity securities in connection with acquisitions or mergers
shall be exempted from the foregoing right of first refusal.
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<PAGE> 25
6. Payment of Expenses. The Company hereby agrees to pay all
expenses (subject to the last sentence of this Section 6) in connection with
the offering, including but not limited to (a) the preparation, printing,
filing, distribution, and mailing of the Registration Statement and the
Prospectus, including NASD, SEC, Nasdaq filing and/or application fees, and the
printing, filing, distribution, and mailing of this Agreement, any Agreement
Among Underwriters, Selected Dealers Agreement, preliminary and final Blue Sky
Memorandums, material to be circulated to the Underwriters by you and other
incidental or related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus, and any amendments or
supplements thereto, supplied to the Representative in quantities as
hereinabove stated, (b) the issuance, sale, transfer, and delivery of the
Common Stock and Warrants, the Additional Securities, the Warrant Shares, the
Representative's Options and the Representative's Option Securities, including,
without limitation, any original issue, transfer or other taxes payable thereon
and the costs of preparation, printing and delivery of certificates
representing such securities, as applicable, (c) the qualification of the
Common Stock and Warrants, Additional Securities, Representative's Options,
Representative's Option Securities, and Warrant Shares under state or foreign
"blue sky" or securities laws, (d) the fees and disbursements or counsel for
the Company and the accountants for the Company, (e) the listing of the Common
Stock and Warrants on The Nasdaq SmallCap Market(SM), and (f) the
Representative's non-accountable expense allowance equal to 3% of the aggregate
gross proceeds from the sale of the Common Stock and Warrants and the
Additional Securities. Prior to or immediately following the Closing Date, the
Company shall bear the costs of tombstone announcements not to exceed $3,000,
if requested to do so by the Representative. As an incentive for the
Representative to assist the Company in managing its costs and to minimize the
time of its management personnel in traveling to road shows, the Representative
agrees to limit such road show meetings to not more than two meetings for the
Representative's branch offices and underwriting syndicate members and, in
consideration of such limited road show schedule, the Company shall, upon
receipt of an invoice from the Representative, reimburse the Representative for
any direct accountable expenses incurred by the Representative and its
personnel in presenting and/or attending such meetings subject to a maximum of
such accountable expenses of $10,000. Except as hereinabove provided, the
Company and the Representative shall pay their own expenses incurred in
connection with any road shows.
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<PAGE> 26
The Company has previously remitted to the Representative the sum of
$30,000, which sum has been credited as a partial payment in advance of the
non-accountable expense allowance provided for in Section 6(f) above.
7. Conditions of Underwriters' Obligations. The Underwriters'
obligation to purchase and pay for the Common Stock and Warrants and the
Additional Securities, as provided herein, shall be subject to the continuing
accuracy of the representations and warranties of the Company contained herein
and in each certificate and document contemplated under this Agreement to be
delivered to you, as of the date hereof and as of the Closing Date (or the
Additional Closing Date, as the case may be), to the performance by the Company
of its obligations hereunder, and to the following conditions:
a. The Registration Statement shall have become
effective not later than 5:00 p.m., Mountain time, on the date of this
Agreement or such later date and time as shall be consented to in
writing by you.
b. At the Closing Date and any Additional Closing Date,
you shall have received the favorable opinion of Jones & Keller, P.C.,
counsel for the Company, dated the date of delivery, addressed to you,
and in form and scope satisfactory to your counsel, to the effect
that:
i. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Colorado, with full power and authority, and all
necessary consents, authorizations, approvals, orders,
certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals,
to own, lease, license, and use its properties and assets and
to conduct its business in the manner described in the
Prospectus. The Company is duly qualified to do business and
is in good standing in every jurisdiction in which its
ownership, leasing, licensing, or use of property and assets
or the conduct of its business makes such qualification
necessary;
ii. The authorized capital stock of the Company
as of the date of this Agreement consisted of 10,000,000
shares of Common Stock, of which 1,800,000 shares of Common
Stock are issued and outstanding, 27,000 shares of Common
Stock are reserved for issuance upon the exercise of
outstanding options and 173,000 shares of Common Stock are
reserved for issuance upon the exercise of the remaining
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<PAGE> 27
options authorized under the Company's option plans; and
1,000,000 shares of Preferred Stock, none of which are issued
and outstanding; and there have been no changes in the
authorized and outstanding capital stock of the Company since
the date of this Agreement, except as contemplated by the
Registration Statement and the Prospectus. Each outstanding
share of capital stock is validly authorized, validly issued,
fully paid, and nonassessable, with no personal liability
attaching to the ownership thereof, has not been issued and is
not owned or held in violation of any preemptive right of
stockholders. There is no commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of the
Company or any security or other instrument which by its terms
is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as set forth above, and
except as is properly described in the Prospectus. There is
outstanding no security or other instrument which by its terms
is convertible into or exchangeable for capital stock of the
Company, except as described in the Prospectus;
iii. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any
basis therefor) with respect to the Company or any of its
respective operations, businesses, properties, or assets,
except as may be properly described in the Prospectus or such
as individually or in the aggregate do not now have and will
not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company.
The Company is not in violation of, or in default with respect
to, any law, rule, regulation, order, judgment, or decree,
except as may be properly described in the Prospectus or such
as in the aggregate have been disclosed to the Representative
and do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, or
assets of the Company; nor is the Company required to take any
action in order to avoid any such violation or default;
iv. Neither the Company nor any other party is
now or is expected by the Company to be in violation or breach
of, or in default with respect to, complying with any material
provision of any contract, agreement, instrument, lease,
license, arrangement, or understanding which is material to
the Company;
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<PAGE> 28
v. The Company is not in violation or breach of,
or in default with respect to, any term of its Articles of
Incorporation or by-laws;
vi. The Company has all requisite power and
authority to execute and deliver and to perform thereunder
this Agreement, the Warrants, the Representative's Options,
the Warrant Exercise Fee Agreement and the Custody Agreement.
All necessary corporate proceedings of the Company have been
taken to authorize the execution and delivery and performance
thereunder by the Company of this Agreement, the Warrants, the
Representative's Options, the Warrant Exercise Fee Agreement
and the Custody Agreement. Each of this Agreement, the
Warrants, the Representative's Options, the Warrant Exercise
Fee Agreement and the Custody Agreement have been duly
authorized, executed and delivered by the Company, and is a
legal, valid, and binding obligation of the Company, and
(subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally)
enforceable as to the Company in accordance with its
respective terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the
Company for the execution or delivery, or performance
thereunder by the Company of this Agreement, the Warrants,
Representative's Options, the Warrant Exercise Fee Agreement
and the Custody Agreement (except filings under the Act which
have been made prior to the Closing Date and consents
consisting only of consents under "blue sky" or securities
laws which are required in connection with the transactions
contemplated by this Agreement, and which have been obtained
on or prior to the date the Registration Statement becomes
effective under the Act). No consent of any party to any
contract, agreement, instrument, lease, license, arrangement,
or understanding to which the Company is a party, or to which
any of its properties or assets are subject, is required for
the execution or delivery, or performance thereunder of this
Agreement, the Warrants, the Representative's Options, the
Warrant Exercise Fee Agreement or the Custody Agreement; and
the execution and delivery and performance thereunder of this
Agreement, the Warrants, the Representative's Options, the
Warrant Exercise Fee Agreement and the Custody Agreement will
not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both)
entitle
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<PAGE> 29
any party to terminate or call a default under any such
contract, agreement, instrument, lease, license, arrangement,
or understanding, or violate or result in a breach of any term
of the Articles of Incorporation or by-laws of the Company, or
violate, result in a breach of, or conflict with any law,
rule, regulation, order, judgment, or decree binding on the
Company or to which any of its operations, businesses,
properties, or assets are subject;
vii. The shares of Common Stock are, the shares of
Common Stock issuable on exercise of the Warrants will be, the
shares of Common Stock underlying the Representative's Options
will be upon exercise of the Representative's Options, and the
Representative's Option Shares will be upon exercise of the
Warrants underlying the Representative's Options, validly
authorized, validly issued, fully paid, and nonassessable and
are not issued in violation of any preemptive rights of
stockholders, and the Underwriters have received good title to
the Common Stock and Warrants and Additional Securities
purchased by them from the Company, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts; upon payment for
the Warrant Shares and the Representative's Securities, the
holders thereof will receive good title to such securities,
free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreement and voting
trusts. The Common Stock, the Warrants, the Warrant Shares,
the Representative's Options and the Representative's Option
Securities conform to all statements relating thereto
contained in the Registration Statement or the Prospectus;
viii. The Warrant Shares have been duly and validly
reserved for issuance pursuant to the terms of the Warrant
Agreement between the Company and its transfer agent, the
Representative's Option Securities have been duly and validly
reserved for issuance pursuant to the terms of the
Representative's Options or the Warrant Agreement, as the case
may be;
ix. Any contract, agreement, instrument, lease,
or license required to be described in the Registration
Statement or the Prospectus has been properly described
therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an
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exhibit to or has been incorporated as an exhibit by reference
into the Registration Statement;
x. Insofar as statements in the Prospectus
purport to summarize the status of litigation or the
provisions of laws, rules, regulations, orders, judgments,
decrees, contracts, agreements, instruments, leases, or
licenses, such statements have been prepared or reviewed by
such counsel and accurately reflect the status of such
litigation and provisions purported to be summarized and are
correct in all material respects;
xi. Except as provided in the Registration
Statement, no person or entity has the right to require
registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the
Registration Statement;
xii. The Registration Statement has become
effective under the Act. No Stop Order has been issued and no
proceedings for that purpose have been instituted or
threatened;
xiii. The Registration Statement and the
Prospectus, and any amendment or supplement thereto, comply as
to form in all material respects with the requirements of the
Act and the Regulations;
xiv. Such counsel has no reason to believe that
either the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains any untrue statement
of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading (except that no opinion need be
expressed as to the consolidated financial statements and
other financial data and schedules which are or should be
contained therein);
xv. Since the Effective Date of the Registration
Statement, any event which has occurred which should have been
set forth in an amendment or supplement to the Registration
Statement or the Prospectus has been set forth in such an
amendment or supplement;
xvi. The Company is not currently offering any
securities for sale except as described in the Registration
Statement;
xvii. Such counsel has no knowledge of any
promoter, affiliate, parent or subsidiaries of the Company
except as are described in the Registration Statement;
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xviii. The Company has no subsidiaries except as
described in the Registration Statement;
xix. The Company owns or possesses, free and clear
of all liens or encumbrances and rights thereto or therein by
third parties, the requisite licenses or other rights to use
all trademarks, copyrights, service marks, service names,
trade names and licenses necessary to conduct its business
(including without limitation, any such licenses or rights
described in the Registration Statement as being owned or
possessed by the Company or any subsidiary) (all of which are
collectively referred to herein as the "Intellectual
Property"); there is no actual or pending, or threatened
claim, proceeding or action by any person pertaining to or
which challenges the exclusive rights of the Company with
respect to any of the Company's Intellectual Property; based
on a review of all the Company's products, proposed products
and Intellectual Property, such products, proposed products or
Intellectual Property do not and will not infringe on any
trademarks, copyrights, service marks, service names, trade
names or valid patents or patents pending held by third
parties known to the Company and such counsel;
xx. The Company is not a party to any agreement
giving rise to any obligation by the Company or any subsidiary
to pay any third-party royalties or fees of any kind
whatsoever with respect to any technology developed, employed,
used or licensed by the Company or any subsidiary, other than
is disclosed in the Prospectus;
xxi. The Common Stock and Warrants are eligible
for quotation on The Nasdaq SmallCap Market;
xxii. All issued and outstanding shares of Common
Stock and all other securities issued and sold or exchanged by
the Company or its subsidiaries have been issued and sold or
exchanged in compliance with all applicable state and federal
securities laws and regulations; and
xxiii. The Company and all of its Property are in
compliance with all Environmental Laws and the Company is in
full compliance with all permits, licenses and authorizations
relating to Environmental Laws.
In rendering such opinion, counsel for the Company may rely
(A) as to matters involving the application of laws other than the
laws of the United States and the laws of the
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<PAGE> 32
State of Colorado, to the extent counsel for the Company deems proper
and to the extent specified in such opinion, upon an opinion or
opinions (in form and substance satisfactory to counsel for the
Representative) of other counsel, acceptable to counsel for the
Representative, familiar with the applicable laws, in which case the
opinion of counsel for the Company shall state that the opinion or
opinions of such other counsel are satisfactory in scope, form, and
substance to counsel for the Company and that reliance thereon by
counsel for the Company is reasonable; (B) as to matters of fact, to
the extent the Representative deems proper, on certificates of
responsible officers of the Company; and (C) to the extent they deem
proper, upon written statements or certificates of officers of
departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be
delivered to counsel for the Representative.
c. On or prior to the Closing Date and any Additional
Closing Date, as the case may be, you shall have been furnished such
information, documents, certificates, and opinions as you may
reasonably require for the purpose of enabling you to review the
matters referred to in Sections 7(b) and (c), and in order to evidence
the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions
herein contained, or as you may reasonably request.
d. At the Closing Date and any Additional Closing Date,
as the case may be, you shall have received a certificate of the chief
executive officer and of the chief financial officer of the Company,
dated the Closing Date or such Additional Closing Date, as the case
may be, to the effect that the conditions set forth in Section 7(a)
have been satisfied, that as of the date of this Agreement and as of
the Closing Date or such Additional Closing Date, as the case may be,
the representations and warranties of the Company contained herein
were and are accurate, and that as of the Closing Date or such
Additional Closing Date, as the case may be, the obligations to be
performed by the Company hereunder on or prior thereto have been fully
performed.
e. At the time this Agreement is executed and at the
Closing Date and any Additional Closing Date, as the case may be, you
shall have received a letter from Ehrhardt Keefe Steiner & Hottman PC,
Certified Public Accountants, addressed to you and dated the date of
delivery but covering a period within three business days of such
date, in form and substance satisfactory to you.
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<PAGE> 33
f. All proceedings taken in connection with the
issuance, sale, transfer, and delivery of the Common Stock and
Warrants and the Additional Securities shall be satisfactory in form
and substance to you and to counsel for the Representative, and you
shall have received a favorable opinion from counsel to the Company,
dated as of the Closing Date or the Additional Closing Date, as the
case may be, with respect to such of the matters set forth under
Sections 7(b) and 7(c), respectively, and with respect to such other
related matters, as you may reasonably request.
g. The NASD, upon review of the terms of the public
offering of the Common Stock and Warrants and the Additional
Securities, shall not have objected to your participation in such
offering.
h. The Company shall have received notice that the
Common Stock and Warrants will be quoted on The Nasdaq SmallCap
Market(SM) as of the Effective Date. Any certificate or other
document signed by any officer of the Company and delivered to you or
to counsel for the Representative shall be deemed a representation and
warranty by such officer individually and by the Company hereunder to
the Representative as to the statements made therein. If any
condition to your obligations hereunder to be fulfilled prior to or at
the Closing Date or any Additional Closing Date, as the case may be,
is not so fulfilled, you may terminate this Agreement or, if you so
elect, in writing waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
8. Indemnification and Contribution.
a. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Underwriters, the
Representative, and each of their officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls
the Representative or any one of the Underwriters within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all loss, liability, claim, damage, and expense whatsoever
(which shall include, for all purposes of this Section 8, but not be
limited to, attorneys' fees and any and all expense whatsoever
incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation) as and
when incurred arising out of, based upon, or in connection with (i)
any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration
Statement, or the Prospectus (as from time to time amended and
supplemented),
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<PAGE> 34
or any amendment or supplement thereto, or (B) in any application or
other document or communication (in this Section 8 collectively called
an "application") in any jurisdiction in order to qualify the Common
Stock and Warrants and Additional Securities under the "blue sky" or
securities laws thereof or filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this
Agreement. The foregoing agreement to indemnify shall be in addition
to any liability the Company may otherwise have, including liabilities
arising under this Agreement; however, the Company shall have no
liability under this Section 8 if such statement or omission was made
in reliance upon and in conformity with written information furnished
to the Company as stated in Section 8(b) with respect to the
Underwriters by or on behalf of the Underwriters expressly for
inclusion in any Preliminary Prospectus, the Registration Statement,
or the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be.
If any action is brought against the Underwriters, the Representative
or any of their officers, directors, partners, employees, agents, or counsel,
or any controlling persons of an Underwriter or the Representative (an
"indemnified party") in respect of which indemnity may be sought against the
Company pursuant to the foregoing paragraph, such indemnified party or parties
shall promptly notify the Company in writing of the institution of such action
(but the failure so to notify shall not relieve the Company from any liability
it may have other than pursuant to this Section 8(a)) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(satisfactory to such indemnified party or parties) and payment of expenses.
Such indemnified party or parties shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall
be at the expense of such indemnified party or parties unless the employment of
such counsel shall have been authorized in writing by the Company in connection
with the defense of such action or the Company shall not have promptly employed
counsel satisfactory to such indemnified party or parties to have charge of the
defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such fees
and expenses shall be borne by the Company. Anything in this paragraph to the
contrary notwithstanding, the Company shall
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<PAGE> 35
not be liable for any settlement of any such claim or action effected without
its written consent. The Company agrees promptly to notify the Underwriters
and the Representative of the commencement of any litigation or proceedings
against the Company or against any of its officers or directors in connection
with the sale of the Common Stock and Warrants or the Additional Securities,
any Preliminary Prospectus, the Registration Statement, or the Prospectus, or
any amendment or supplement thereto, or any application.
b. The Underwriters agree to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company
who shall have signed the Registration Statement, each other person,
if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, to the same extent as
the foregoing indemnity from the Company to the Underwriters in
Section 8(a), but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement,
or the Prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto, or in any application, in
reliance upon and in conformity with written information furnished to
the Company as stated in this Section 8(b) with respect to the
Underwriters by or on behalf of the Underwriters expressly for
inclusion in any Preliminary Prospectus, the Registration Statement,
or the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be; provided, however, that the
obligation of the Underwriters to provide indemnity under the
provisions of this Section 8(b) shall be limited to the amount which
represents the product of the number of shares of Common Stock and
Warrants and Additional Securities sold hereunder and the initial
public offering prices per share of Common Stock and Warrant set forth
on the cover page of the Prospectus. For all purposes of this
Agreement, the amounts of the selling concession and reallowance set
forth in the Prospectus, the information under "Underwriting" and the
identification of counsel to the Representative under "Legal Matters"
constitute the only information furnished in writing by or on behalf
of the Underwriters expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus (as from
time to time amended or supplemented), or any amendment or supplement
thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so
indemnified based on any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto,
or any application, and in respect of which indemnity may be sought
against the Underwriters pursuant to this Section
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<PAGE> 36
8(b), the Underwriters shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall
have the rights and duties given to the indemnified parties, by the
provisions of Section 8(a).
c. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement
provided for in this Section 8 is for any reason held to be
unavailable to the Underwriters or the Company, then the Company shall
contribute to the damages paid by the several Underwriters, and the
several Underwriters shall contribute to the damages paid by the
Company; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall
be considered the relative benefits received by each party from the
sale of the Common Stock and Warrants and Additional Securities
(taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would
not be equitable if the amount of such contribution were determined by
pro rata or per capita allocation (even if the Underwriters were
treated as one entity for such purpose). No Underwriter or person
controlling such Underwriter shall be obligated to make contribution
hereunder which in the aggregate exceeds the total public offering
price of the Common Stock and Warrants and Additional Securities
purchased by such Underwriter under this Agreement, less the aggregate
amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or
any substantially similar claim. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of Section 15 of the
Act, shall have the same rights to contribution as the Company.
Anything in this Section 8(c) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the
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<PAGE> 37
settlement of any claim or action effected without its written
consent. This Section 8(c) is intended to supersede any right to
contribution under the Act, the Exchange Act, or otherwise.
9. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Representative, the Underwriters
or any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 8(b), and shall
survive termination of this Agreement or the delivery of the Common Stock and
Warrants and the Additional Securities to the Underwriters for a period equal
to the statute of limitations for claims related hereto, but not to exceed an
aggregate of three years from the date hereof. In addition, the provisions of
Sections 5(a), 6, 8, 9, 10, and 12 shall survive termination of this Agreement,
whether such termination occurs before or after the Closing Date or any
Additional Closing Date.
10. Effective Date of This Agreement and Termination Thereof.
a. This Agreement shall be executed within 24 hours of
the Effective Date of the Registration Statement and shall become
effective on the Effective Date or at the time of the initial public
offering of the Common Stock and Warrants, whichever is earlier. The
time of the initial public offering shall mean the time, after the
Registration Statement becomes effective, of the release by the
Representative for publication of the first newspaper advertisement
which is subsequently published relating to the Common Stock and
Warrants or the time, after the Registration Statement becomes
effective, when the Common Stock and Warrants are first released by
the Representative for offering by dealers by letter or telegram,
whichever shall first occur. The Representative or the Company may
prevent this Agreement from becoming effective without liability of
any party to any other party, except as noted below in this Section
10, by giving the notice indicated in Section 10(c) before the time
this Agreement becomes effective.
b. The Representative shall have the right to terminate
this Agreement at any time prior to the Closing Date or any Additional
Closing Date, as the case may be, by giving notice to the Company if
there shall have been a general suspension of, or a general
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<PAGE> 38
limitation on prices for, trading in securities on the New York Stock
Exchange or the American Stock Exchange or in the over-the-counter
market; or if there shall have been an outbreak of major hostilities
or other national or international calamity; or if a banking
moratorium has been declared by a state or federal authority; or if a
moratorium in foreign exchange trading by major international banks or
persons has been declared; or if there shall have been a material
interruption in the mail service or other means of communication
within the United States; or if the Company shall have sustained a
material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage, or other calamity or malicious act which,
whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the
offering, sale, or delivery of the Common Stock and Warrants or the
Additional Securities, as the case may be; or if there shall have been
such material and adverse change in the market for securities in
general so as to make it inadvisable to proceed with the offering,
sale, and delivery of the Common Stock and Warrants or the Additional
Securities, as the case may be, on the terms contemplated by the
Prospectus due to the impaired investment quality of the Common Stock
and Warrants or the Additional Securities; or if the Dow Jones
Industrial Average shall have fallen by 15% or more from its closing
price on the day immediately preceding the date that the Registration
Statement is declared effective by the Commission.
c. If the Representative elects to prevent this
Agreement from becoming effective as provided in this Section 10, or
to terminate this Agreement, it shall notify the Company promptly by
telephone, telex, or telegram, confirmed by letter. If, as so
provided, the Company elects to prevent this Agreement from becoming
effective, the Company shall notify the Representative promptly by
telephone, telex, or telegram, confirmed by letter.
d. Anything in this Agreement to the contrary
notwithstanding other than Section 10(e), if this Agreement shall not
become effective by reason of an election pursuant to this Section 10
or if this Agreement shall terminate or shall otherwise not be carried
out prior to August 31, 1998 because (i) of any reason solely within
the control of the Company or its stockholders and not due to the
breach of any representation, warranty or covenant or bad faith of the
Representative, (ii) the Company unilaterally withdraws the proposed
Public Offering from the Representative in favor of another
underwriter, (iii) the Company does not permit the Registration
Statement to become effective for any reason other than if the Common
Stock is proposed to be priced at less than $5.00 per share, in which
event this
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<PAGE> 39
provision will not apply, (iv) of any material discrepancy in any
representation by the Company and/or its officers, directors,
stockholders, agents, advisers or representatives, made in writing,
including but not limited to the Registration Statement, to the
Representative, (v) the Company is, directly and/or indirectly,
negotiating with other persons or entities of whatsoever nature
relating to a possible Public Offering of its securities, or (vi) of
any failure on the part of the Company to perform any covenant or
agreement or satisfy any condition of this Agreement by it to be
performed or satisfied, then, in any of such events, the Company shall
be obligated to reimburse the Representative for its out-of-pocket
expenses on an accountable basis. Should the Representative be
required to account for "out-of-pocket" expenses, any expense incurred
by the Representative shall be deemed to be reasonable and
unobjectionable upon a reasonable showing by the Representative that
such expenses were incurred, directly or indirectly, in connection
with the proposed transaction and/or relationship of the parties
hereto, as described herein. In no event will the Representative be
entitled to reimbursement of accountable expenses exceeding $50,000,
inclusive of the $30,000 advanced against the non-accountable expense
allowance. The Representative will return to the Company any portion
of the $30,000 payment previously received that is not used in the
payment of accountable expenses.
e. Notwithstanding any election hereunder or any
termination of this Agreement, and whether or not this Agreement is
otherwise carried out, the provisions of Sections 5(a), 6, 8, 9, and
10 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
f. Anything in this Agreement to the contrary
notwithstanding other than Sections 10(d) and (e), if this Agreement
shall not be carried out within the time specified herein for any
reason other than as set forth in Section 10(d), the Company shall
have no liability to the Representative other than for the
Representative's accountable expenses up to a maximum aggregate amount
of $30,000, which amount has been paid in advance in accordance with
Section 6 hereof. The Representative will return to the Company any
portion of the $30,000 payment previously received that is not used in
the payment of accountable expenses.
11. Notices. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to the
Representative, shall be mailed, delivered, or sent by facsimile transmission
and confirmed by original letter, to Schneider Securities, Inc., 1120
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<PAGE> 40
Lincoln Street, Suite 900, Denver, Colorado 80203, Attention: Keith Koch, with
a copy to Robert W. Walter, Esq., Berliner Zisser Walter & Gallegos, P.C., 1700
Lincoln Street, Suite 4700, Denver, Colorado 80203; or if sent to the Company
shall be mailed, delivered, or telexed or telegraphed and confirmed by letter,
to Factual Data Corp., 3665 JFK Parkway, Building 1, Fort Collins, Colorado
80525, Attention: Jerald H. Donnan, Chief Executive Officer, with a copy to
Samuel E. Wing, Esq., Jones & Keller, P.C., 1625 Broadway, Suite 1600, Denver,
Colorado 80202. All notices hereunder shall be effective upon receipt by the
party to which it is addressed.
12. Parties. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriters, the Company, and the persons and
entities referred to in Section 8 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any buyer, as such, of the Common Stock and
Warrants or the Additional Securities) and no other person shall have or be
construed to have any legal or equitable right, remedy, or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
13. Construction. This Agreement shall be construed in accordance
with the laws of the State of Colorado, without giving effect to conflict of
laws. Time is of the essence in this Agreement. The parties acknowledge that
this Agreement was initially prepared by the Representative, and that all
parties have read and negotiated the language used in this Agreement. The
parties agree that, because all parties participated in negotiating and
drafting this Agreement, no rule of construction shall apply to this Agreement
which construes ambiguous language in favor of or against any party by reason
of that party's role in drafting this Agreement.
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
FACTUAL DATA CORP.
By:
-----------------------------------------
Jerald H. Donnan, Chief Executive Officer
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<PAGE> 41
Accepted as of the date first above written.
Denver, Colorado
SCHNEIDER SECURITIES, INC.
for itself
By:
----------------------------------------------
Thomas Schneider, President
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<PAGE> 42
FACTUAL DATA CORP.
(A COLORADO CORPORATION)
SCHEDULE 1
This Schedule sets forth the name of each Underwriter referred to in
the Underwriting Agreement and the number of shares of Common Stock and
Warrants to be sold by the Company.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF NUMBER OF
NAME COMMON STOCK WARRANTS
-------------------------------- ------------ ------------
<S> <C> <C>
Schneider Securities, Inc.
--------- ---------
Total 1,200,000 1,200,000
========= =========
</TABLE>
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<PAGE> 1
EXHIBIT 1.3
SELECTED DEALERS AGREEMENT
PUBLIC OFFERING OF
1,200,000 SHARES OF COMMON STOCK
1,200,000 REDEEMABLE WARRANTS
OFFERING PRICE OF $_________________ PER SHARE
AND $________ PER WARRANT
FACTUAL DATA CORP.
___________________________, 1998
Schneider Securities, Inc., on behalf of itself and other underwriters
(the "Underwriters") for which it is the representative (the "Representative"),
has severally agreed with Factual Data Corp., a Colorado corporation (the
"Company"), to purchase 1,200,000 shares (the "Firm Shares") of common stock
(the "Common Stock") and 1,200,000 redeemable warrants (the "Firm Warrants";
together with the Firms Shares, the "Firm Securities") of the Company, and the
Representative has been granted the right to purchase up to an additional
180,000 shares and/or warrants (the "Additional Securities") at its option for
the sole purpose of covering over-allotments in the sale of the Firm Shares
(the Firm Securities and Additional Securities being collectively referred to
as the "Securities" or a "Security"). The Underwriters are offering the
Securities to the public at a combined offering price of $ .
Certain other capitalized terms used herein are defined in the Underwriting
Agreement and are used herein as therein defined.
The Representative is offering the Securities to certain selected
dealers (the "Selected Dealers"), when, as and if accepted by the
Representative and subject to withdrawal, cancellation or modification of the
offer without notice and further subject to the terms of (i) the Company's
current Prospectus, (ii) the Underwriting Agreement, (iii) this Agreement, and
(iv) the Representative's instructions which may be forwarded to the Selected
Dealer from time to time. A copy of the Underwriting Agreement will be
delivered to you forthwith for inspection or copying or both, upon your request
therefor. This invitation is made by the Representative only if the Securities
may be offered lawfully to dealers in your state.
The further terms and conditions of this invitation are as follows:
1. Acceptance of Orders. Orders received by the Representative
from the Selected Dealer will be accepted only at the price, in the amounts and
on the terms which are set forth in the Company's current Prospectus, subject
to allotment in the Representative's uncontrolled discretion. The
Representative reserves the right to reject any orders, in whole or in part.
2. Selling Concession. As a Selected Dealer, you will be allowed
on all Securities purchased by you, which the Underwriters have not repurchased
or contracted to repurchase prior to termination of this Agreement at or below
the public offering price, a concession of ______% of the full 10% Underwriting
discount, i.e., $________ per Security as shown in the Company's current
Prospectus. No selling concession will be allowed to any domestic
broker-dealer who is not a member of the National Association of Securities
Dealers, Inc. (the "Association"), or to any foreign
<PAGE> 2
broker-dealer eligible for membership in the Association who is not a member of
the Association. Payment of such selling concession to you will be made only
as provided in Section 4 hereof. After the Securities are released for sale to
the public, the Representative is authorized to, and may, change the public
offering price and the selling concession.
3. Reoffer of Securities. Securities purchased by you are to be
bona fide reoffered by you in conformity with this Agreement and the terms of
offering set forth in the Prospectus. You agree that you will not bid for,
purchase, attempt to induce others to purchase, or sell, directly or
indirectly, any Securities except as contemplated by this Agreement and except
as a broker pursuant to unsolicited orders. You confirm that you have complied
and agree that you will at all times comply with the provisions of Regulation M
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
applicable to this offering. In respect of Securities sold by you and
thereafter purchased by the Representative at or below the public offering
price prior to the termination of this Agreement as described hereinafter (or
such longer period as may be necessary to cover any short position with respect
to the offering), you agree at the Representative's option either to repurchase
the Securities at a price equal to the cost thereof to the Representative,
including commissions and transfer taxes on redelivery, or to repay the
Representative such part of your Selected Dealers' concessions on such
Securities as the Representative designates.
4. Payment for Securities. Payment for the Securities purchased
by you is to be made at the net Selected Dealers' price of $______ per
Security, at the offices of Schneider Securities, Inc., Suite 900, 1120 Lincoln
Street, Denver, Colorado 80203, Attention: Syndicate Department, at such time
and on such date as the Representative may designate, by certified or official
bank check, payable in clearing house funds to the order of the Representative,
against delivery of certificates for the Securities so purchased. If such
payment is not made at such time and on such date, you agree to pay the
Representative interest on such funds at the current interest rates. The
Representative may in its discretion deliver the Securities purchased by you
through the facilities of the Depository Trust Company or, if you are not a
member, through your ordinary correspondent who is a member unless you promptly
give the Representative written instructions otherwise.
5. Offering Representations. The Representative has been
informed that a Registration Statement in respect of the Securities is expected
to become effective under the Securities Act of 1933, as amended (the "Act").
You are not authorized to give any information or to make any representations
other than those contained in the Prospectus or to act as agent for the Company
or for the undersigned when offering the Securities to the public or otherwise.
6. Blue Sky. Neither the Representative nor the Underwriters
assume any responsibility or obligations as to your right to sell the
Securities in any jurisdiction, notwithstanding any information furnished in
that connection. The Selected Dealer shall report in writing to the
Representative the number of Securities which have been sold by it in each
state and the number of transactions made in each such state. This state
report shall be submitted to the Representative as soon as possible after
completion of billing, but in any event not more than three days after the
closing.
7. Dealer Undertakings. By accepting this Agreement, the
Selected Dealer in offering and selling the Securities in the Public Offering
(i) acknowledges its understanding of (a) the Conduct Rules (the "Rules") of
the Association and the interpretations of such Rules promulgated by the Board
of Governors of the Association (the "Interpretations") including, but not
limited to the Rule and
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<PAGE> 3
Interpretation with respect to "Free-Riding and Withholding" defined therein,
(b) Rule 174 of the rules and regulations promulgated under the Act, (c)
Regulation M promulgated under the Exchange Act, (d) Release No. 3907 under the
Act, (e) Release No. 4150 under the Act, and (f) Sections 2730, 2740, 2420 and
2750 of the Rules and Interpretations thereunder, and (ii) represents,
warrants, covenants and agrees that it shall comply with all applicable
requirements of the Act and the Exchange Act in addition to the specific
provisions cited in subparagraph (i) above and that it shall not violate,
directly or indirectly, any provision of applicable law in connection with its
participation in the Public Offering of the Securities.
8. Conditions of Public Offering. All sales shall be subject to
delivery by the Company of certificates evidencing the Securities against
payment therefore.
9. Failure of Order. If an order is rejected or if a payment is
received which proves insufficient or worthless, any compensation paid to the
Selected Dealer shall be returned by (i) restoration by the Representative to
the Selected Dealer of the latter's remittance or (ii) a charge against the
account of the Selected Dealer with the Representative, as the latter may elect
without notice being given of such election.
10. Additional Representations, Covenants and Warranties of
Selected Dealer. By accepting this Agreement, the Selected Dealer represents
that it is registered as a broker-dealer under the Exchange Act; is qualified
to act as a dealer in the states or the jurisdictions in which it shall offer
the Securities; is a member in good standing of the Association; and shall
maintain such registrations, qualifications and membership in full force and
effect and in good standing throughout the term of this Agreement. If the
Selected Dealer is not a member of the Association, it represents that it is a
foreign dealer not registered under the Exchange Act and agrees to make no
sales within the United States, its territories or its possessions or to
persons who are citizens thereof or residents therein, and in making any sales
to comply with the Association's Rules and Interpretations with respect to
Free-Riding and Withholding. Further, the Selected Dealer agrees to comply
with all applicable federal laws including, but not limited to, the Act and
Exchange Act and the rules and regulations of the Commission thereunder; the
laws of the states or other jurisdictions in which Securities may be offered or
sold by it; and the Constitution, Bylaws, and rules of the Association.
Further, the Selected Dealer agrees that it will not offer or sell the
Securities in any state or jurisdiction except those in which the Securities
have been qualified or qualification is not required. The Selected Dealer
acknowledges its understanding that it shall not be entitled to any
compensation hereunder for any period during which it has been suspended or
expelled from membership in the Association.
11. Employees and other Agents of the Selected Dealer. By
accepting this Agreement, the Selected Dealer assumes full responsibility for
thorough and proper training of its employees and other agents and
representatives concerning the selling methods to be used in connection with
the Public Offering of the Securities, giving special emphasis to the
principles of full and fair disclosure to prospective investors and the
prohibitions against "Free-Riding and Withholding" as set forth in Section 2110
of the Rules and the Interpretations thereunder.
12. Indemnification by the Company. The Company has agreed in
Section 8 of the Underwriting Agreement to indemnify and hold harmless the
Underwriters, the Representative and each person if any, who controls the
Representative or any one of the Underwriters within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act against any and all loss,
liability, claim, damage, and expense whatsoever (which shall include, for all
purposes of Section
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<PAGE> 4
8 of the Underwriting Agreement, but not be limited to, attorneys' fees and any
and all expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever and
any and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or (B) in any application or other document or communication (in the
Underwriting Agreement collectively called an "application") in any
jurisdiction in order to qualify the Securities under the "blue sky" or
securities laws thereof or filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or (ii) any breach of any representation, warranty, covenant, or
agreement of the Company contained in the Underwriting Agreement. The
Representative has agreed to give the Company an opportunity and the right to
participate in the defense or preparation of the defense of any action brought
against the Representative, any Underwriter or any controlling person thereof
to enforce any such loss, claim, demand, liability or expense. The agreement
of the Company under this indemnity is conditioned upon notice of any such
action having been promptly given by the indemnified party to the Company.
Failure to notify the Company as provided in the Underwriting Agreement shall
not relieve the Company of its liability which it may have to the
Representative, the Underwriters, or any controlling person thereof other than
pursuant to Section 8(a) of the Underwriting Agreement. This agreement is
subject in all respects, especially insofar as the foregoing description of the
indemnification provisions set forth in the Underwriting Agreement is
concerned, to the terms and provisions of the Underwriting Agreement, a copy of
which will be made available for inspection or copying or both to the Selected
Dealer upon written request to the Representative therefor. The Selected
Dealer acknowledges and confirms that, by signing a counterpart of this
Agreement, it shall be deemed an agent of the Underwriters or a
"Representative" for all purposes of Section 8 of the Underwriting Agreement,
as expressly set forth therein.
13. Indemnification by the Selected Dealer. The Selected Dealer
shall indemnify and hold harmless the Company, each director of the Company,
each officer of the Company who shall have signed the Registration Statement,
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent
as the indemnity from the Company to the Underwriters in Section 8(a) of the
Underwriting Agreement, but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with information furnished to the Representative or the Company with respect to
the Selected Dealer by or on behalf of the Selected Dealer expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or are based upon alleged misrepresentations or omissions to
state material facts in connection with statements made by the Selected Dealer
or the Selected Dealer's employees or other agents to the Company or the
Representative orally or by any other means; provided, however, that the
obligation of the Selected Dealer to provide indemnity hereunder shall be
limited to the amount which represents the product of the number of Firm
Securities and Additional Securities sold and the initial public offering price
per Security set forth on the cover page of the Prospectus. If any action
shall be brought against the Company or any other person so indemnified in
respect of which indemnity may be sought against the Selected Dealer pursuant
to this provision, the Selected Dealer shall have the rights and duties given
to the Company in the
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<PAGE> 5
Underwriting Agreement, and the Company and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by the
provisions of Section 8(a) of the Underwriting Agreement; and the Selected
Dealer shall reimburse the Company and the Representative for any legal or
other expenses reasonably incurred by them in connection with the investigation
of or the defense of any such action or claim. The Representative shall, after
receiving the first summons or other legal process disclosing the nature of the
action being brought against it or the Company in any proceeding with respect
to which indemnity may be sought by the Company or the Representative
hereunder, notify promptly the Selected Dealer in writing of the commencement
thereof; and the Selected Dealer shall be entitled to participate in (and, to
the extent the Selected Dealer shall wish, to direct) the defense thereof at
the expense of the Selected Dealer, but such defense shall be conducted by
counsel satisfactory to the Company and the Representative. If the Selected
Dealer shall fail to provide such defense, the Company or the Representative
may defend such action at the cost and expense of the Selected Dealer. The
Selected Dealer's obligation under this Section 13 shall survive any
termination of this Agreement, the Underwriting Agreement and the delivery of
and payment for the Securities under the Underwriting Agreement, and shall
remain in full force and effect regardless of the investigation made by or on
behalf of any Representative within the meaning of Section 15 of the Act.
14. No Authority to Act as Partner or Agent. Nothing herein shall
constitute the Selected Dealers as an association or other separate entity or
partners with or agents of the Representative or with each other, but each
Selected Dealer shall be responsible for its pro rata share of any liability or
expense based upon any claims to the contrary. The Representative shall not be
under any liability for or in respect of the value, validity or form of the
Securities, or the delivery of certificates for the Securities or the
performance by any person of any agreement on its part, or the qualification of
the Securities for sale under the laws of any jurisdiction, or for or in
respect of any matter in connection with this Agreement, except for lack of
good faith and for obligations expressly assumed by the Representative in this
Agreement.
15. Expenses. No expenses incurred in connection with offers and
sales of the Securities under the Public Offering will be chargeable to the
Selected Dealers. A single transfer tax, if any, on the sale of Securities by
the Selected Dealer to its customers will be paid when such Securities are
delivered to the Selected Dealer for delivery to its customers.
Notwithstanding the foregoing, the Selected Dealer shall pay its proportionate
share of any transfer tax or any other tax (other than the single transfer tax
described above) if any such tax shall at any time be assessed against the
Representative and other Selected Dealers.
16. Notices. All notices, demands or requests required or
authorized hereunder shall be deemed given sufficiently if in writing and sent
by registered or certified mail, return receipt requested and postage prepaid,
or by tested telex, telegram, cable or facsimile to, in the case of the
Representative, the address set forth above directed to the attention of the
President of the Representative, and in the case of the Selected Dealer, to the
address provided below by the Selected Dealer, directed to the attention of the
President.
17. Termination. This Agreement may be terminated by the
Representative with or without cause upon written notice to Selected Dealer to
such effect; and such notice having been given, this Agreement shall terminate
at the time specified therein. Additionally, this Agreement shall terminate
upon the earlier of the termination of the Underwriting Agreement, or at the
close of business thirty days after the Securities are released by the
Representative for sale to the public.
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<PAGE> 6
18. General Provisions. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Colorado.
This Agreement embodies the entire agreement and understanding between the
Representative and the Selected Dealer and supersedes all prior agreements and
understandings related to the subject matter hereof, and this Agreement may not
be modified or amended or any term or provision hereof waived or discharged
except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. All the terms of
this Agreement, whether so expressed or not, shall be binding upon, and shall
inure to the benefit of, the respective successors, legal representatives and
assigns of the parties hereto; provided, however, that none of the parties
hereto can assign this Agreement or any of its rights hereunder without the
prior written consent of the other party hereto, and any such attempted
assignment or transfer without the other party's prior written consent shall be
void and without force or effect. The headings of this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
If the foregoing correctly sets forth the terms and conditions of your
agreement to purchase the Securities allotted to you, please indicate your
acceptance thereof by signing and returning to Schneider Securities, Inc. the
duplicate copy of this Agreement, whereupon this letter and your acceptance
shall become and evidence a binding contract between you and the
Representative.
SCHNEIDER SECURITIES, INC.
By:
-------------------------------------
Title:
----------------------------------
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<PAGE> 7
Gentlemen:
The undersigned confirms its agreement to purchase ____________ shares
of Common Stock and Redeemable Warrants of Factual Data Corp., upon the terms
and subject to the conditions of the foregoing Selected Dealers Agreement, and
further agrees that any agreement by it to purchase additional Securities
during the life of such Agreement will be upon the same terms and subject to
the same conditions. The undersigned acknowledges receipt of the Prospectus
relating to the public offering of the Securities and confirms that in agreeing
to purchase such Securities it has relied on such Prospectus and not on any
other statement whatsoever written or oral.
Firm Name:
------------------------------------
(Print or Type name of Firm)
By:
-------------------------------------------
(Authorized Agent)
-------------------------------------------
(Print or Type Name and Title of
Authorized Agent)
Address:
--------------------------------------
- ----------------------------------------------
Telephone No.
---------------------------------
IRS Employer Identification No.:
--------------
Dated: , 1998
--------------------------------
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<PAGE> 1
EXHIBIT 1.4
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the ______ day of _____________, 1998, by and
among Schneider Securities, Inc. ("Schneider"), Factual Data Corp. (the
"Company") and American Securities Transfer & Trust, Inc. (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,000,000 shares of
Common Stock and 1,000,000 Warrants (or up to a maximum of 1,150,000 shares of
Common Stock and/or 1,150,000 Warrants including the over-allotment option),
the Company proposes to issue, in accordance with an agreement dated as of
, 1998, by and between the Company and the Warrant Agent (the "Warrant
Agreement"), Warrants to purchase shares of Common Stock; and
WHEREAS, the parties hereto wish to provide Schneider, a member of the
National Association of Securities Dealers, Inc. ("NASD"), with certain rights
on an exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. DESCRIPTION OF THE WARRANTS. The Company's Warrants
may be exercised on or after , 1998 and expire at 5:00 p.m. Colorado time
on , 2001 (the "Expiration Date"), subject to redemption rights
commencing on or after , 1999. In accordance with the provisions
of the Warrant Agreement, the holder of each Warrant shall have the right to
purchase from the Company, and the Company shall issue and sell to such holders
of Warrants, one fully paid and non-assessable share of the Company's Common
Stock for every Warrant exercised at an exercise price of $ per
share (the "Exercise Price"), subject to adjustment as provided in the Warrant
Agreement.
SECTION 2. NOTIFICATION OF EXERCISE. Within ten (10) days of
the last day of each month commencing one year from the date of the Company's
Prospectus, the Warrant Agent or the Company will notify Schneider of each
Warrant certificate which has been properly completed and delivered for
exercise by holders of Warrants during each such month, the determination of
the proper completion to be in the sole and absolute reasonable discretion of
the Company and the Warrant Agent. The Company or the Warrant Agent will
provide Schneider with such information, in connection with the exercise of
each Warrant, as Schneider shall reasonably request.
SECTION 3. PAYMENT TO SCHNEIDER. The Company hereby agrees to
pay to Schneider an amount equal to five (5%) percent of the exercise price
(i.e. $ per share based on the initial Exercise Price of the Warrants
which is $ per share) for each Warrant exercised (the
"Exercise Fee") a portion of which may be allowed by Schneider to the dealer
who solicited the exercise (which may also be Schneider) provided that:
(a) such Warrant is exercised on or after
, 1999, which is one year from the effective date of the Company's
Registration Statement;
<PAGE> 2
(b) at the time of exercise, the market price of the
Company's Common Stock is higher than the applicable Exercise Price of
the Warrant being exercised;
(c) the holders of Warrants being exercised have
specifically indicated in writing, either in the Form of Election
contained on the specimen Warrant Certificate or by written documents
signed and dated by the holders that the exercise of such Warrants was
solicited by Schneider or another member of the NASD; and
(d) Schneider and/or the member of the NASD which
solicited the exercise of Warrants delivers a certificate to the
Company within five (5) business days of receipt of information
relating to such exercised Warrants from the Company or the Warrant
Agent in the form attached hereto as Exhibit A, stating that:
(1) The Warrants exercised were not held in a
discretionary account;
(2) The member which solicited the exercise of
Warrants did not (unless granted an exemption by the
Securities and Exchange Commission ("the Commission") from the
provisions thereof), within the applicable number of business
days under Regulation M immediately preceding the date of
exercise of the Warrant bid for or purchase the Common Stock
of the Company or any securities of the Company immediately
convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity
that would be prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to a
broker-dealer engaged in a distribution of the Company's
securities; and
(3) In connection with the solicitation, it
disclosed the compensation it would receive upon exercise of
the Warrant.
SECTION 4. PAYMENT OF THE EXERCISE FEE. The Company hereby
agrees to pay over to Schneider within two (2) business days after receipt by
the Company of the certificate described in Section 3(d) above, the Exercise
Fee out of the proceeds it received from the applicable Exercise Price paid for
the Warrants to which the certificate relates.
SECTION 5. INSPECTION OF RECORDS. Schneider may at any time
during business hours, at its expense, examine the records of the Company and
the Warrant Agent which relate to the exercise of the Warrants.
SECTION 6. TERMINATION. Schneider shall be entitled to
terminate this Agreement prior to the exercise of all Warrants at any time upon
five (5) business days' prior notice to the Company and the Warrant Agent.
Notwithstanding any such termination notice, Schneider shall be entitled to
receive an Exercise Fee for the exercise of any Warrant for which it has
already delivered to the Company prior to any such termination the certificate
required by Section 3(d) of this Agreement.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF SCHNEIDER. At the
date of execution hereof and at the time of solicitation of exercise of
Warrants, Schneider represents that it is, and will, (i) be registered as a
broker-dealer under the Exchange Act, (ii) be a member in good standing of the
NASD, and (iii) maintain its registration, qualification and membership in full
force and effect and
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<PAGE> 3
in good standing throughout the term of this Agreement. Schneider acknowledges
and agrees that it will not solicit the exercise of Warrants, or offer or sell
the underlying Common Stock, in any state or jurisdiction except those in which
the Common Stock underlying the Warrants has been qualified or qualification is
not required. Further, Schneider agrees to comply with the laws of the states
in which it may solicit exercise of the Warrants or in which the Common Stock
underlying the Warrants may be offered or sold by it, with the applicable rules
and regulations of the NASD, and will comply with federal laws including, but
not limited to, the Securities Act of 1933, as amended (the "Act"), the
Exchange Act and the rules and regulations of the Commission thereunder.
SECTION 8. INDEMNIFICATION.
a. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless any and all statutory or
designated underwriters (the "Underwriters"), the representative of
the Underwriters, if any (the "Representative"), and each of their
officers, directors, partners, employees, agents, and counsel, and
each person, if any, who controls the Representative or any one of the
Underwriters within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all purposes
of this Section 8, but not be limited to, attorneys' fees and any and
all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any
claim or litigation) as and when incurred arising out of, based upon,
or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any preliminary
prospectus, the registration statement, or any post-effective
amendment thereto, or the prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the
offer or sale of Common Stock underlying the Warrants or the
solicitation of exercise of the Warrants (such preliminary prospectus,
registration statement, post-effective amendment or prospectus
hereinafter collectively, the "Offering Documents") or (B) in any
application or other document or communication (in this Section 8
collectively called an "application") in any jurisdiction in order to
qualify the Common Stock and Warrants under the "blue sky" or
securities laws thereof or filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this
Agreement. The foregoing agreement to indemnify shall be in addition
to any liability the Company may otherwise have, including liabilities
arising under this Agreement; however, the Company shall have no
liability under this Section 8 if such statement or omission was made
in reliance upon and in conformity with written information furnished
to the Company as stated in Section 8(b) with respect to the
Underwriters by or on behalf of the Underwriters expressly for
inclusion in any of the Offering Documents, or in any application, as
the case may be.
If any action is brought against the Underwriters, the
Representative or any of their officers, directors, partners,
employees, agents, or counsel, or any controlling persons of an
Underwriter or the Representative (an "indemnified party") in respect
of which indemnity may be sought against the Company pursuant to the
foregoing paragraph, such indemnified party or parties shall promptly
notify the Company in writing of the institution of such action (but
the failure so to notify shall not relieve the Company from any
liability it may have other
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<PAGE> 4
than pursuant to this Section 8(a)) and the Company shall promptly
assume the defense of such action, including the employment of counsel
(satisfactory to such indemnified party or parties) and payment of
expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party or parties unless the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of
such action or the Company shall not have promptly employed counsel
satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any
of which events such fees and expenses shall be borne by the Company.
Anything in this paragraph to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or
action effected without its written consent. The Company agrees
promptly to notify the Underwriters and the Representative of the
commencement of any litigation or proceedings against the Company or
against any of its officers or directors in connection with the sale
of the Common Stock underlying the Warrants, any Offering Documents,
or any application.
b. The Underwriters agree to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company
who shall have signed the Registration Statement, each other person,
if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, to the same extent as
the foregoing indemnity from the Company to the Underwriters in
Section 8(a), but only with respect to statements or omissions, if
any, made in any of the Offering Documents, or in any application, in
reliance upon and in conformity with written information furnished to
the Company as stated in this Section 8(b) with respect to the
Underwriters by or on behalf of the Underwriters expressly for
inclusion in any of the Offering Documents, or in any application, as
the case may be; provided, however, that the obligation of the
Underwriters to provide indemnity under the provisions of this Section
8(b) shall be limited to the amount which represents the product of
the number of shares of Common Stock issued on exercise of Warrants
and the Warrant Exercise Price. For all purposes of this Agreement,
the amounts of the Exercise Fee set forth in the Offering Documents,
the information under "Plan of Distribution" and the identification of
counsel to the Representative under "Legal Matters" constitute the
only information furnished in writing by or on behalf of the
Underwriters expressly for inclusion in any of the Offering Documents,
or in any application, as the case may be. If any action shall be
brought against the Company or any other person so indemnified based
on any of the Offering Documents, or any application, and in respect
of which indemnity may be sought against the Underwriters pursuant to
this Section 8(b), the Underwriters shall have the rights and duties
given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 8(a).
c. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement
provided for in this Section 8 is for any reason held to be
unavailable to the Underwriters or the Company, then the Company shall
contribute to the damages paid by the several Underwriters, and the
several Underwriters shall contribute to the damages paid by the
Company; provided, however, that no person guilty of fraudulent
-4-
<PAGE> 5
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall
be considered the relative benefits received by each party from the
sale of the Common Stock underlying the Warrants (taking into account
the portion of the proceeds of the offering realized by each), the
parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity
to correct and prevent any statement or omission, and any other
equitable considerations appropriate in the circumstances. The
Company and the Underwriters agree that it would not be equitable if
the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity
for such purpose). No Underwriter or person controlling such
Underwriter shall be obligated to make contribution hereunder which in
the aggregate exceeds the total Exercise Price of the Warrants,
exercise of which was solicited by such Underwriter under this
Agreement, less the aggregate amount of any damages which such
Underwriter and its controlling persons have otherwise been required
to pay in respect of the same or any substantially similar claim. The
Underwriters' obligations to contribute hereunder are several in
proportion to their respective underwriting obligations and not joint.
For purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act shall have the
same rights to contribution as such Underwriter, and each director of
the Company, each officer of the Company who signed the Offering
Documents, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act, shall have the same rights to
contribution as the Company. Anything in this Section 8(c) to the
contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected
without its written consent. This Section 8(c) is intended to
supersede any right to contribution under the Act, the Exchange Act,
or otherwise.
SECTION 9. NOTICES. Any notice or other communication required
or permitted to be given pursuant to this Agreement shall be in writing and
shall be deemed sufficiently given if sent by first class certified mail,
return receipt requested, postage prepaid, addressed as follows:
if to the Company: Jerald H. Donnan, Chief Executive Officer
Factual Data Corp.
3665 JFK Parkway, Building 1
Fort Collins, Colorado 80525
With a copy to: Samuel E. Wing, Esq.
Jones & Keller, P.C.
1625 Broadway Street
Suite 1600
Denver, Colorado 80202
If to Schneider: Keith Koch, Director of Corporate Finance
Schneider Securities, Inc.
1120 Lincoln Street, Suite 900
Denver, Colorado 80203
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<PAGE> 6
With a copy to: Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P.C.
1700 Lincoln Street, Suite 4700
Denver, Colorado 80203
and if to the Warrant Administrative Services
Agent: American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Lakewood, Colorado 80215
or such other address as such party shall have given notice to other parties
hereto in accordance with this Section. All such notices or other
communications shall be deemed given three (3) business days after mailing, as
aforesaid.
SECTION 10. SUPPLEMENTS AND AMENDMENTS. The Company, the Warrant
Agent and Schneider may from time-to-time supplement or amend this Agreement by
a written instrument signed by the party to be charged, without the approval of
any holders of Warrants in order to cure any ambiguity or to correct or
supplement any provisions contained herein or to make any other provisions in
regard to matters or questions arising hereunder which the Company, the Warrant
Agent and Schneider may deem necessary or desirable and which do not adversely
affect the interest of the holders of Warrants.
SECTION 11. ASSIGNMENT. This Agreement may not be assigned by
any party without the express written approval of all other parties, except
that Schneider may assign this Agreement to its successors, if any.
SECTION 12. GOVERNING LAW. This Agreement will be deemed made
under the laws of the State of Colorado with respect to matters of contract law
and for all purposes shall be governed by and construed in accordance with the
internal laws of said State, without regard to the conflicts of laws provisions
thereof.
SECTION 13. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give any person or corporation other than the
Company, the Warrant Agent and Schneider any legal or equitable right, remedy
or claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of, and be binding upon, the Company, the Warrant Agent and
Schneider and their respective successors and permitted assigns.
SECTION 14. DESCRIPTIVE HEADINGS. The descriptive headings of
the sections of this Agreement are inserted for convenience only and shall not
control or affect the meanings or construction of any of the provisions hereof.
SECTION 15. SUPERSEDING AGREEMENT. This Agreement supersedes any
and all prior agreements between the parties with respect to the subject matter
hereof.
SECTION 16. EXCLUSIVE AGREEMENT. It is understood that this
Agreement is on an exclusive basis to solicit the exercise of the Warrants and
that the Company shall not engage other broker-dealers to solicit the exercise
of Warrants without the consent of Schneider.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
FACTUAL DATA CORP.
By:
----------------------------------------
Jerald H. Donnan,
Chief Executive Officer
SCHNEIDER SECURITIES, INC.
By:
----------------------------------------
Thomas Schneider, President
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By:
----------------------------------------
Gregory Tubbs, Senior Vice President
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<PAGE> 8
EXHIBIT A
CERTIFICATE
The undersigned, being the _______________ of ______________________
(the "NASD Member") pursuant to Section 3(d) of the Warrant Exercise Fee
Agreement relating to the exercise of Warrants dated , 1998 among
Factual Data Corp. (the "Company"), Schneider Securities, Inc. and American
Securities Transfer & Trust, Inc. (the "Warrant Agent") hereby certifies that:
1. The Company or the Warrant Agent has notified the NASD Member
that ____________ Warrants (as defined in the Agreement) have been exercised
during _______________, 19__.
2. The exercise of _________ of such Warrants was solicited by
Schneider.
3. Such Warrants were not held in a discretionary account.
4. The NASD Member did not, within _____ business days
immediately preceding _______________, 19___, bid for or purchase the Common
Stock of the Company or any securities of the Company immediately convertible
into or exchangeable for the Common Stock (including Warrants) or otherwise
engage in any activity that would be prohibited by Regulation M under the
Securities Exchange Act of 1934, as amended, to one engaged in a distribution
of the Company's securities.
5. In connection with the solicitation of the exercise of the
Warrants, the NASD Member disclosed to holders of the Warrants the compensation
it will receive.
DATED: _______________, 19___
----------------------------
(Firm Name)
By:
----------------------------
Title:
-------------------------
-8-
<PAGE> 1
EXHIBIT 1.5
CUSTODY AGREEMENT
CUSTODY AGREEMENT, effective as of the ___ day of March, 1998, by and
among each of the shareholders (the "Shareholders or "Shareholder") of Factual
Data Corp., a Colorado corporation, (the "Company"), Schneider Securities, Inc.
(the "Representative") and American Securities Transfer & Trust Incorporated
(the "Custodian").
WHEREAS, the Shareholders are the record and beneficial owners of
Common Stock of the Company, as more fully reflected on Exhibit A hereto, all
of which are "restricted securities" as defined under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Company and the Representative of the several
underwriters (the "Underwriters") intend to enter into an Underwriting
Agreement (the "Underwriting Agreement"; certain terms used herein which are
not defined herein and which are defined in the Underwriting Agreement are used
herein as therein defined) pursuant to which the Company will sell in a public
offering pursuant to the registration provisions of the 1933 Act, shares of
Common Stock (the "Common Stock") and Warrants (the "Warrants");
WHEREAS, as a condition to closing the proposed initial public
offering of the Company (the "Offering"), the Representative has required the
Shareholders to deposit an aggregate of 500,000 shares of Common Stock, on a
pro rata basis, owned by such Shareholders in the Company in custody with the
Custody Agreement (the "Custodial Shares"); and
WHEREAS, the Shareholders wish to deposit their pro rata share of the
Custodial Shares in custody in order to fulfill the requirements of the
Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, terms and conditions hereinafter set forth, the parties hereto
hereby agree as follows:
Section 1. Designation and Deposit of Custodial Shares.
a. The Custodial Shares of the Company to be deposited
in custody pursuant to this Agreement consist of 500,000 shares of
Common Stock of the Company and are owned of record as of March ___,
1998 by the Shareholders identified on Exhibit A attached hereto.
b. On or before the date on which the Securities and
Exchange Commission declares the Company's Registration Statement on
Form SB-2 (Reg. No. 333-_____) effective under the 1933 Act (the
"Effective Date"), the Shareholders shall deliver to the Custodian any
and all certificates representing the Custodial Shares and a stock
power endorsed in blank. Promptly after the effective date of the
Offering, the Custodian shall deliver a receipt therefor and a new
certificate representing the Shareholder's shares of Common Stock not
subject to this Custody Agreement.
Section 2. Title of Account. All certificates representing the
Custodial Shares delivered to the Custodian pursuant to this Agreement shall be
deposited on the Effective Date by the Custodian in an account designated
substantially as follows: "Factual Data Corp. Stock Certificate Custody
Account" (the "Custody Account").
<PAGE> 2
Section 3. Transfer of Custodial Shares During Custody Period.
a. During the Custody Period (hereinafter defined) none
of the Custodial Shares deposited in the Custody Account shall be
sold, pledged, hypothecated or otherwise transferred or delivered out
of the Custody Account except as follows:
i. Transfers by operation of law occasioned by
the death or incapacity of the Shareholder shall be recorded
upon presentation to the Company by the personal
representative or guardian of a deceased or incapacitated
Shareholder of appropriate documents regarding the necessity
for transfer and of which transfer the Company has notified
the Custodian and the Representative; or
ii. Transfers of ownership of certificates
representing the Custodial Shares, certificates for which have
been deposited to the Custody Account, shall remain subject to
the restrictions imposed hereby, including those persons, if
any, who become holders, by any means provided herein, of the
Custody Shares during the Custody Period.
Section 4. Duration of Custody Period.
a. The Custody Period shall commence on the Effective
Date and shall terminate on the earlier of the date on which all
500,000 shares have been returned to the Shareholders pursuant to
Sections 6(a), 6(b) or 6(c) below or March ___, 2005.
b. This Agreement shall be of no force or effect in the
event the Underwriting Agreement is not executed on the Effective Date
in accordance with its terms.
Section 5. Receipt of Distributions and Dividends. During the
term of the Custody Period, if the Company issues any distributions, dividends,
rights or other property with respect to the Common Stock, then, in such event,
the Company shall be authorized to send evidence of such distributions,
dividends, rights or other property directly to the Custodian, which is hereby
authorized to hold and retain possession of all such evidences of
distributions, dividends, rights or other property until termination of the
Custody Period in accordance with Section 6 below. In the event the Custodial
Shares are distributed to the Shareholders pursuant to Sections 6(a), 6(b) or
6(c) below, then the Custodian will distribute evidences of such distributions,
dividends, rights, or other property in the form the Custodian received such
distributions, dividends, rights or other property from the Company. In the
event the Custody Period terminates pursuant to Section 6(d) below, the
Custodian is hereby authorized, empowered and instructed to deliver all such
evidences of distributions, dividends, rights or other property to the Company,
which is hereby authorized to cancel the same on the books of the Company at
the time of receipt thereof from the Custodian. If the Company recapitalizes,
splits or combines its shares, such shares shall be substituted, on a pro rata
basis for the Custodial Shares.
2
<PAGE> 3
Section 6. Release and Delivery of Custodial Shares.
a. In the event the Custodian receives written advice
from the Representative and the Company confirming the Company had
pre-tax net income (excluding extraordinary items) of $3 million or
more in the four complete calendar quarters immediately subsequent to
the Effective Date, the Custodian shall return to each Shareholder a
certificate for his or her pro rata share of the Custodial Shares.
The Custodian shall return each certificate only to the person named
as the holder of record in Exhibit A hereto, as modified by any
transfers made pursuant to Section 3 above.
b. In the event the Custodian receives written advice
from the Representative and the Company confirming the Company had
pre-tax net income (excluding ordinary items) of $8 million or more in
the four complete calendar quarters commencing one year after the
Effective Date, the Custodian shall return to each Shareholder a
certificate for his or her pro rata share of the Custodial Shares.
The Custodian shall return each certificate only to the person named
as the holder of record in Exhibit A hereto, as modified by any
transfers made pursuant to Section 3 above.
c. In the event the Custodian receives written advice
from the Representative and the Company confirming that the Company
has been merged or consolidated with another company which is the
survivor to the transaction, or that the Company has sold all or
substantially all of its assets and the relevant transaction was
approved by the holders of a majority of the Company's outstanding
voting securities exclusive of any such securities held by any party
to this Agreement, the Custodian shall immediately prior to the
closing of any such transaction return to each Shareholder a
certificate for his or her pro rata share of the Custodial Shares.
The Custodian shall return each certificate only to the person named
as the holder of record in Exhibit A hereto, as modified by any
transfers made pursuant to Section 3 above.
d. In the event none of the criteria for release
specified in subparagraphs (a), (b) or (c) above is not reached by the
Company, the Custodial Shares shall remain in the Custody Account
until March ___, 2005. Upon termination of the Custody Period
pursuant to the provisions of this Section 6(d), the Custodian shall,
as promptly as possible, return to each Shareholder a certificate for
his or her pro rata share of the Custodial Shares remaining in the
Custody Account by means of registered mail, return receipt requested.
The Custodian shall return each certificate only to the person named
as the holder of record in Exhibit A hereto, as modified by any
transfers made pursuant to Section 3 above.
e. At such time as the Custodian shall have returned all
certificates as provided in this Section, the Custodian shall be
discharged completely and released from any and all further
liabilities and responsibilities under this Agreement.
f. The determination of net income achieved by the
Company in the periods described above shall be solely the
responsibility of the Company and the Representative, and the
Custodian shall have no liability or responsibility therefor. The
Company and the Representative agree that the determination of net
income shall not include the
3
<PAGE> 4
effect of any extraordinary items and shall be based on fully diluted
net income in accordance with Financial Accounting Standard Board
Opinion No. 128. Further, the Company and the Representative agree
that any expense or charge to earnings incurred by the Company as a
result of the release of the Custodial Shares to the Shareholders will
be excluded from the calculation of whether the Company achieved or
exceeded the net income targets. The determination of net income will
be made in accordance with generally accepted accounting principles
and will be based upon the audited financial statements of the
Company.
Section 7. Voting Rights. During the custody Period, the
Shareholder, or any transferee receiving all or a portion of the Custody Shares
pursuant to Section 3 herein, shall have the right to vote the Custodial Shares
in the Custodial Account at any and all shareholder meetings without
restriction.
Section 8. Limitation of Liability of Custodian. In acting
pursuant to this Agreement, the Custodian shall be protected fully in every
reasonable exercise of its discretion and shall have no obligation hereunder to
either the Shareholder or to any other party except as expressly set forth
herein. In performing any of its duties hereunder, the Custodian shall not
incur any liability to any person for any damages, losses or expenses, except
for willful default or negligence and it shall, accordingly, not incur any such
liability with respect to (1) any action taken or omitted in good faith upon
advice of its counsel, counsel for the Company or counsel for the
Representative given with respect to any question relating to the duties and
responsibilities of the Custodian under this Agreement, and (2) any action
taken or omitted in reliance upon any instrument, including written notices
provided for herein, not only to its due execution and validity and
effectiveness of its provisions, but also to the truth and accuracy of any
information contained therein, which the Custodian shall in good faith believe
to be genuine, to have been signed and presented by a proper person or persons
and to be in compliance with the provisions of this Agreement.
Section 9. Indemnification. The Company, the Representative and
the Shareholders shall indemnify and hold harmless the Custodian against any
and all losses, claims, damages, liabilities and expenses, including reasonable
costs of investigation and counsel fees and disbursements, which may be imposed
upon the Custodian or incurred by the Custodian in connection with its
acceptance of appointment as Custodian or the performance of its duties
hereunder, including any litigation arising from this Agreement or involving
the subject matter hereof.
Section 10. Payment of Fees. The Company shall be responsible
for all reasonable fees and expenses of the Custodian incurred by it in the
course of performing hereunder.
Section 11. Change of Custodian. In the event the Custodian
notifies the Company and the Representative that its acceptance of the duties
of Custodian has been terminated by the Custodian, or in the event the
Custodian files for protection under the United States Bankruptcy Code or is
liquidated or ceases operations for any reason, the Company and the
Representative shall have the right to jointly designate a replacement
Custodian who shall succeed to the rights and duties of the Custodian
hereunder. Any such replacement Custodian shall be a trust or stock transfer
company experienced in stock transfer, escrow and related
4
<PAGE> 5
matters and shall have a minimum net worth of $1 million. Upon appointment of
such successor Custodian, the Custodian shall be discharged from all duties and
responsibilities hereunder.
Section 12. Power of Attorney. The undersigned Shareholders
recognize that the Company may change the terms and provisions of the offering
prior to effectiveness, which may necessitate any amendment hereto. Each
undersigned Shareholder, by execution hereof, hereby appoints Jerald H. Donnan
his attorney-in-fact to execute any amendment to this Agreement that Mr. Donnan
deems necessary or appropriate to effect such change, provided however, that
such attorney-in-fact shall not agree to an escrow of more shares than those to
which the undersigned has herein agreed.
Section 13. Notices. All notices, demands or requests required
or authorized hereunder shall be deemed given sufficiently if in writing and
sent by registered mail or certified mail, return receipt requested and postage
prepaid, or by telex, telegram or cable to, in the case of the Shareholder, the
address as set forth in the records of the Custodian:
In the case of the Representative to:
Schneider Securities, Inc.
The Chancery
1120 Lincoln Street, Suite 900
Denver, Colorado 80203
Attention: Thomas J. O'Rourke, President
With a copy to (which shall not constitute notice):
Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos PC
One Norwest Center, Suite 4700
1700 Lincoln Street
Denver, Colorado 80203-4547
In the case of the Custodian to:
American Securities Transfer & Trust Incorporated
1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
In the case of the Company to:
Jerald H. Donnan, President
Factual Data Corp.
3665 JFK Parkway
Building 1, Suite 200
Fort Collins, Colorado 80525
5
<PAGE> 6
With a copy to (which shall not constitute notice):
Samuel E. Wing, Esq.
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Section 14. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement. Facsimile signatures shall be
accepted by the parties hereto as original signatures for all purposes.
Section 15. Governing Law. The validity, interpretation and
construction of this Agreement and of each part hereof shall be governed by the
laws of the State of Colorado.
IN WITNESS WHEREOF, the Shareholders, the Company, the Representative
and the Custodian have executed this Custody Agreement to be effective as of
the day and year first above written.
AMERICAN SECURITIES TRANSFER &
TRUST, INC.
By:
---------------------------------
Title:
------------------------------
FACTUAL DATA CORP.
By:
---------------------------------
Title:
------------------------------
SCHNEIDER SECURITIES, INC.
By:
---------------------------------
Title:
------------------------------
6
<PAGE> 7
THE SHAREHOLDERS:
By:
---------------------------------
Jerald H. Donnan
By:
---------------------------------
Marcia R. Donnan
By:
---------------------------------
Russell E. Donnan
By:
---------------------------------
James N. Donnan
7
<PAGE> 8
EXHIBIT A
TO CUSTODY AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Shares Total
Name Total Shares Not Subject Number of
of Shareholder Owned to Custody Custody Shares
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jerald H. Donnan 630,000 455,000 175,000
Marcia R. Donnan 630,000 455,000 175,000
Russell E. Donnan 270,000 195,000 75,000
James N. Donnan 270,000 195,000 75,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL 1,800,000 1,300,000 500,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
FDC GROUP, INC.
The undersigned natural person of the age of at least eighteen (18)
years, acting as incorporator, hereby establishes a corporation ("Corporation")
pursuant to the provisions of the Colorado Business Corporation Act, and hereby
adopts the following Articles of Incorporation for the Corporation:
ARTICLE I
Name
The name of the Corporation shall be FDC Group, Inc.
ARTICLE II
Duration
The period of duration of the Corporation shall be perpetual.
ARTICLE III
Purpose
The purpose for which the Corporation is organized is the transaction
of all lawful business for which corporations may be incorporated pursuant to
Colorado law.
ARTICLE IV
Shares
The total number of shares of all classes which the Corporation has
authority to issue is 11,000,000 of which 10,000,000 shares shall be Common
Stock, and 1,000,000 shares shall be Preferred Stock.
The designations and the preferences, conversion and other rights,
voting powers, restrictions, limitations as to distributions, qualifications,
and terms and conditions of redemption of the shares of each class of stock are
as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of each
series of Preferred Stock, including any preferences, conversion and other
rights, voting powers, restrictions, limitations as to distributions,
qualifications, and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors and in Articles of Amendment to
State Terms of Series Shares filed as required by law from time to time
<PAGE> 2
prior to the issuance of any shares of such series.
The Board of Directors is expressly authorized, prior to issuance, by
adopting resolutions providing for the issuance of, or providing for a change
in the number of, shares of any particular series of Preferred Stock and, if
and to the extent from time to time required by law, by filing Articles of
Amendment to State Terms of Series Shares to set or change the number of shares
to be included in each series of Preferred Stock and to set or change in any
one or more respects the designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions, qualifications,
or terms and conditions of redemption relating to the shares of each such
series. Notwithstanding the foregoing, the Board of Directors shall not be
authorized to change the right of the Common Stock of the Corporation to vote
one vote per share on all matters submitted for stockholder action. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but not be limited to, setting or changing the following:
(a) the distinctive serial designation of such series and
the number of shares constituting such series (provided that the
aggregate number of shares constituting all series of Preferred Stock
shall not exceed 1,000,000);
(b) the annual distribution rate on shares of such
series, whether distributions shall be cumulative and, if so, from
which date or dates;
(c) whether the shares of such series shall be redeemable
and, if so, the terms and conditions of such redemption, including the
date or dates upon and after which such shares shall be redeemable,
and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to redeem
or repurchase shares of such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or
classes and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and, if so,
the terms of such voting rights;
(g) the rights of the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation; and
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<PAGE> 3
(h) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof relating to such
series which may be authorized or permitted under the Colorado
Business Corporation Act.
The shares of Preferred Stock of any one series shall be identical
with each other in all respects except as to the dates from and after which
dividends thereon shall cumulate, if cumulative.
COMMON STOCK
Subject to all of the rights of the Preferred Stock as expressly
provided herein, by law or by the Board of Directors pursuant to this Article,
the Common Stock of the Corporation shall possess all such rights and
privileges as are afforded to capital stock by applicable law in the absence of
any express grant of rights or privileges in these Articles of Incorporation,
including, but not limited to, the following rights and privileges:
(a) distributions may be declared and paid or set apart
for payment upon the Common Stock out of any assets or funds of the
Corporation legally available for the payment of distributions;
(b) the holders of Common Stock shall have the right to
vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the net assets of the
Corporation shall be distributed pro rata to the holders of the Common
Stock in accordance with their respective rights and interests.
ARTICLE V
Cumulative Voting
Cumulative voting shall not be allowed in elections of directors or
for any other purpose.
ARTICLE VI
Preemptive Rights
Holders of shares of the Corporation shall have no preemptive rights
to purchase additional shares of the Corporation's stock.
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<PAGE> 4
ARTICLE VII
Initial Registered Office and Agent
The street address of the Corporation's initial registered office in
Colorado is:
3665 JFK Parkway, Building 1
Fort Collins, Colorado 80525
The name of the Corporation's initial registered agent at the address
of the aforesaid registered office is:
Jerald H. Donnan
ARTICLE VIII
Initial Principal Office
The address of the Corporation's initial principal office is:
3665 JFK Parkway, Building 1
Fort Collins, Colorado 80525
ARTICLE IX
Directors
The affairs of the Corporation shall be governed by a Board of
Directors consisting of not less than one director, with the number of
directors specified in or fixed in accordance with the Bylaws of the
Corporation, as may be amended from time to time, except as to the number
constituting the initial board which number shall be five.
The name and address of the initial director, who shall hold office
until the first meeting of the shareholders of the Corporation or until his
successor shall have been elected and qualified, is:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Jerald H. Donnan 3665 JFK Parkway, Building 1
Fort Collins, Colorado 80525
</TABLE>
ARTICLE X
Elimination of Personal Liability of a Director
To the fullest extent permitted by Colorado law, as the same exists or
may hereafter be amended, a director of the Corporation shall not be liable to
the Corporation or its
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<PAGE> 5
shareholders for monetary damages for breach of fiduciary duty as a director.
ARTICLE XI
Indemnification of Directors
The Corporation shall indemnify and advance expenses to a director of
the Corporation to the fullest extent permitted by Colorado law, as the same
exists or may hereafter be amended.
ARTICLE XII
Incorporator
The name and address of the incorporator of the Corporation is as
follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C> <C>
Samuel E. Wing 1625 Broadway, Suite 1600
Denver, Colorado 80202
</TABLE>
IN WITNESS WHEREOF, the undersigned incorporator has hereunto affixed
his signature on the 30 day of April, 1997.
/s/ Samuel E. Wing
----------------------------------
CONSENT OF REGISTERED AGENT
I hereby consent to my appointment as initial Registered Agent of the
Corporation in the foregoing Articles of Incorporation.
/s/ Jerald H. Donnan
----------------------------------
Registered Agent
- 5 -
<PAGE> 6
FDC GROUP, INC.
-----------------------------
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
-----------------------------
FDC Group, Inc., a Colorado corporation, in accordance with Section
7-110-106 of the Colorado Business Corporation Act ("CBCA"), hereby adopts and
files Articles of Amendment to the Articles of Incorporation, and sets forth
the following:
1. Name. The name of the Corporation is FDC Group, Inc.
2. Name Change. The Articles of Incorporation are hereby amended by
deleting in its entirety Article I and substituting in lieu thereof the
following new Article I:
ARTICLE I
Name
The name of the Corporation shall be Factual Data Corp.
3. Adoption. This amendment was adopted by the unanimous written
consent of the Board of Directors and Shareholders of the Corporation on
January 21, 1998, in conformity with the CBCA.
Dated: January 21, 1998 FDC GROUP, INC.
By: /s/ Jerald H. Donnan
--------------------------------
Jerald H. Donnan, President
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
FACTUAL DATA CORP.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the corporation
shall initially be located at 3665 JFK Parkway, Building Number 1, Ft. Collins,
Colorado 80525. The corporation may change the location of such principal office
and may have such other offices, either within or outside Colorado, as the board
of directors may designate, or as the business of the corporation may require
from time to time.
SECTION 2. REGISTERED OFFICE AND REGISTERED AGENT. The address of the
initial registered office of the corporation is 3665 JFK Parkway, Building
Number 1, Ft. Collins, Colorado 80525, and the name of the initial registered
agent at this address is Jerald H. Donnan. The registered office and the
registered agent may be changed by the board of directors at any time.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held on the second Tuesday in June in each year, beginning in the year 1998,
at 10:00 a.m. or at any other time on any other day that shall be fixed by the
board of directors, for the purpose of electing directors and for the
transaction of any other business that may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday in Colorado, the meeting
shall be held on the next succeeding business day. If the election of directors
shall not be held on the day designated in this Section 1 for an annual meeting
of the shareholders, or at any adjournment of the meeting, the board of
directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as may be convenient.
SECTION 2. SPECIAL MEETING. Unless otherwise prescribed by statute,
special meetings of the shareholders may be called for any purpose by the
chairman of the board, the president, the board of directors, or by the holders
of not less than one-tenth of all outstanding shares of the corporation entitled
to vote at the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, either within or without Colorado, as the place of meeting for any annual
or 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 Colorado, as the place for the holding of the meeting.
If no designation is made, or if a special meeting is
-1-
<PAGE> 2
otherwise called, the place of meeting shall be the principal office of the
Company in the State of Colorado.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, day
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise prescribed by
statute, be delivered not less than ten nor more than sixty days before the date
of the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, the secretary, or the officer or other
person authorized to give notice of the meeting, to each shareholder of record
entitled to vote at the meeting; except that if the number of authorized shares
are to be increased, at least thirty days' notice shall be given.
Notice of a special meeting shall include a description of the purpose
or purposes of the meeting. Notice of an annual meeting need not include a
description of the purpose or purposes of the meeting except the purpose or
purposes shall be stated with respect to: (i) an amendment to the articles of
incorporation of the corporation; (ii) a merger or share exchange in which the
corporation is a party and, with respect to a share exchange, in which the
corporation's shares will be required; (iii) a sale, lease, exchange or other
disposition, other than in the usual and regular course of business, of all or
substantially all of the property of the corporation or of another entity which
this corporation controls, in each case with or without the goodwill; (iv) a
dissolution of the corporation; (v) restatement of the articles of
incorporation; or (vi) any other purpose for which a statement of purpose is
required by the Colorado Business Corporation Act. Notice shall be given
personally or by mail, private carrier, telegraph, teletype, electronically
transmitted facsimile or other form of wire or wireless communication by or at
the direction of the chairman of the board, 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 and if in a comprehensible form, such notice
shall be deemed to be given and effective when deposited in the United States
mail, properly addressed to the shareholder at his address as it appears in the
corporation's current record of shareholders, with first class postage prepaid.
If notice is given other than by mail, and provided that such notice is in a
comprehensible form, the notice is given and effective on the date actually
received by the shareholder.
If requested by the person or persons lawfully calling such meeting,
the secretary shall give notice thereof at corporate expense. No notice need be
sent to any shareholder if three successive notices mailed to the last known
address of such shareholder have been returned as undeliverable until such time
as another address for such shareholder is made known to the corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the corporation in writing of any change in such
shareholder's mailing address as shown on the corporation's books and records.
When a meeting is adjourned to another date, time or place, notice need
not be given of the new date, time or place if the new date, time or place of
such meeting is announced before adjournment at the meeting at which the
adjournment is taken. At the
-2-
<PAGE> 3
adjourned meeting the corporation may transact any business which may have been
transacted at the original meeting. If the adjournment is for more than 120
days, or if a new record date is fixed for the adjournment meeting, a new notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before or after the time
and date of the meeting by a writing signed by such shareholder. Such waiver
shall be delivered to the corporation for filing with the corporate records, but
this delivery and filing shall not be conditions to the effectiveness of the
waiver. Further, by attending a meeting either in person or by proxy, a
shareholder waives objection to lack of notice or defective notice of the
meeting unless the shareholder objects at the beginning of the meeting to the
holding of the meeting or the transaction of business at the meeting because of
lack of notice or defective notice. By attending the meeting, the shareholder
also waives any objection to consideration at the meeting of a particular matter
not within the purpose or purposes described in the meeting notice unless the
shareholder objects to considering the matter when it is presented.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment of a meeting, or shareholders entitled to receive payment of any
distribution, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation 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 seventy days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken. If no
record date is fixed by the directors, the record date shall be the day before
the notice of the meeting is given to shareholders, or the date on which the
resolution of the board of directors providing for a distribution is adopted, as
the case may be. When a determination of shareholders entitled to vote at any
meeting of shareholders is made as provided in this Section 5, such
determination shall apply to any adjournment thereof unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
Unless otherwise specified when the record date is fixed, the time of day for
such determination shall be as of the corporation's close of business on the
record date.
Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be given
notice of action so taken shall be the date a writing upon which the action is
taken is first received by the corporation. The record date for determining
shareholders entitled to demand a special meeting shall be the date of the
earliest of any of the demands pursuant to which the meeting is called.
SECTION 6. SHAREHOLDERS' LIST. The officer or agent having charge of
the stock transfer books for shares of the corporation shall make, before each
meeting of
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shareholders, a complete record of the shareholders entitled to vote at the
meeting or any adjournment of the meeting, arranged by voting groups and within
each voting group by class or series, in alphabetical order within each class or
series, with the address of, and the number of shares of each class or series
held by each shareholder. The shareholders' list shall be available for
inspection by any shareholder, beginning the earlier of ten days before the
meeting for which the list was prepared or two business days after the notice of
the meeting is given and continuing through the meeting, and any adjournment of
the meeting, at the principal office of the corporation or at a place identified
in the notice of the meeting in the city where the meeting will be held. The
shareholders' list shall be subject to inspection on the written demand of any
shareholder and, subject to restrictions of Colorado law, to copy the list
during regular business hours and during the period it is available for
inspection. The original stock transfer books shall be prima facie evidence as
to who are the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
SECTION 7. QUORUM AND MANNER OF ACTING. One-third of the votes entitled
to be cast on a matter by a voting group represented in person or by proxy,
shall constitute a quorum of that voting group for action on the matter. In the
absence of a quorum at a meeting, a majority of the votes so represented may
adjourn the meeting from time to time without further notice, for a period not
to exceed 120 days for any one adjournment. If a quorum is present at such
adjourned meeting, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal during such meeting of enough shareholders to
leave less than a quorum.
If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action, unless the vote of a greater number or voting by classes is required
by law or the articles of incorporation.
SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy by signing an appointment form or similar writing, either
personally or by his duly authorized attorney-in-fact. A shareholder may also
appoint a proxy by transmitting or authorizing the transmission of a telegram,
teletype, or other electronic transmission providing a written agreement of the
appointment of the proxy, a proxy solicitor, proxy support service organization,
or other person duly authorized by the proxy to receive appointments as agent
for the proxy, or to the corporation. The transmitted appointment shall set
forth or be transmitted with written evidence from which it can be determined
that the shareholder transmitted or authorized the transmission of the
appointment. The proxy appointment form or similar writing shall be filed with
the secretary of the corporation before or at the time of the meeting. The
appointment of a proxy is effective when received by the corporation and is
valid for eleven months unless a different period is expressly provided in the
appointment form or similar writing.
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Any complete copy, including an electronically transmitted facsimile,
of an appointment of a proxy may be substituted for or used in lieu of the
original appointment for any purpose for which the original appointment could be
used.
Revocation of a proxy does not affect the right of the corporation to
accept the proxy's authority unless: (i) the corporation had notice that the
appointment was coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the
appointment; or (ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. Other notice of
revocation may, in the discretion of the corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
The corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact, notwithstanding
that the revocation may be a breach of an obligation of the shareholder to
another person not to revoke the appointment.
Subject to Section 10 of this Article II and any express limitation on
the proxy's authority appearing on the appointment form, the corporation is
entitled to accept the proxy's vote or other action as that of the shareholder
making the appointment.
SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote, except in the election of directors, and
each fractional share shall be entitled to a corresponding fractional vote on
each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the articles of incorporation as permitted by the Colorado Business
Corporation Act. Cumulative voting shall not be permitted in the election of
directors or for any other purpose. Each record holder of stock shall be
entitled to vote in the election of directors and shall have as many votes for
each of the shares owned by him as there are directors to be elected and for
whose election he has the right to vote.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes cast in
favor of their election, shall be elected to the board of directors.
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Except as otherwise ordered by a court of competent jurisdiction upon a
finding that the purpose of this Section would not be violated in the
circumstances presented to the court, the shares of the corporation are not
entitled to be voted if they are owned, directly or indirectly, by a second
corporation, domestic or foreign, and the first corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors of the
second corporation except to the extent the second corporation holds the shares
in a fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the shares
has been deposited with a bank, trust company or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares.
SECTION 10. VOTING OF SHARES BY CERTAIN SHAREHOLDERS. If the name
signed on a vote, consent, waiver, proxy appointment, or proxy appointment
revocation corresponds to the name of a shareholder, the corporation, if acting
in good faith, is entitled to accept the vote, consent, waiver, proxy
appointment or proxy appointment revocation and give it effect as the act of the
shareholder. If the name signed on a vote, consent, waiver, proxy appointment or
proxy appointment revocation does not correspond to the name of a shareholder,
the corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment or proxy appointment revocation and to
give it effect as the act of the shareholder if: (i) the shareholder is an
entity and the name signed purports to be that of an officer or agent of the
entity; (ii) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the corporation
requests, evidence of fiduciary status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation; (iii) the name signed purports to be that of a receiver
or trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation has been presented with
respect to the vote, consent, waiver, proxy appointment or proxy appointment
revocation; (iv) the name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign for
the shareholder has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation; (v) two or more persons are
the shareholder as co-tenants or fiduciaries and the name signed purports to be
the name of at least one of the co-tenants or fiduciaries, and the person
signing appears to be acting on behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment or proxy
appointment revocation is otherwise proper under rules established by the
corporation that are not inconsistent with this Section 10.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other officer or
agent authorized to
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tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
Neither the corporation nor its officers nor any agent who accepts or
rejects a vote, consent waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section 10
is liable in damages for the consequences of the acceptance or rejection.
SECTION 11. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a written consent (or counterparts thereof) that sets forth the
action so taken is signed by all of the shareholders entitled to vote with
respect to the subject matter thereof and received by the corporation. Such
consent shall have the same force and effect as a unanimous vote of the
shareholders and may be stated as such in any document. Any such writing may be
received by the corporation by electronically transmitted facsimile or other
form of wire or wireless communication providing the corporation with a complete
copy thereof, including a copy of the signature thereto. The shareholder so
transmitting such a writing shall furnish an original of such writing to the
corporation for the permanent record of the corporation, but the failure of the
corporation to receive or record such original writing shall not affect the
action so taken. Action taken under this Section 11 is effective as of the date
the last writing necessary to effect the action is received by the corporation,
unless all of the writings specify a different effective date, in which case
such specified date shall be the effective for such action. If any shareholder
revokes his consent as provided for herein prior to what would otherwise be the
effective date, the action proposed in the consent shall be invalid. The record
date for determining shareholders entitled to take action without a meeting is
the date the corporation first receives a writing upon which the action is
taken.
Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 11 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the corporation before the effectiveness of the action.
SECTION 12. MEETINGS BY TELECOMMUNICATION. Any or all of the
shareholders may participate in an annual or special shareholders' meeting by,
or the meeting may be conducted through the use of, any means of communication
by which all persons participating in the meeting may hear each other during the
meeting. A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
SECTION 13. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board of
directors may adopt by resolution a procedure whereby a shareholder of the
corporation may certify in writing to the corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of a specified person or persons. The
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resolution may set forth: (i) the types of nominees to which it applies; (ii)
the rights or privileges that the corporation will recognize in a beneficial
owner, which may include rights and privileges other than voting; (iii) the form
of certification and the information to be contained therein; (iv) if the
certification is with respect to a record date, the time within which the
certification must be received by the Corporation; (v) the period for which the
nominee's use of the procedure is effective; and (vi) such other provisions with
respect to the procedure as the board deems necessary or desirable. Upon receipt
by the corporation of a certificate complying with the procedure established by
the board of directors, the persons specified in the certification shall be
deemed, for the purpose or purposes set forth in the certification, to be the
registered holders of the number of shares specified in place of the shareholder
making the certification.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, its board of directors, except as otherwise
provided in the Colorado Business Corporation Act.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall be fixed from time to time by resolution of the board
of directors, but in no instance shall there be less than one director. No
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. A director shall be a natural person who is eighteen
years of age or older. A director need not be a resident of Colorado or a
shareholder of the corporation.
Each director shall hold office until the next annual meeting of
shareholders following his election or until his successor shall have been
elected and qualified. Directors shall be removed in the manner provided by the
Colorado Business Corporation Act. Any director may be removed by the
shareholders of the voting group that elected the director, with or without
cause, at a meeting called for that purpose. The notice of the meeting shall
state that the purpose or one of the purposes of the meeting is removal of the
director. A director may be removed only if the number of votes cast in favor of
removal exceeds the number of votes cast against removal.
There shall be a chairman of the board, who has been elected from among
the directors. He shall preside at all meetings of the shareholders and of the
board of directors. He shall have such other powers and duties as may be
prescribed by the board of directors.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without notice 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
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within or without Colorado, for the holding of additional regular meetings
without other notice.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president
or any two directors. The person or persons authorized to call special meetings
of the board of directors may fix any place, either within or without Colorado,
as the place for holding any special meeting of the board of directors called by
them.
SECTION 5. NOTICE OF MEETING. Notice of the date, time and place of any
special meeting shall be given to each director at least two days prior to the
meeting by written notice either personally delivered or mailed to each director
at his business address, or by notice transmitted by private courier, telegraph,
telex, electronically transmitted facsimile or other form of wire or wireless
communication. If mailed, such notice shall be deemed to be given and to be
effective on the earlier of: (i) five days after such notice is deposited in the
United States mail, properly addressed, with first class postage prepaid; or
(ii) the date shown on the return receipt, if mailed by registered or certified
mail return receipt requested, provided that the receipt is signed by or on
behalf of the director to whom the notice is addressed. If notice is given by
telex, electronically transmitted facsimile or other similar form of wire or
wireless communication, such notice shall be deemed to be given and to be
effective when sent, and with respect to a telegram, such notice shall be deemed
to be given and to be effective when the telegram is delivered to the telegraph
company. If a director has designated in writing one or more reasonable
addresses or facsimile numbers for delivery of notice to him, notice sent by
mail, telegraph, telex, electronically transmitted facsimile or other form of
wire or wireless communication shall not be deemed to have been given or to be
effective unless sent to such addresses or facsimile numbers, as the case may
be.
A director may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such director. Such waiver shall be
delivered to the secretary for filing with the corporate records, but such
delivery and filing shall not be conditions to the effectiveness of the waiver.
Further, a director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless at the beginning of the meeting, or
promptly upon his later arrival, the director objects to holding the meeting or
transacting business at the meeting because of lack of notice or defective
notice and does not thereafter vote for or assent to action taken at the
meeting. Neither the business to be transacted at, nor the purpose 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 6. QUORUM. A majority of the number of directors fixed by the
board of directors pursuant to Section 2 of this Article III or, if no number is
fixed, a majority of the number in office immediately before the meeting begins,
shall constitute a quorum for the transaction of business at any meeting of the
board of directors, but if less than the majority is present at a meeting, a
majority of the directors present may adjourn the
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meeting from time to time without further notice. 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. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at a meeting of the directors or any committee designated
by the board of directors may be taken without a meeting if a written consent
(or counterparts thereof) that sets forth the action so taken is signed by all
of the directors entitled to vote with respect to the action taken. Such consent
shall have the same force and effect as a unanimous vote of the directors or
committee members and may be stated as such in any document. Unless the consent
specifies a different effective time or date, action taken under this Section 7
is effective at the time of date the last director signs a writing describing
the action taken, unless, before such time, any director has revoked his consent
by a writing signed by the director and received by the chairman of the board,
the president or the secretary of the corporation.
SECTION 8. TELEPHONIC MEETINGS OF DIRECTORS. The board of directors may
permit any director (or any member of a committee designated by the board) to
participate in a regular or special meeting of the board of directors or a
committee thereof through the use of any means of communication by which all
directors participating in the meeting can hear each other during the meeting. A
director participating in a meeting in this manner is deemed to be present in
person at the meeting.
SECTION 9. VACANCIES. Any director may resign at any time by giving
written notice to the corporation. Such resignation shall take effect at the
time the notice is received by the corporation unless the notice specifies a
later effective date. Unless otherwise specified in the notice of resignation,
the corporation's acceptance of such resignation shall not be necessary to make
it effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the board of directors or in any other manner
permitted by the Colorado Business Corporation Act. If the directors remaining
in office constitute fewer than a quorum of the board, the directors may fill
the vacancy by the affirmative vote of a majority of all the directors remaining
in office. The director shall hold office until the next annual shareholders'
meeting at which directors are elected.
SECTION 10. COMPENSATION. By resolution of the board of directors, any
director may be paid any one or more of the following: his expenses, if any, of
attendance at meetings, a fixed sum for attendance at each meeting, a stated
salary as director, or such other compensation as the corporation and the
director may reasonably agree upon. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors or committee of the board at
which action on any corporate matter is taken shall be presumed to have assented
to all action taken at the meeting unless: (i) the director objects at the
beginning of the meeting, or promptly upon
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his arrival, to the holding of the meeting or the transaction of business at the
meeting and does not thereafter vote for or assent to any action taken at the
meeting; (ii) the director contemporaneously requests that his dissent or
abstention as to any specific action taken be entered in the minutes of the
meeting; or (iii) the director causes written notice of his dissent or
abstention as to any specific action to be received by the presiding officer of
the meeting before its adjournment or by the corporation promptly after the
adjournment of the meeting. A director may dissent to a specific action at a
meeting while assenting to others. The right to dissent to a specific action
taken at a meeting of the board of directors or a committee of the board shall
not be available to a director who voted in favor of such action.
SECTION 12. EXECUTIVE AND OTHER COMMITTEES. By resolution adopted by a
majority of all the directors in office when the action is taken, the board of
directors may designate from among its members an executive committee and one or
more other committees, and appoint one or more members of the board of directors
to serve on them. To the extent provided in the resolution, each committee shall
have all the authority of the board of directors, except that no such committee
shall have the authority to: (i) authorize distributions; (ii) approve or
propose to shareholders actions or proposals required by the Colorado Business
Corporation Act to be approved by shareholders; (iii) fill vacancies on the
board of directors or any committee thereof; (iv) amend the articles of
incorporation, (v) adopt, amend or repeal the bylaws; (vi) approve a plan of
merger not requiring shareholder approval; (vii) authorize or approve the
reacquisition of shares unless pursuant to a formula or method prescribed by the
board of directors; or (viii) authorize or approve the issuance or sale of
shares, or contract for the sale of shares or determine the designations and
relative rights, preferences and limitations of a class or series of shares,
except that the board of directors may authorize a committee to do so within
limits specifically prescribed by the board of directors. The committee shall
then have full power within the limits set by the board of directors to adopt
any final resolution setting forth all preferences, limitations and relative
rights of such class or series and to authorize an amendment of the articles of
incorporation stating the preferences, limitations and relative rights of a
class or series for filing with the Secretary of State under the Colorado
Business Corporation Act.
Sections 3, 4, 5, 6, 7, 8 or 11 of this Article III, which govern
meetings, notice, waiver of notice, quorum, voting requirements and action
without a meeting of the board of directors, shall apply to committees and their
members appointed under this Section 12.
Neither the designation of any such committee, the delegation of
authority to such committee, nor any action by such committee pursuant to its
authority shall alone constitute compliance by any member of the board of
directors or a member of the committee in question with his responsibility to
conform to the standard of care set forth in Section 13 of this Article III.
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SECTION 13. STANDARD OF CARE. A director shall perform his duties as a
director, including without limitation his duties as a member of any committee
of the board, in good faith, in a manner he reasonably believes to be in the
best interests of the corporation, and with the care an ordinarily prudent
person in a like position would exercise under similar circumstances. In
performing his duties, a director shall be entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by the persons herein
designated. However, he shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
to be unwarranted. A director shall not be liable to the corporation or its
shareholders for any action he takes or omits to take as a director if, in
connection with such action or omission, he performs his duties in compliance
with this Section 13.
The designated persons on whom a director is entitled to rely are: (i)
one or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent in the matters presented; (ii)
legal counsel, public accountant, or other person as to matters which the
director reasonably believes to be within such person's professional or expert
competence; or (iii) a committee of the board of directors on which the director
does not serve if the director reasonably believes the committee merits
confidence.
SECTION 14. CONFLICTING INTEREST TRANSACTIONS. As used in this Section
14, "conflicting interest transaction" means any of the following: (i) a loan or
other assistance by the Corporation to a director of the Corporation or to an
entity in which a director of the Corporation is a director or officer or has a
financial interest; (ii) a guaranty by the Corporation of an obligation of a
director of the Corporation or of an obligation of an entity in which a director
of the Corporation is a director or officer or has a financial interest; or
(iii) a contract or transaction between the Corporation and a director of the
Corporation or between the Corporation and an entity in which a director of the
Corporation is a director or officer or has a financial interest. No conflicting
interest transaction shall be void or voidable, be enjoined, be set aside, or
give rise to an award of damages or other sanctions in a proceeding by a
shareholder or by or in the right of the Corporation, solely because the
conflicting interest transaction involves a director of the Corporation or an
entity in which a director of the Corporation is a director or officer or has a
financial interest, or solely because the director is present at or participates
in the meeting of the Corporation's board of directors or of the committee of
the board of directors which authorizes, approves or ratifies a conflicting
interest transaction, or solely because the director's vote is counted for such
purpose if: (A) the material facts as to the director's relationship or interest
and as to the conflicting interest transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or committee in
good faith authorizes, approves or ratifies the conflicting interest transaction
by the affirmative vote of a majority of the disinterested directors, even
though the disinterested directors are less than a quorum; or (B) the material
facts as to the director's relationship or interest and as to the conflicting
interest transaction are disclosed or are known to the shareholders entitled to
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vote thereon, and the conflicting interest transaction is specifically
authorized, approved or ratified in good faith by a vote of the shareholders; or
(C) a conflicting interest transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the board of directors, a
committee thereof, or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes, approves or ratifies the
conflicting interest transaction.
Neither the board of directors nor any committee thereof shall
authorize a loan by the Corporation to a director of the Corporation or to an
entity in which a director of the Corporation is a director or officer or has a
financial interest, or a guaranty by the Corporation of an obligation of a
director of the Corporation or of an obligation of an entity in which a director
of the Corporation is a director or officer or has a financial interest, until
at least ten days after written notice of the proposed authorization of the loan
or guaranty has been given to the shareholders who would be entitled to vote
thereon if the issue of the loan or guaranty were submitted to a vote of the
shareholders. The requirements of this paragraph are in addition to, and not in
substitution for, the provisions of the preceding paragraph of this Section 14.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the corporation shall be a chairman
of the board, a president, a secretary and a treasurer, each of whom shall be
appointed by the board of directors and shall be a natural person eighteen years
of age or older. One person may hold more than one office. The board of
directors may appoint such other officers and assistant officers, including one
or more vice presidents, assistant secretaries and assistant treasurers, as they
may consider necessary.
SECTION 2. APPOINTMENT AND TERM OF OFFICE. The officers of the
corporation shall be appointed by the board of directors at each regular meeting
of the board held immediately after each annual meeting of the shareholders. If
the appointment of officers is not made at such meeting, such appointments shall
be made as determined by the board of directors. Each officer shall hold office
until the first of the following occurs: his successor shall have been duly
appointed and qualified, his death, his resignation, or his removal in the
manner provided in Section 3 of this Article IV. In the event that an officer is
employed by the corporation pursuant to an employment contract duly authorized
and approved by the board of directors, an officer may be appointed for the term
of, and in accordance with the provisions of, such employment contract.
SECTION 3. RESIGNATION AND REMOVAL. An officer may resign at any time
by giving written notice of resignation to the corporation. The resignation is
effective when the notice is received by the corporation unless the notice
specifies a later effective date.
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Any officer may be removed at any time with or without cause by the
board of directors. Such removal does not effect the contract rights, if any, of
the corporation or of the person so removed. The appointment of an officer shall
not in itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office, however occurring, may
be filled by the board of directors. If an officer resigns and his resignation
is made effective at a later date, the board of directors may permit the officer
to remain in office until the effective date and may fill the pending vacancy
before the effective date if the board of directors provide that the successor
shall not take office until the effective date. In the alternative, the board of
directors may remove the officer at any time before the effective date and may
fill the resulting vacancy.
SECTION 5. CHAIRMAN OF THE BOARD. The chairman of the board shall
preside at all meetings of shareholders and of the board of directors. He may
sign and execute all authorized instruments, contracts, or other obligations on
behalf of the corporation. He shall have such other powers and duties as may be
prescribed by the board of directors.
SECTION 6. PRESIDENT. In the absence of the chairman of the board, the
president shall preside at all meetings of shareholders and all meetings of the
board of directors. Subject to the direction and supervision of the board of
directors, the president shall be the chief executive officer of the
corporation, and shall have general and active control of its affairs and
business and general supervision of its officers, agents and employees. Unless
otherwise directed by the board of directors, the president shall attend in
person or by substitute appointed by him, or shall execute on behalf of the
corporation, written instruments appointing a proxy or proxies to represent the
corporation at, all meetings of the stockholders of any other corporation in
which the corporation holds any stock. On behalf of the corporation, the
president may in person or by substitute or by proxy execute written waivers of
notice and consents with respect to any such meetings. At all such meetings and
otherwise, the president, in person or by substitute or proxy, may vote the
stock held by the corporation, execute written consents and other instruments
with respect to such stock, and exercise any and all rights and powers incident
to the ownership of said stock, subject to the instructions, if any, of the
board of directors. The president may sign all instruments, contracts and other
obligations which the board of directors has authorized to be executed, and
shall have such additional authority and duties as are appropriate and customary
for the office of president and chief executed officer, except as the same may
be expanded or limited by the board of directors from time to time.
SECTION 7. VICE PRESIDENTS. If appointed by the board of directors, the
vice presidents shall assist the president and shall perform such duties as may
be assigned to them by the president or by the board of directors. In the
absence of the president, the vice president, if any (or, if more than one, the
vice presidents in the order designated by the board of directors, or if the
board makes no such designation, then the vice president designated by the
president, or if neither the board nor the president makes any such
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designation, the senior vice president as determined by first election to that
office), shall have the powers and perform the duties of the president.
SECTION 8. SECRETARY. The secretary shall: (i) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
board of directors, a record of all actions taken by the shareholders or board
of directors without a meeting, a record of all actions taken by a committee or
the board of directors in place of the board of directors on behalf of the
corporation, and a record of all waivers of notice of meetings of shareholders
and of the board of directors of any committee thereof; (ii) see that all
notices are duly given in accordance with the provisions of these bylaws and as
required by law; (iii) serve as custodian of the corporate records and of the
seal of the corporation and affix the seal to all documents when authorized by
the board of directors; (iv) keep at the corporation's registered office or
principal office a record containing the names and addresses of all shareholders
in a form that permits preparation of a list of shareholders arranged by voting
group and by class or series of shares within each voting group, that is
alphabetical within each class or series and that shows the address of, and the
number of shares of each class or series held by, each shareholder, unless such
a record shall be kept at the office of the corporation's transfer agent or
registrar; (v) maintain at the corporation's principal office the originals or
copies of the corporation's articles of incorporation, bylaws, minutes of all
shareholders' meetings and records of all action taken by shareholders without a
meeting for the past three years, all written communications within the past
three years to shareholders as a group or to the holders of any class or series
of shares as a group, a list of the names and business addresses of the current
directors and officers, a copy of the corporation's most recent corporate report
filed with the Secretary of State, and financial statements, if any, showing in
reasonable detail the corporation's assets and liabilities and results of
operations for the last three years; (vi) have general charge of the stock
transfer books of the corporation, unless the corporation has a transfer agent;
(vii) authenticate records of the corporation; and (viii) in general, perform
all duties incident to the office of secretary and such other duties as from
time to time may be assigned to him by the chairman of the board, the president
or by the board of directors. Assistant secretaries, if any, shall have the same
duties and powers, subject to supervision by the secretary. The directors and/or
shareholders may however respectively designate a person other than the
secretary or assistant secretary to keep the minutes of their respective
meetings.
Any books, records, or minutes of the corporation may be in written
form or in any form capable of being converted into written form within a
reasonable time.
SECTION 9. TREASURER. The treasurer shall be the principal financial
officer of the corporation, shall have the care and custody of all funds,
securities, evidences of indebtedness and other personal property of the
corporation and shall deposit the same in accordance with the instructions of
the board of directors. Subject to the limits imposed by the board of directors,
he shall receive and give receipts and acquittances for money paid in on account
of the corporation, and shall pay out of the corporation's funds on hand
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all bills, payrolls and other just debts of the corporation of whatever nature
upon maturity. He shall perform all other duties incident to the office of the
treasurer and, upon request of the board, shall make such reports to it as may
be required at any time. He shall, if required by the board, give the
corporation a bond in such sums and with such sureties as shall be satisfactory
to the board, conditioned upon the faithful performance of his duties and for
the restoration to the corporation of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation. He shall have such other powers and perform such other
duties as may from time to time be prescribed by the board of directors, the
chairman of the board, or the president. The assistant treasurers, if any, shall
have the same powers and duties, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Colorado Business Corporation Act, prepare and file all local,
state and federal tax returns, prescribe and maintain an adequate system of
internal accounting controls and prepare and furnish to the chairman of the
board, the president and the board of directors statements of account showing
the financial position of the corporation and the results of its operations.
SECTION 10. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving a salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
CONTRACTS, LOANS AND CHECKS
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 loans shall be contracted on behalf of the
corporation and no evidence 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, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in the manner that shall from time to time be
determined by resolution of the board of directors.
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ARTICLE VI
SHARES
SECTION 1. CERTIFICATES. The board of directors shall be authorized to
issue any of its classes of shares with or without certificates. The fact that
the shares are not represented by certificates shall have no effect on the
rights and obligations of shareholders. If the shares are represented by
certificates, such shares shall be represented by consecutively numbered
certificates signed, either manually or by facsimile, in the name of the
corporation by the chairman of the board, the president or one or more vice
presidents, and the secretary or an assistant secretary. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, such
certificate may nonetheless be issued by the corporation with the same effect as
if he were such officer at the date of its issue. All certificates shall be
consecutively numbered, and the names of the owners, the number of shares, and
the date of issue shall be entered on the books of the corporation. Each
certificate representing shares shall state upon its face: (i) that the
corporation is organized under the laws of Colorado; (ii) the name of the person
to whom issued; (iii) the number and class of the shares and the designation of
the series, if any, that the certificate represents; (iv) the par value, if any,
of each share represented by the certificate; (v) a conspicuous statement, on
the front or the back, that the corporation will furnish to the shareholder, on
request in writing and without charge, information concerning the designations,
preferences, limitations, and relative rights applicable to each class, the
variations in preferences, limitations, and rights determined for each series,
and the authority of the board of directors to determine variations for future
classes or series; and (vi) any restrictions imposed by the corporation under
the transfer of the shares represented by the certificate.
If shares are not represented by certificates, within a reasonable time
following the issue or transfer of such shares, the corporation shall send the
shareholder a complete written statement of all of the information required to
be provided to holders of uncertificated shares by the Colorado Business
Corporation Act.
SECTION 2. CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully paid.
The board of directors may authorize the issuance of shares for consideration
consisting of any tangible or intangible property or benefit to the corporation,
including cash, promissory notes, services performed or other securities of the
corporation. Future services shall not constitute payment or partial payment for
shares of the corporation. The promissory note of a subscriber or an affiliate
of a subscriber shall not constitute payment or partial payment for shares of
the corporation unless the note is negotiable and is secured by collateral,
other than the shares being purchased, having a fair market value at least equal
to the principal amount of the note. For purposes of this Section 2, a
"promissory note" means a negotiable instrument on which there is an obligation
to pay independent of collateral and does not include a non-recourse note.
SECTION 3. LOST CERTIFICATES. In case of the alleged loss, destruction
or mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate
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in lieu thereof upon such terms and conditions in conformity with law as the
board may prescribe. The board of directors may in its discretion require an
affidavit of lost certificate and/or a bond in such form and amount and with
such surety as it may determine before issuing a new certificate.
SECTION 4. TRANSFER OF SHARES. Upon surrender to the corporation or to
a transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law and
evidence of compliance with all applicable securities laws and other
restrictions, the corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of stock
shall be entered on the stock books of the corporation which shall be kept at
its principal office or by the person and at the place designated by the board
of directors.
Except as otherwise expressly provided in Sections 10 and 13 of Article
II of these bylaws, and except for the assertion of dissenters' rights to the
extent provided in the Colorado Business Corporation Act, the corporation shall
be entitled to treat the registered holder of any shares of the corporation as
the owner thereof for all purposes, and the corporation shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or rights
deriving from such shares on the part of any person other than the registered
holder, including without limitation any purchaser, assignee or transferee of
such shares or rights deriving from such shares, unless and until such other
person becomes the registered holder of such shares, whether or not the
corporation shall have either actual or constructive notice of the claimed
interest of such other person.
SECTION 5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board may
at its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of the
corporation. Such agents and registrars may be located either within or outside
Colorado. They shall have such rights and duties and shall be entitled to such
compensation as may be agreed.
SECTION 6. DISTRIBUTIONS TO SHAREHOLDERS. As used in this Section 6,
"distribution" means a direct or indirect transfer by the corporation of money
or other property, except its own shares, or incurrence of indebtedness by the
corporation, to or for the benefit of any of its shareholders in respect of any
of its shares. A distribution may be in any form, including a declaration or
payment of a dividend; a purchase, redemption, or other acquisition of shares;
or distribution of indebtedness. The board of directors may authorize, and the
corporation may make, distributions to the shareholders subject to the
limitations set forth in this Section 6. The board of directors may fix in
advance a date as the record date for determining shareholders entitled to a
distribution, other than one involving a purchase, redemption, or other
acquisition of the corporation's shares. If a record date is necessary but no
record date is so fixed in advance, the record date is the date the board of
directors authorizes the distribution.
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No distribution may be made if, after giving it effect: (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business; or (ii) the corporation's total assets would be less than
the sum of its total liabilities plus (unless the articles of incorporation
permit otherwise) 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 to those
receiving the distribution. The board of directors may base a determination that
a distribution is not prohibited either on financial statements prepared on the
basis of accounting practices and principles that are reasonable under the
circumstances or on a fair valuation or other method that is reasonable under
the circumstances.
Except as provided elsewhere in this Section 6, the time for measuring
the effect of a distribution under this Section 6 is: (i) in the case of
distribution by purchase, redemption, or other acquisition of the corporation's
shares, as of the earlier of: (A) the date money or other property is
transferred or debt is incurred by the corporation; or (B) the date the
shareholder ceases to be a shareholder with respect to the acquired shares; (ii)
in the case of any other distribution of indebtedness, as of the date the
indebtedness is distributed; and (iii) in all other cases, as of either: (A) the
date the distribution is authorized, if the payment occurs within one hundred
twenty days after the date of authorization; or (B) the date the payment is
made, if it occurs more than one hundred twenty days after the date of
authorization.
Indebtedness of a corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
this Section 6 if its terms provide that payment of principal and interest
thereon are made only if and to the extent that payment of a distribution to
shareholders could then be made under Section 7-106- 401 of the Colorado
Business Corporation Act. If the indebtedness is issued as a distribution, each
payment of principal or interest thereon is treated as a distribution the effect
of which is measured on the date the payment is actually made.
SECTION 7. SHARE OPTIONS AND OTHER RIGHTS. As used in this Section 7,
"rights" means rights, options, warrants, or convertible securities entitling
the holders thereof to purchase, receive, or acquire shares or fractions of
shares of the corporation or assets or debts or other obligations of the
corporation. The corporation may create and issue rights, except as precluded or
limited by provisions contained in the articles of incorporation at the time of
such creation or issuance. The board of directors shall determine the terms upon
which the rights are issued, their form and content, and the consideration, if
any, for which shares or fractions of shares, assets, or debts or other
obligations of the corporation are to be issued pursuant to the rights.
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ARTICLE VII
INDEMNIFICATION OF CERTAIN PERSONS
SECTION 1. INDEMNIFICATION. For purposes of this Article VII, a "Proper
Person" means any person (including the estate or personal representative of a
director) 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, and whether formal or informal, by
reason of the fact that he is or was a director, officer, employee, fiduciary or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee, fiduciary or agent of any
foreign or domestic profit or nonprofit corporation or of any partnership, joint
venture, trust, profit or nonprofit unincorporated association, limited
liability company, or other enterprise or employee benefit plan. The corporation
shall indemnify any Proper Person against reasonably incurred expenses
(including attorneys' fees), judgments, penalties, fines (including any excise
tax assessed with respect to an employee benefit plan) and amounts paid in
settlement reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by the groups set forth in Section 4 of this
Article VII that he conducted himself in good faith and that he reasonably
believed: (i) in the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best interests; or (ii)
in all other cases (except criminal cases), that his conduct was at least not
opposed to the corporation's best interests; or (iii) in the case of any
criminal proceeding, that he had no reasonable cause to believe his conduct was
unlawful. Official capacity means, when used with respect to a director, the
office of director and, when used with respect to any other Proper Person, the
office in a corporation held by the officer or the employment, fiduciary or
agency relationship undertaken by the employee, fiduciary, or agent on behalf of
the corporation. Official capacity does not include service for any other
domestic or foreign corporation or other person or employee benefit plan.
A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement in (ii) of this Section 1. A director's conduct with respect to an
employee benefit plan for a purpose that the director did not reasonably believe
to be in the interests of the participants in or beneficiaries of the plan shall
be deemed not to satisfy the requirement of this section that he conduct himself
in good faith.
No indemnification shall be made under this Article VII to a Proper
Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of a corporation in which the Proper Person was
adjudged liable to the corporation or in connection with any proceeding charging
that the Proper Person derived an improper personal benefit, whether or not
involving action in an official capacity, in which he was adjudged liable on the
basis that he derived an improper personal benefit. Further, indemnification
under this Section in connection with a proceeding brought by or in the right of
the corporation shall be limited to reasonable expenses, including attorneys'
fees, incurred in connection with the proceeding.
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SECTION 2. RIGHT TO INDEMNIFICATION. The corporation shall indemnify
any Proper Person who was wholly successful, on the merits or otherwise, in
defense of any action, suit, or proceeding as to which he was entitled to
indemnification under Section 1 of this Article VII against expenses (including
attorneys' fees) reasonably incurred by him in connection with the proceeding
without the necessity of any action by the corporation other than the
determination in good faith that the defense has been wholly successful.
SECTION 3. EFFECT OF TERMINATION OF ACTION. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person seeking indemnification did not meet the standards
of conduct described in Section 1 of this Article VII. Entry of a judgment by
consent as part of a settlement shall not be deemed an adjudication of
liability, as described in Section 2 of this Article VII.
SECTION 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION.
Except where there is a right to indemnification as set forth in Sections 1 or 2
of this Article VII or where indemnification is ordered by a court in Section 5
of this Article VII, any indemnification shall be made by the corporation only
as determined in the specific case by a proper group that indemnification of the
Proper Person is permissible under the circumstances because he has met the
applicable standards of conduct set forth in Section 1 of this Article VII. This
determination shall be made by the board of directors by a majority vote of
those present at a meeting at which a quorum is present, which quorum shall
consist of directors not parties to the proceeding ("Quorum"). If a Quorum
cannot be obtained, the determination shall be made by a majority vote of a
committee of the board of directors designated by the board, which committee
shall consist of two or more directors not parties to the proceeding, except
that Directors who are parties to the proceeding may participate in the
designation of directors for the committee. If a Quorum of the board of
directors cannot be obtained and the committee cannot be established, or even if
a Quorum is obtained or the committee is designated and a majority of the
directors constituting such Quorum or committee so directs, the determination
shall be made by: (i) independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in this Section 4 or, if a
Quorum of the full board of directors cannot be obtained and a committee cannot
be established, by independent legal counsel selected by a majority vote of the
full board (including directors who are parties to the action); or (ii) a vote
of the shareholders.
Authorization of indemnification and advance of expenses shall be made
in the same manner as the determination that indemnification or advance of
expenses is permissible except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
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SECTION 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply
for indemnification to the court conducting the proceeding or to another court
of competent jurisdiction for mandatory indemnification under Section 2 of this
Article VII, including indemnification for reasonable expenses incurred to
obtain court-ordered indemnification. If the court determines that the Proper
Person is entitled to indemnification under Section 2 of this Article VII, the
court shall order indemnification, including the Proper Person's reasonable
expenses incurred to obtain court-ordered indemnification. If the court
determines that such Property Person is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not he met
the standards of conduct set forth in Section 1 of this Article VII or was
adjudged liable in the proceeding, the court may order such indemnification as
the court deems proper except that if the Proper Person has been adjudged
liable, indemnification shall be limited to reasonable expenses incurred in
connection with the proceeding and reasonable expenses incurred to obtain
court-ordered indemnification.
SECTION 6. ADVANCE OF EXPENSES. Reasonable expenses (including
attorneys' fees) incurred in defending an action, suit or proceeding as
described in Section 1 of this Article VII may be paid by the corporation to any
Proper Person in advance of the final disposition of such action, suit or
proceeding upon receipt of: (i) a written affirmation of such Proper Person's
good faith belief that he has met the standards of conduct prescribed by Section
1 of this Article VII; (ii) a written undertaking, executed personally or on the
Proper Person's behalf, to repay such advances if it is ultimately determined
that he did not meet the prescribed standards of conduct (the undertaking shall
be an unlimited general obligation of the Proper Person but need not be secured
and may be accepted without reference to financial ability to make repayment);
and (iii) a determination is made by the proper group (as described in Section 4
of this Article VII) that the facts as then known to the group would not
preclude indemnification. Determination and authorization of payments shall be
made in the same manner specified in Section 4 of this Article VII.
SECTION 7. ADDITIONAL INDEMNIFICATION TO CERTAIN PERSONS OTHER THAN
DIRECTORS. In addition to the indemnification provided to officers, employees,
fiduciaries or agents because of their status as Proper Persons under this
Article VII, the corporation may also indemnify and advance expenses to them if
they are not directors of the corporation to a greater extent than is provided
in these bylaws, if not inconsistent with public policy, and if provided for by
general or specific action of its board of directors or shareholders or by
contract.
SECTION 8. WITNESS EXPENSES. The sections of this Article VII do not
limit the corporation's authority to pay or reimburse expenses incurred by a
director in connection with an appearance as a witness in a proceeding at a time
when he has not been made or named as a defendant or respondent in the
proceeding.
SECTION 9. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article VII, if arising out of a
proceeding by
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or on behalf of the corporation, shall be reported in writing to the
shareholders with or before the notice of the next shareholders' meeting. If the
next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such action.
ARTICLE VIII
INSURANCE AND BENEFITS
SECTION 1. INSURANCE. By action of the board of directors,
notwithstanding any interest of the directors in the action, the corporation may
purchase and maintain insurance, in such scope and amounts as the board of
directors deems appropriate, on behalf of any person who is or was a director,
officer, employee, fiduciary or agent of the corporation, or who, while a
director, officer, employee, fiduciary or agent of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, fiduciary or agent of any other foreign or domestic profit or
nonprofit corporation or of any partnership, joint venture, trust, profit or
nonprofit unincorporated association, limited liability company, or other
enterprise or employee benefit plan, against any liability asserted against, or
incurred by, him in that 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 Article VII of these bylaws or applicable law.
Any such insurance may be procured from any insurance company designated by the
board of directors of the corporation, whether such insurance company is formed
under the laws of Colorado or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the corporation has an
equity interest or any other interest, through stock ownership or otherwise.
SECTION 2. BENEFITS. The board of directors shall have authority to
provide for, or to delegate authority to an appropriate committee to provide
for, any and all manner of benefits or payments, however characterized or
described, to directors, officers and employees and to their estates, families,
dependents or beneficiaries on account of services rendered by the directors,
officers and employees to the corporation.
ARTICLE IX
MISCELLANEOUS
SECTION 1. SEAL. The board of directors may adopt a corporate seal,
which shall be circular in form and shall contain the name of the corporation,
the state of incorporation, and the words "Corporate Seal".
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be as
established by the board of directors.
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SECTION 3. AMENDMENTS. The board of directors shall have power, to the
maximum extent permitted by the Colorado Business Corporation Act, to make,
amend and repeal the bylaws of the corporation at any regular or special meeting
of the board unless the shareholders, in making, amending or repealing a
particular bylaw, expressly provide that the directors may not amend or repeal
such bylaw. The shareholders also shall have the power to make, amend or repeal
the bylaws of the corporation at any annual meeting or at any special meeting
called for that purpose.
SECTION 4. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder
writings consenting to action, and other documents or writings shall be deemed
to have been received by the corporation when they are actually received: (i) at
the registered office of the corporation in Colorado; (ii) at the principal
office of the corporation (as that office is designated in the most recent
document filed by the corporation with the Secretary of State designating a
principal office); (iii) by the secretary of the corporation wherever the
secretary may be found; or (iv) by any other person authorized from time to time
by the board of directors or the president to receive such writings, wherever
such person is found.
SECTION 5. GENDER. The masculine gender is used in these bylaws as a
matter of convenience only and shall be interpreted to include the feminine and
neuter genders as the circumstances indicate.
SECTION 6. CONFLICTS. In the event of any irreconcilable conflict
between these bylaws and either the corporation's articles of incorporation or
applicable law, the latter shall control.
SECTION 7. DEFINITIONS. Except as otherwise specifically provided in
these bylaws, all terms used in these bylaws shall have the same definition as
in the Colorado Business Corporation Act.
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EXHIBIT 4.3
THE REPRESENTATIVE'S OPTIONS EVIDENCED AND REPRESENTED BY THIS CERTIFICATE (THE
"REPRESENTATIVE'S OPTIONS") AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
(THE "WARRANT SHARES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND WITH THE SECURITIES ADMINISTRATORS OF CERTAIN STATES
UNDER THE SECURITIES ("BLUE SKY") LAWS OF SUCH STATES. HOWEVER, NEITHER THE
REPRESENTATIVE'S OPTIONS NOR SUCH WARRANT SHARES MAY BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (I) A POST-EFFECTIVE AMENDMENT TO
SUCH REGISTRATION STATEMENT, (II) A SEPARATE REGISTRATION STATEMENT UNDER SUCH
ACT, OR (III) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND UNDER THE
APPLICABLE BLUE SKY LAWS.
THIS REPRESENTATIVE'S OPTION MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
OTHERWISE PROVIDED HEREIN AND THE HOLDER OF THIS REPRESENTATIVE'S OPTION, BY ITS
ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS
REPRESENTATIVE'S OPTION EXCEPT AS OTHERWISE PROVIDED HEREIN.
FACTUAL DATA CORP.
Representative's Option for the Purchase of Common Stock
No. UW-001 120,000 Representative's Options
THIS CERTIFIES that, for receipt in hand of $50 and other value
received, SCHNEIDER SECURITIES, INC. (the "Holder"), is entitled to subscribe
for and purchase from FACTUAL DATA CORP., a Colorado corporation (the
"Company"), upon the terms and conditions set forth herein, at any time, or from
time to time, after _________, 1999, and before 5:00 p.m. Mountain time on
__________, 2003 (the "Exercise Period"), 120,000 shares of Common Stock (the
"Warrant Shares"), at a price of $_________ per Warrant Share (the "Exercise
Price"), or _____% of the offering price of Common Stock to be sold by the
Company in a public offering (the "Public Offering") at or prior to the date
hereof.
The term the "Holder" as used herein shall include any transferee to
whom this Representative's Option has been transferred in accordance with the
above. As used herein the term "this Representative's Option" shall mean and
include this Representative's Option and any Representative's Option or
Representative's Options hereafter issued as a consequence of the exercise or
transfer of this Representative's Option in whole or in part, and the term
"Common Stock" shall mean and include the Company's Common Stock with ordinary
voting power, which class at the date hereof is publicly traded.
1. This Representative's Option may not be sold, transferred, assigned,
pledged or hypothecated until ________, 1999 (12 months from the Effective Date
of the Registration Statement on which it is initially registered) except that
it may be transferred, in whole or in part, (i) to one or more officers or
partners of the Holder (or the officers or partners of any such partner); (ii)
to a member of the underwriting syndicate and/or its officers or partners; (iii)
by reason of reorganization
<PAGE> 2
of the Company; or (iv) by operation of law. After _________, 1999, this
Representative's Option may be sold, transferred, assigned or hypothecated in
accordance with applicable law.
2. a. This Representative's Option may be exercised during the
Exercise Period as to the whole or any lesser number of Warrant
Shares, by the surrender of this Representative's Option (with the
election attached hereto duly executed) to the Company at its office
at 3665 JFK Parkway, Building 1, Suite 200, Fort Collins, Colorado
80525, or such other place as is designated in writing by the Company,
together with a certified or bank cashier's check payable to the order
of the Company in an amount equal to the Exercise Price multiplied by
the number of Warrant Shares for which this Representative's Option is
being exercised.
b. Upon written request of the Holder, and in lieu of payment
for the Warrant Shares by check in accordance with paragraph 2(a)
hereof, the Holder may exercise the Representative's Option (or any
portion thereof) for and receive the number of Warrant Shares equal to
a fraction, the numerator of which equals (i) the amount by which the
Current Market Price of the Common Stock for the ten (10) trading days
preceding the date of exercise exceeds the Exercise Price per Share,
multiplied by (ii) the number of Warrant Shares to be purchased; the
denominator of which equals the Current Market Price.
c. For the purposes of any computation under this
Representative's Option, the "Current Market Price" at any date shall
be the closing price of the Common Stock on the business day next
preceding the event requiring an adjustment hereunder. If the principal
trading market for such securities is an exchange, the closing price
shall be the reported last sale price on such exchange on such day
provided if trading of such Common Stock is listed on any consolidated
tape, the closing price shall be the reported last sale price set forth
on such consolidated tape. If the principal trading market for such
securities is the over-the-counter market, the closing price shall be
the last reported sale price on such date as set forth by The Nasdaq
Stock Market, Inc., or, if the security is not quoted on such market,
the average closing bid and asked prices as set forth in the National
Quotation Bureau pink sheet or the Electronic Bulletin Board System for
such day. Notwithstanding the foregoing, if there is no reported last
sale price or average closing bid and asked prices, as the case may be,
on a date prior to the event requiring an adjustment hereunder, then
the current market price shall be determined as of the latest date
prior to such day for which such last sale price or average closing bid
and asked price is available.
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<PAGE> 3
3. Upon each exercise of this Representative's Option, the Holder shall
be deemed to be the holder of record of the Warrant Shares issuable upon such
exercise, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing such Warrant Shares shall not then have been
actually delivered to the Holder. As soon as practicable after each such
exercise of this Representative's Option, the Company shall issue and deliver to
the Holder a certificate or certificates for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its designee. If this
Representative's Option should be exercised in part only, the Company shall,
upon surrender of this Representative's Option for cancellation, execute and
deliver a new Representative's Option evidencing the right of the Holder to
purchase the balance of the Warrant Shares (or portions thereof) subject to
purchase hereunder.
4. The Representative's Options shall be registered in a
Representative's Option Register as they are issued. The Company shall be
entitled to treat the registered holder of any Representative's Option on the
Representative's Option Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Representative's Option on the part of any other person. The
Representative's Options shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Representative's
Option or Representative's Options to the person entitled thereto. The
Representative's Options may be exchanged, at the option of the Holder thereof,
for another Representative's Option, or other Representative's Options of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Warrant Shares (or portions thereof) upon
surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Representative's
Options to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), or applicable state blue sky
laws and the rules and regulations thereunder.
5. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of this Representative's Option, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor.
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<PAGE> 4
The Company covenants that all Warrant Shares issuable upon exercise of this
Representative's Option shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
6. a. In case the Company shall sell or issue hereafter either
its Common Stock or any rights, options, warrants or obligations or securities
containing the right to subscribe for or purchase any Common Stock ("Options")
or exchangeable for or convertible into Common Stock ("Convertible Securities"),
at a price per share, as determined pursuant to paragraph (b) of this section,
less than the Exercise Price then in effect on the date of such sale or
issuance, then the number of Warrant Shares thereafter purchasable upon exercise
of this Representative's Option shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise of this Representative's
Option by a fraction, (i) the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such Common Stock,
Options or Convertible Securities and (ii) the denominator of which shall be the
number of shares of Common Stock outstanding on the date prior to the date of
issuance of such Common Stock or Convertible Securities plus the number of
shares of Common Stock which the aggregate consideration received by the Company
upon such issuance would purchase on such date at the Exercise Price then in
effect.
b. The following provisions, in addition to other provisions
of this section shall be applicable in determining any adjustment under
(a) above:
i. In case of the issuance or sale of Common Stock
part or all of which shall be for cash, the cash consideration
received by the Company therefor shall be deemed to be the
amount of cash proceeds of such sale of shares less any
compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or
others performing similar services or any expenses incurred in
connection therewith, plus the amounts, if any, determined as
provided in (b)(ii) below.
ii. In case of the issuance or sale of Common Stock
wholly or partly for a consideration , the amount of the
consideration other than cash received by the Company for
such Common Stock shall be deemed to be the fair value of
such consideration as determined by a resolution adopted by
the Board of Directors of the Company acting in good faith,
less any compensation paid or incurred by the Company for
any underwriting of, or otherwise in connection with such
issuance, provided, however, the amount of such
consideration other than cash
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<PAGE> 5
shall in no event exceed the cost thereof as recorded on the
books of the Company. In case of the issuance or sale of
Common Stock (otherwise than upon conversion or exchange)
together with other stock or securities or other assets of
the Company for a consideration which is received for both
such Common Stock and other securities or assets, the Board
of Directors of the Company acting in good faith shall
determine what part of the consideration so received is to
be deemed to be the consideration for the issuance of such
Common Stock, less any compensation paid or incurred by the
Company for any underwriting of, or otherwise in connection
with such issuance, provided, however, the amount of such
consideration other than cash shall in no event exceed the
cost thereof as recorded on the books of the Company. In
case at any time the Company shall declare a dividend or
make any other distribution upon any stock of the Company
payable in Common Stock then such Common Stock issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
iii. The price per share of any Common Stock sold or
issued by the Company (other than pursuant to Options or
Convertible Securities) shall be equal to a price calculated
by dividing (A) the amount of the consideration received by
the Company, as determined pursuant to (b)(i) and (b)(ii)
above, upon such sale or issuance by (B) the number of shares
of Common Stock sold or issued.
iv. In case the Company shall at any time after the
date hereof issue any Options or Convertible Securities, the
following provisions shall apply in making any adjustment:
(A) The price per share for which Common
Stock is issuable upon the exercise of the Options or
upon conversion or exchange of the Convertible
Securities shall be determined by (1) dividing the
total amount, if any, received or receivable by the
Company as consideration for the issuance of such
Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any,
payable to the Company upon exercise of such Options
or the conversion or exchange of such Convertible
Securities, by (2) the aggregate maximum number of
shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of
such Convertible Securities.
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<PAGE> 6
(B) In determining the price per share for
which Common Stock is issuable upon exercise of the
Options or conversion or exchange of the Convertible
Securities as set forth above and in computing any
adjustment pursuant to (a) above: the aggregate
maximum number of shares of Common Stock issuable
upon the exercise of such Convertible Securities
shall be considered to be outstanding at the time
such Options or Convertible Securities were issued
and to have been issued for such price per share as
determined pursuant to (b)(iv)(A), and the
consideration for the issuance of such Options or
Convertible Securities and the amount of additional
consideration payable to the Company upon exercise of
such Options or upon the conversion or exchange of
such Convertible Securities shall be determined in
the same manner as the consideration received upon
the issuance or sale of Common Stock as provided in
paragraphs (b)(i) and (b)(ii).
(C) On the expiration of such Options or the
termination of any right to convert or exchange any
Convertible Securities, the number of Warrant Shares
subject to this Representative's Option shall
forthwith be readjusted to such number of Warrant
Shares as would have been obtained had the
adjustments made upon the issuance of such Options or
Convertible Securities been made upon the basis of
the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such
Options or upon conversion or exchange of such
Convertible Securities.
(D) If the minimum purchase price per share
of Common Stock provided for in any Option, or the
rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock,
shall change or a different purchase price or rate
shall become effective at any time or from time to
time (other than pursuant to any anti-dilution
provisions of such Options or Convertible Securities)
then upon such change becoming effective, the number
of Warrant Shares subject to this Representative's
Option shall forthwith be increased or decreased to
such number of Warrant Shares as would have been
obtained had the adjustments made upon the granting
or issuance of such Options or Convertible Securities
been made upon the basis of (1) the issuance of the
number of shares of Common Stock theretofore
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<PAGE> 7
actually delivered upon the exercise of such Options
or upon the conversion or exchange of such
Convertible Securities, and the total consideration
received therefor, and (2) the granting or issuance
at the time of such change of any such Options or
Convertible Securities then still outstanding for the
consideration, if any, received by the Company
therefor and to be received on the basis of such
changed price or rate of exchange or conversion.
v. Except as otherwise specifically provided herein,
the date of issuance or sale of Common Stock shall be deemed
to be the date the Company is legally obligated to issue
such Common Stock or the date the Company is legally
obligated to issue any Option or Convertible Security. If
the Company shall take a record date for the purpose of
determining holders of Common Stock entitled to (A) receive
a dividend or other distribution payable in Common Stock or
in Options or Convertible Securities or (B) subscribe for or
purchase Common Stock, Options or Convertible Securities,
such record date shall be deemed to be the date of issue or
sale of the Common Stock, Options or Convertible Securities.
vi. The number of shares of Common Stock outstanding
at any given time shall not include treasury shares but the
disposition of any such treasury shares shall be considered an
issue or sale of Common Stock for the purposes of this
section.
vii. Anything hereinabove to the contrary
notwithstanding, no adjustment shall be made pursuant to (a)
above to the Exercise Price or to the number of Warrant Shares
purchasable upon:
(A) The issuance or sale by the Company of
any Common Stock pursuant to these Representative's
Options, the issuance or sale of Warrants or Common
Stock on exercise of a separate Representative's
Option to purchase Warrants, any securities offered
in a public offering underwritten by Schneider
Securities, Inc., any shares, Options or Convertible
Securities issued and outstanding at the effective
date of such public offering, any shares issuable
pursuant to the Company's stock option plan currently
in effect, provided the total number of shares
issuable pursuant to such plan does not exceed
200,000 shares.
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<PAGE> 8
(B) The issuance or sale by the Company of
any Common Stock pursuant to any Options or
Convertible Securities issued and outstanding prior
to the date of Effective Date of the Registration
Statement.
(C) The issuance or sale of Common Stock
pursuant to the exercise of Options or conversion or
exchange of Convertible Securities hereinafter issued
for which an adjustment has been made (or was not
required to be made) pursuant to the provisions
hereof.
(D) The increase in the number of shares of
Common Stock subject to any Option or Convertible
Security referred to in subsections (A), (B) or (C)
hereof pursuant to the provisions of such Option or
Convertible Securities designed to protect against
dilution.
c. If the Company shall at any time subdivide its outstanding
Common Stock by recapitalization, reclassification or split-up thereof,
the number of Warrant Shares subject to this Representative's Option
immediately prior to such subdivision shall be proportionately
increased, and if the Company shall at any time combine the outstanding
Common Stock by recapitalization, reclassification or combination
thereof, the number of Warrant Shares subject to this Representative's
Option immediately prior to such combination shall be proportionately
decreased. Any corresponding adjustment to the Exercise Price shall
become effective at the close of business on the record date for such
subdivision or combination.
d. If the Company after the date hereof shall distribute to
the holders of its Common Stock any securities or other assets (other
than a distribution of Common Stock or a cash distribution made as a
dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdiction of
incorporation of the Company), the Board of Directors shall be required
to make such equitable adjustment in the Exercise Price in effect
immediately prior to the record date of such distribution as may be
necessary to preserve the rights substantially proportionate to those
enjoyed hereunder by the Holder immediately prior to such distribution.
Any such adjustment made in good faith by the Board of Directors shall
be final and binding upon the Holder and shall become effective as of
the record date for such distribution.
e. No adjustment in the number of Warrant Shares subject to
this Representative's Option shall be required unless such adjustment
would require an increase or decrease in such number of Warrant Shares
of at least 1% of the then adjusted number
8
<PAGE> 9
of Warrant Shares issuable upon exercise of this Representative's
Option, provided, however, that any adjustments which by reason of the
foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount
of any subsequent adjustment; and provided further, however, that in
case the Company shall at any time subdivide or combine the
outstanding Common Stock or issue any additional Common Stock as a
dividend, said percentage shall forthwith be proportionately increased
in the case of a combination or decreased in the case of a subdivision
or dividend of Common Stock so as to appropriately reflect the same.
If the Company shall make a record of the holders of its Common Stock
for the purpose of entitling them to receive any dividend or
distribution and legally abandon its plan to pay or deliver such
dividend or distribution then no adjustment in the number of Warrant
Shares subject to this Representative's Option shall be required by
reason of the making of such record.
f. Whenever the number of Warrant Shares purchasable upon the
exercise of this Representative's Option is adjusted as provided
herein, the Exercise Price shall be adjusted (to the nearest one tenth
of a cent) by respectively multiplying such Exercise Price immediately
prior to such adjustment by a fraction, the numerator of which shall be
the number of Warrant Shares purchasable upon the exercise of this
Representative's Option immediately prior to such adjustment, and the
denominator of which shall be the number of Warrant Shares purchasable
immediately thereafter.
g. In case of any reclassification of the outstanding Common
Stock (other than a change covered by (c) hereof or which solely
affects the par value of such Common Stock) or in the case of any
merger or consolidation of the Company with or into another
corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any
reclassification or capital reorganization of the outstanding Common
Stock), or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is
dissolved, the Holder of this Representative's Option shall have the
right thereafter (until the expiration of the right of exercise of
this Representative's Option) to receive upon the exercise hereof, for
the same aggregate Exercise Price payable hereunder immediately prior
to such event, the kind and amount of shares of stock or other
securities or property receivable upon such reclassification, capital
reorganization, merger or consolidation, or upon the dissolution
following any sale or other transfer, by a holder of
9
<PAGE> 10
the number of Warrant Shares obtainable upon the exercise of this
Representative's Option immediately prior to such event; and if any
reclassification also results in a change in Common Stock covered by
(c) above, then such adjustment shall be made pursuant to both this
paragraph (g) and paragraph (c). The provisions of this paragraph (g)
shall similarly apply to successive re-classifications, or capital
reorganizations, mergers or consolidations, sales or other transfers.
If the Company after the date hereof shall issue or agree to
issue Common Stock, Options or Convertible Securities, other than as
described herein, and such issuance or agreement would in the opinion
of the Board of Directors of the Company materially affect the rights
of the Holders of the Representative's Options, the Exercise Price and
the number of Warrant Shares purchasable upon exercise of the
Representative's Options shall be adjusted in such matter, if any, and
at such time as the Board of Directors of the Company, in good faith,
may determine to be equitable in the circumstances. The minutes or
unanimous consent approving such action shall set forth the Board of
Director's determination as to whether an adjustment is warranted and
the manner of such adjustment. In the absence of such determination,
any Holder may request in writing that the Board of Directors make such
determination. Any such determination made in good faith by the Board
of Directors shall be final and binding upon the Holders. If the Board
fails, however, to make such determination within sixty (60) days after
such request, such failure shall be deemed a determination that an
adjustment is required.
h. i. Upon occurrence of each event requiring an
adjustment of the Exercise Price and of the number of
Warrant Shares purchasable upon exercise of this
Representative's Option in accordance with, and as required
by, the terms hereof, the Company shall forthwith employ a
firm of certified public accountants (who may be the regular
accountants for the Company) who shall compute the adjusted
Exercise Price and the adjusted number of Warrant Shares
purchasable at such adjusted Exercise Price by reason of
such event in accordance herewith. The Company shall give to
each Holder of the Representative's Options a copy of such
computation which shall be conclusive and shall be binding
upon such Holders unless contested by Holders by written
notice to the Company within thirty (30) days after receipt
thereof.
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<PAGE> 11
ii. In case the Company after the date hereof shall
propose (A) to pay any dividend payable in stock to the
holders of its Common Stock or to make any other distribution
(other than cash dividends) to the holders of its Common Stock
or to grant rights to subscribe to or purchase any additional
shares of any class or any other rights or options, (B) to
effect any reclassification involving merely the subdivision
or combination of outstanding Common Stock, or (C) any capital
reorganization or any consolidation or merger, or any sale,
transfer or other disposition of its property, assets and
business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company, then in each such
case, the Company shall obtain the computation described above
and if an adjustment to the Exercise Price is required, the
Company shall notify the Holders of the Representative's
Options of such proposed action, which shall specify the
record date for any such action or if no record date is
established with respect thereto, the date on which such
action shall occur or commence, or the date of participation
therein by the holders of Common Stock if any such date is to
be fixed, and shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the
effect of such action on the Exercise Price and the number, or
kind, or class of shares or other securities or property
obtainable upon exercise of this Representative's Option after
giving effect to any adjustment which will be required as a
result of such action. Such notice shall be given at least
twenty (20) days prior to the record date for determining
holders of the Common Stock for purposes of any such action,
and in the case of any action for which a record date is not
established then such notice shall be mailed at least twenty
(20) days prior to the taking of such proposed action.
iii. Failure to file any certificate or notice or to
give any notice, or any defect in any certificate or notice,
shall not effect the legality or validity of the adjustment in
the Exercise Price or in the number, or kind, or class of
shares or other securities or property obtainable upon
exercise of the Representative's Options or of any transaction
giving rise thereto.
i. The Company shall not be required to issue fractional
Warrant Shares upon any exercise of the Representative's Options. As
to any final fraction of a Share which the Holder of a
Representative's Option would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of
such final fraction in an
11
<PAGE> 12
amount equal to the same fraction of the market price of a share of
such stock on the business day preceding the day of exercise. The
Holder of a Representative's Option, by his acceptance of a
Representative's Option, expressly waives any right to receive any
fractional Warrant Shares.
j. Regardless of any adjustments pursuant to this section in
the Exercise Price or in the number, or kind, or class of shares or
other securities or other property obtainable upon exercise of a
Representative's Option, a Representative's Option may continue to
express the Exercise Price and the number of Warrant Shares obtainable
upon exercise at the same price and number of Warrant Shares as are
stated herein.
k. The number of Warrant Shares, the Exercise Price and all
other terms and provisions of the Company's agreement with the Holder
of this Representative's Option shall be determined exclusively
pursuant to the provisions hereof.
l. The above provisions of this section 6 shall similarly
apply to successive transactions which require adjustments.
m. Notwithstanding any other language to the contrary herein,
(i) the anti-dilution terms of this Representative's Option will not be
enforced so as to provide the Holder the right to receive, or for the
accrual of, cash dividends prior to the exercise of this
Representative's Option, and (ii) the anti-dilution terms of this
Representative's Option will not be enforced in such a manner as to
provide the Holder with disproportionate rights, privileges and
economic benefits not provided to purchasers of the Common Stock in the
Public Offering.
7. The issuance of any Warrant Shares or other securities upon the
exercise of this Representative's Option and the delivery of certificates or
other instruments representing such securities, or other securities, shall be
made without charge to the Holder for any tax or other charge in respect of such
issuance. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not be
required to issue or deliver any such certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
8. a. If, at any time after _____________, 1998 (the Effective
Date of the Registration Statement), and ending ____________, 2005 (seven years
after the Effective Date
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<PAGE> 13
of the Registration Statement), the Company shall file a registration
statement (other than on Form S-4, Form S-8, or any successor form)
with the Securities and Exchange Commission (the "Commission") while
Warrant Shares are available for purchase upon exercise of this
Representative's Option or while any Warrant Shares (collectively, the
"Representative's Options and the underlying Warrant Shares, the
"Representative's Securities") are outstanding, the Company shall, on
two occasions only, give the Holder and all the then holders of such
Representative's Securities at least 30 days prior written notice of
the filing of such registration statement. If requested by the Holder
or by any such holder in writing within 20 days after receipt of any
such notice, the Company shall, at the Company's sole expense (other
than the fees and disbursements of counsel for the Holder or such
holder and the underwriting discounts, if any, payable in respect of
the securities sold by the Holder or any such holder), register or
qualify the Representative's Securities of the Holder or any such
holders who shall have made such request concurrently with the
registration of such other securities, all to the extent requisite to
permit the public offering and sale of the Representative's Securities
requested to be registered, and will use its best efforts through its
officers, directors, auditors and counsel to cause such registration
statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such
offering shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Representative's Securities
requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely
affect the distribution of such securities by the Company for its own
account, then the Holder or any such holder who shall have requested
registration of his or its Representative's Securities shall delay the
offering and sale of such Representative's Securities (or the portions
thereof so designated by such managing underwriter) for such period,
not to exceed 90 days, as the managing underwriter shall request,
provided that no such delay shall be required as to any
Representative's Securities if any securities of the Company are
included in such registration statement for the account of any person
other than the Company and the Holder unless the securities included in
such registration statement for such other person shall have been
reduced pro rata to the reduction of the Representative's Securities
which were requested to be included in such registration.
b. If at any time after __________, 1998 (the Effective Date
of the Registration Statement), and before ___________, 2003 (five
years after the Effective Date of the
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<PAGE> 14
Registration Statement), the Company shall receive a written request
from holders of Representative's Securities who, in the aggregate, own
(or upon exercise of all Warrant Shares will own) a majority of the
total number of Warrant Shares, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration
statement sufficient to permit the public offering and sale of the
Representative's Securities, and will use its best efforts through its
officers, directors, auditors and counsel to cause such registration
statement to become effective as promptly as practicable; provided,
however, that the Company shall only be obligated to file and obtain
effectiveness of one such registration statement for which all
expenses incurred in connection with such registration (other than the
fees and disbursements of counsel for the Holder or such holders and
underwriting discounts, if any, payable in respect of the
Representative's Securities sold by the Holder or any such holder)
shall be borne by the Company. In addition to the one demand
registration provided for hereinabove, the holders of the
Representative's Securities who, in the aggregate, own (or upon
exercise of all Representative's Options will own) a majority of the
total number of Warrant Shares issued or issuable upon exercise of the
Representative's Options may request that the Company prepare and file
a registration statement to permit the public offering and sale of the
Representative's Securities on two additional occasions only, but the
costs of preparation and filing of such additional registration
statements shall be at the then holders' cost and expense unless the
Company elects to register additional shares of Common Stock, in which
case the cost and expense of such registration statements will be
prorated between the Company and the holders of the Representative's
Securities according to the aggregate sales price of the securities
being issued.
c. In the event of a registration pursuant to the provisions
of this paragraph 8, the Company shall use its best efforts to cause
the Representative's Securities so registered to be registered or
qualified for sale under the securities or blue sky laws of such
jurisdictions as the Holder or such holders may reasonably request;
provided, however, that the Company shall not be required to qualify to
do business in any state by reason of this paragraph 8(c) in which it
is not otherwise required to qualify to do business and provided
further, that the Company has no obligation to qualify the
Representative's Securities where such qualification would cause any
unreasonable delay or expenditure by the Company.
d. The Company shall keep effective any registration or
qualification contemplated by this paragraph 8 and shall from time to
time amend or supplement each
14
<PAGE> 15
applicable registration statement, preliminary prospectus, final
prospectus, application, document and communication for such period of
time as shall be required to permit the Holder or such holders to
complete the offer and sale of the Representative's Securities covered
thereby. The Company shall in no event be required to keep any such
registration or qualification in effect for a period in excess of nine
months from the date on which the Holder and such holders are first
free to sell such Representative's Securities; provided, however, that
if the Company is required to keep any such registration or
qualification in effect with respect to securities other than the
Representative's Securities beyond such period, the Company shall keep
such registration or qualification in effect as it relates to the
Representative's Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of
such other securities.
e. In the event of a registration pursuant to the provisions
of this paragraph 8, the Company shall furnish to the Holder and to
each such holder such reasonable number of copies of the registration
statement and of each amendment and supplement thereto (in each case,
including all exhibits), such reasonable number of copies of each
prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of
which shall conform to the requirements of the Act and the rules and
regulations thereunder, and such other documents as the Holder or such
holders may reasonably request in order to facilitate the disposition
of the Representative's Securities included in such registration.
f. In the event of a registration pursuant to the provisions
of this paragraph 8, the Company shall furnish the Holder and each
holder of any Representative's Securities so registered with an
opinion of its counsel to the effect that (i) the registration
statement has become effective under the Act and no order suspending
the effectiveness of the registration statement, preventing or
suspending the use of the registration statement, any preliminary
prospectus, any final prospectus, or any amendment or supplement
thereto has been issued, nor to such counsel's actual knowledge has
the Securities and Exchange Commission or any securities or blue sky
authority of any jurisdiction instituted or threatened to institute
any proceedings with respect to such an order and (ii) the
registration statement and each prospectus forming a part thereof
(including each preliminary prospectus), and any amendment or
supplement thereto, complies as to form with the Act and the rules and
regulations thereunder. Such counsel shall also provide a Blue Sky
Memorandum setting
15
<PAGE> 16
forth the jurisdictions in which the Representative's Securities
have been registered or qualified for sale pursuant to the
provisions of paragraph 8(c).
g. The Company agrees that until all the Representative's
Securities have been sold under a registration statement or pursuant to
Rule 144 under the Act, it shall keep current in filing all reports,
statements and other materials required to be filed with the Commission
to permit holders of the Representative's Securities to sell such
securities under Rule 144.
h. The Holder and any holders who propose to register their
Representative's Securities under the Act shall execute and deliver to
the Company a selling stockholder questionnaire on a form to be
provided by the Company.
i. In addition to the rights above provided, the Company will
cooperate with the then holders of the Representative's Options and
Representative's Securities in preparing and signing a registration
statement, on two occasions only in addition to the registration
statements discussed above, required in order to sell or transfer the
Representative's Securities and will supply all information required
therefor, but such additional registration statements shall be at the
then Holders' cost and expense unless the Company elects to register
additional shares of the Company's Common Stock in which case the cost
and expense of such registration statements will be prorated between
the Company and the Holders of the Representative's Options and
Representative's Securities according to the aggregate sales prices of
the securities being sold.
9. a. Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Holder, any holder of any of
the Representative's Securities, their officers, directors, partners,
employees, agents and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all loss, liability, charge,
claim, damage and expense whatsoever (which shall include, for all
purposes of this Section 9, but not be limited to, attorneys' fees and
any and all expense whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation), as and when incurred, arising out of, based
upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any registration
statement, preliminary prospectus or final prospectus (as
16
<PAGE> 17
from time to time amended and supplemented), or any amendment or
supplement thereto, or (B) in any application or other document or
communication (in this Section 9 collectively called an "application")
executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify any of the
Representative's Securities under the securities or blue sky laws
thereof or filed with the Commission or any securities exchange; or
any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the
Company with respect to the Holder or any holder of any of the
Representative's Securities by or on behalf of such person expressly
for inclusion in any registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any
representation, warranty, covenant or agreement of the Company
contained in this Representative's Option. The foregoing agreement to
indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this
Representative's Option.
If any action is brought against the Holder or any holder of
any of the Representative's Securities or any of its officers,
directors, partners, employees, agents or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the
Company in writing of the institution of such action (but the failure
so to notify shall not relieve the Company from any liability it may
otherwise have to Holder or any holder of any of the Representative's
Securities) and the Company shall promptly assume the defense of such
action, including the employment of counsel (reasonably satisfactory
to such indemnified party or parties) and payment of expenses. Such
indemnified party or parties shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties
unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action
or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be one
17
<PAGE> 18
or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to
the Company, in any of which events such fees and expenses shall be
borne by the Company and the Company shall not have the right to
direct the defense of such action on behalf of the indemnified party
or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of
any such claim or action effected without its written consent.
b. The Holder and each holder agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the
Company who shall have signed any registration statement covering the
Representative's Securities held by the Holder and each holder and each
other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Holder and
each holder in paragraph 9(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written
information furnished to the Company with respect to the Holder and
each holder by or on behalf of the Holder and each holder expressly for
inclusion in any such registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be. If any action shall be brought against
the Company or any other person so indemnified based on any such
registration statement, preliminary prospectus, or final prospectus, or
any amendment or supplement thereto, or in any application, and in
respect of which indemnity may be sought against the Holder and each
holder pursuant to this paragraph 9(b), the Holder and each holder
shall have the rights and duties given to the Company, and the Company
and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of paragraph 9(a).
c. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to
paragraph 9(a) or 9(b) (subject to the limitations thereof) but it is
found in a final judicial determination, not subject to further
appeal, that such indemnification may not be enforced in such case,
even though this Agreement expressly provides for indemnification in
such case, or (ii) any indemnified or indemnifying party seeks
contribution under the Act, the Exchange Act or otherwise because
18
<PAGE> 19
the indemnification provided for in this Section 9 is for any reason
held to be unenforceable by the Company and the Holder and any holder,
then the Company (including for this purpose any contribution made by
or on behalf of any director of the Company, any officer of the
Company who signed any such registration statement and any controlling
person of the Company), as one entity, and the Holder and any holder
of any of the Representative's Securities included in such
registration in the aggregate (including for this purpose any
contribution by or on behalf of the Holder or any holder), as a second
entity, shall contribute to the losses, liabilities, claims, damages
and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault
of the Company and the Holder or any such holder in connection with
the facts which resulted in such losses, liabilities, claims, damages
and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information
supplied by the Company, by the Holder or by any holder of
Representative's Securities included in such registration, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Holder agree that it
would be unjust and inequitable if the respective obligations of the
Company and the Holder for contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims,
damages and expenses (even if the Holder and the other indemnified
parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable
considerations referred to in this paragraph 9(c). No person guilty of
a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this
paragraph 9(c), each person, if any, who controls the Holder or any
holder of any of the Representative's Securities within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent and counsel of each such
person, shall have the same rights to contribution as such person and
each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed any such registration
statement, and each director of the Company shall have the same rights
to contribution as the Company, subject in each case to the provisions
19
<PAGE> 20
of this paragraph 9(c). Anything in this paragraph 9(c) to the
contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected without
its written consent. This paragraph 9(c) is intended to supersede any
right to contribution under the Act, the Exchange Act or otherwise.
10. Unless the Representative's Securities have been registered or an
exemption from such registration is available, the Warrant Shares issued upon
exercise of the Representative's Options shall be subject to a stop transfer
order and the certificate or certificates evidencing any such Warrant Shares
shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, NOR HAVE THEY BEEN REGISTERED UNDER THE SECURITIES ("BLUE SKY")
LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND UNDER THE APPLICABLE STATE SECURITIES
("BLUE SKY") LAWS OR UNLESS THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND LAWS IS ESTABLISHED TO THE SATISFACTION
OF THE COMPANY, WHICH MAY NECESSITATE A WRITTEN OPINION OF SELLER'S
COUNSEL SATISFACTORY TO COMPANY COUNSEL.
11. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Representative's Option (and upon
surrender of any Representative's Option if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Option of like date, tenor
and denomination.
12. The Holder of any Representative's Option shall not have, solely on
account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Representative's Option.
13. This Representative's Option shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Dated: _____________, 1998
FACTUAL DATA CORP.
By:
-----------------------------------------
Jerald H. Donnan, Chief Executive Officer
[SEAL]
20
<PAGE> 21
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Option.)
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________ Representative's Options to
purchase __________ shares of Common Stock of Factual Data Corp. (the
"Company"), together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint ____________________________ attorney to
transfer such Representative's Options on the books of the Company, with full
power of substitution.
Dated:
---------------------
Signature:
--------------------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
21
<PAGE> 22
ELECTION TO EXERCISE
(To be executed by the holder if such holder desires to
exercise the attached Representative's Option)
The undersigned hereby exercises his or its rights to subscribe for
__________ shares of Common Stock covered by the within Representative's Option
(each as defined in the within Representative's Option) and tenders payment
herewith in the amount of $__________ in accordance with the terms thereof, and
requests that certificates for such Warrants be issued in the name of, and
delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security or
Tax Identification Number)
and, if such number of Warrants (or portions thereof) shall not be all the
Warrants covered by the within Representative's Option, that a new
Representative's Option for the balance of the Representative's Options (or
portions thereof) covered by the within Representative's Option be registered in
the name of, and delivered to, the undersigned at the address stated below.
Name:
---------------------------------------------------------------------------
(Print)
Address:
------------------------------------------------------------------------
- ------------------------------------
(Signature)
Dated: Signature Guaranteed:
------------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
22
<PAGE> 1
EXHIBIT 4.3A
THE REPRESENTATIVE'S OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND WITH THE SECURITIES ADMINISTRATORS OF CERTAIN STATES
UNDER THE SECURITIES ("BLUE SKY") LAWS OF SUCH STATES. HOWEVER,
NEITHER THE REPRESENTATIVE'S OPTIONS NOR SUCH SECURITIES MAY BE SOLD,
TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (I) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT, (II) A
SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (III) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND UNDER THE APPLICABLE BLUE SKY
LAWS.
THIS REPRESENTATIVE'S OPTION MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
EXCEPT AS OTHERWISE PROVIDED HEREIN AND THE HOLDER OF THIS
REPRESENTATIVE'S OPTION, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL
NOT SELL, TRANSFER OR ASSIGN THIS REPRESENTATIVE'S OPTION EXCEPT AS
OTHERWISE PROVIDED HEREIN.
FACTUAL DATA CORP.
Representative's Option for the Purchase of Warrants
No. UWW-001 120,000 Representative's Options
THIS CERTIFIES that, for receipt in hand of $50 and other value
received (the "Purchase Price"), SCHNEIDER SECURITIES, INC. (the "Holder"), is
entitled to subscribe for and purchase from FACTUAL DATA CORP., a Colorado
corporation (the "Company"), upon the terms and conditions set forth herein, at
any time, or from time to time, after __________, 1999 (12 months from the
Effective Date, as defined below) and before 5:00 p.m. Mountain time on
__________, 2003 (the "Exercise Period"), 120,000 Warrants (a "Warrant" or the
"Warrants") of the Company at an exercise price of $______ per Representative's
Option or 120% of the offering price of Warrants sold by the Company in the
Public Offering (hereinafter defined). Each Warrant shall be identical to the
Warrants sold in the public offering to be underwritten by the Holder (the
"Public Offering"), except that the Warrants underlying this Representative's
Option will not be subject to redemption by the Company. Each Warrant shall be
exercisable to purchase one share of Common Stock (a "Warrant Share") at a
price of $________ (130% of the price of the Common Stock sold in the Public
Offering; the "Exercise Price") until ___________, 2001, which is three years
from the date on which the Company's Registration Statement on Form SB-2,
Registration No. 333- (the "Registration Statement") is declared
effective by the Securities and Exchange Commission (the "Effective Date"). The
terms and provisions of the Warrants, except with respect to redemption, shall
be governed by a warrant agreement between the Company and its transfer agent
(the "Warrant Agreement").
The term the "Holder" as used herein shall include any transferee to
whom this Representative's Option has been transferred in accordance with the
above. As used herein the term
<PAGE> 2
"this Representative's Option" shall mean and include this Representative's
Option and any Representative's Option or Representative's Options hereafter
issued as a consequence of the exercise or transfer of this Representative's
Option in whole or in part, but shall exclude the Warrants, and the term
"Common Stock" shall mean and include the Company's Common Stock with ordinary
voting power, which class at the date hereof is publicly traded.
1. This Representative's Option may not be sold, transferred,
assigned, pledged or hypothecated until _____________, 1999 (12 months from the
Effective Date of the Registration Statement) except that it may be
transferred, in whole or in part, (i) to one or more officers or partners of
the Holder (or the officers or partners of any such partner); (ii) to a member
of the underwriting syndicate and/or its officers or partners; (iii) by reason
of reorganization of the Company; or (iv) by operation of law. After
___________, 1999, this Representative's Option may be sold, transferred,
assigned or hypothecated in accordance with applicable law.
2. a. This Representative's Option may be exercised during
the Exercise Period as to the whole or any lesser number of Warrants,
by the surrender of this Representative's Option (with the election
attached hereto duly executed) to the Company at its office at 3665
JFK Parkway, Building 1, Suite 200, Fort Collins, Colorado 80525, or
such other place as is designated in writing by the Company, together
with a certified or bank cashier's check payable to the order of the
Company in an amount equal to the Purchase Price.
b. Following exercise of this Representative's Option,
and at anytime thereafter through and until expiration of the
Warrants, the Holder may exercise the Warrants underlying this
Representative's Option by tendering a notice of exercise, together
with a certified or bank cashier's check payable to the order of the
Company, in an amount equal to the Exercise Price multiplied by the
number of Warrant Shares as to which such exercise relates.
c. Upon written request of the Holder, and in lieu of
payment of the Exercise Price of the Warrants by check in accordance
with paragraph 2(b) hereof, the Holder may exercise the Warrants (or
any portion thereof) for and receive the number of Warrants equal to a
fraction, the numerator of which equals (i) the amount by which the
Current Market Price of the Common Stock for the ten (10) trading days
preceding the date of exercise exceeds the Exercise Price per Warrant,
multiplied by (ii) the number of Warrant Shares to be purchased; the
denominator of which equals the Current Market Price.
2
<PAGE> 3
d. For the purposes of any computation under this
Representative's Option, the "Current Market Price" at any date shall
be the closing price of the Common Stock on the business day next
preceding the event requiring an adjustment hereunder. If the
principal trading market for such securities is an exchange, the
closing price shall be the reported last sale price on such exchange
on such day provided if trading of such Common Stock is listed on any
consolidated tape, the closing price shall be the reported last sale
price set forth on such consolidated tape. If the principal trading
market for such securities is the over-the-counter market, the closing
price shall be the last reported sale price on such date as set forth
by The Nasdaq Stock Market, Inc., or, if the security is not quoted on
such market, the average closing bid and asked prices as set forth in
the National Quotation Bureau pink sheet or the Electronic Bulletin
Board System for such day. Notwithstanding the foregoing, if there is
no reported last sale price or average closing bid and asked prices,
as the case may be, on a date prior to the event requiring an
adjustment hereunder, then the Current Market Price shall be
determined as of the latest date prior to such day for which such last
sale price or average closing bid and asked price is available.
3. Upon each exercise of this Representative's Option, the Holder
shall be deemed to be the holder of record of the Warrants issuable upon such
exercise, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing such Warrants shall not then have been
actually delivered to the Holder. As soon as practicable after each such
exercise of this Representative's Option, the Company shall issue and deliver
to the Holder a certificate or certificates for the Warrants issuable upon such
exercise, registered in the name of the Holder or its designee. If this
Representative's Option should be exercised in part only, the Company shall,
upon surrender of this Representative's Option for cancellation, execute and
deliver a new Representative's Option evidencing the right of the Holder to
purchase the balance of the Warrants (or portions thereof) subject to purchase
hereunder.
4. Any warrants, other than the Warrants, issued upon the
transfer or exercise in part of this Representative's Option (together with
this Representative's Option, the "Representative's Options") shall be numbered
and shall be registered in a Representative's Option Register as they are
issued. The Company shall be entitled to treat the registered holder of any
Representative's Option on the Representative's Option Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Representative's Option on the part of
any other person. The Representative's Options shall be transferable only on
the
3
<PAGE> 4
books of the Company upon delivery thereof duly endorsed by the Holder or by
his duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment or authority to transfer. In all cases of
transfer by an attorney, executor, administrator, guardian or other legal
representative, duly authenticated evidence of his or its authority shall be
produced. Upon any registration of transfer, the Company shall deliver a new
Representative's Option or Representative's Options to the person entitled
thereto. The Representative's Options may be exchanged, at the option of the
Holder thereof, for another Representative's Option, or other Representative's
Options of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Warrants (or portions thereof)
upon surrender to the Company or its duly authorized agent. Notwithstanding
the foregoing, the Company shall have no obligation to cause Representative's
Options to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of
the Securities Act of 1933, as amended (the "Act"), or applicable state blue
sky laws and the rules and regulations thereunder.
5. The Company shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of this Representative's Option and the Warrants
purchasable upon exercise of this Representative's Option, such number of
shares of Common Stock as shall, from time to time, be sufficient therefor.
The Company covenants that all shares of Common Stock issuable upon exercise of
Warrants underlying this Representative's Option shall be validly issued, fully
paid, nonassessable, and free of preemptive rights.
6. The rights and privileges of the Warrants issuable on exercise
of this Representative's Option shall be as provided in the warrant certificate
(the "Warrant Certificate") to be delivered to the Holder on exercise of this
Representative's Option. All anti-dilution and other rights shall be as
provided for in the Warrant Certificate and as set forth in the warrant
agreement by and between the Company and the Warrant Agent for the Company (the
"Warrant Agreement"). The provisions of the Warrant Agreement relating to
anti-dilution rights and any other rights and privileges granted to holders of
publicly traded Warrants are incorporated by reference herein as if more fully
set forth herein. Notwithstanding any other language to the contrary herein or
in the Warrant Agreement by and between the Company and the Warrant Agent, in
the event, prior to the exercise of this Warrant, Holders of publicly-traded
Warrants shall be entitled to the benefit of any anti-dilution provisions of
the Warrant Agreement or the Warrant Certificate then, in such event, the
Warrants issuable upon exercise of this Representative's Option shall be
adjusted in accordance with the provisions of the
4
<PAGE> 5
anti-dilution provisions of the Warrant Certificate and the Warrant Agreement
in a manner identical to the adjustments made pursuant to the anti-dilution
provisions and other rights and privileges applicable to publicly-traded
warrants. Any such adjustment may be made at or immediately following the date
of exercise hereof. Notwithstanding any other language to the contrary herein,
(i) the anti-dilution terms of this Representative's Option will not be
enforced so as to provide the Holder the right to receive, or for the accrual
of, cash dividends prior to the exercise of this Representative's Option, and
(ii) the anti-dilution terms of this Representative's Option will not be
enforced in such a manner as to provide the Holder with disproportionate
rights, privileges and economic benefits not provided to purchasers of Warrants
in the Public Offering.
7. The issuance of any Warrants or other securities upon the
exercise of this Representative's Option or any Warrant Shares upon the
exercise of the Warrants, and the delivery of certificates or other instruments
representing such securities, or other securities, shall be made without charge
to the Holder for any tax or other charge in respect of such issuance. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required
to issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
8. a. If, at any time after ___________, 1998 (the
Effective Date of the Registration Statement), and ending
____________, 2005 (seven years after the Effective Date of the
Registration Statement), the Company shall file a registration
statement (other than on Form S-4, Form S-8, or any successor form)
with the Securities and Exchange Commission (the "Commission") while
Warrants are available for purchase upon exercise of this
Representative's Option or while any Warrants or Warrant Shares
(collectively, the "Representative's Securities") are outstanding, the
Company shall, on two occasions only, give the Holder and all the then
holders of such Representative's Options and Representative's
Securities at least 30 days prior written notice of the filing of such
registration statement. If requested by the Holder or by any such
holder in writing within 20 days after receipt of any such notice, the
Company shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Holder or such holder and the
underwriting discounts, if any, payable in respect of the securities
sold by the Holder or any such holder), register or qualify the
Representative's Securities of the Holder or any such
5
<PAGE> 6
holders who shall have made such request concurrently with the
registration of such other securities, all to the extent requisite to
permit the public offering and sale of the Representative's
Securities, and will use its best efforts through its officers,
directors, auditors and counsel to cause such registration statement
to become effective as promptly as practicable. Notwithstanding the
foregoing, if the managing underwriter of any such offering shall
advise the Company in writing that, in its opinion, the distribution
of all or a portion of the Representative's Securities requested to be
included in the registration concurrently with the securities being
registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account,
then the Holder or any such holder who shall have requested
registration of his or its Representative's Securities shall delay the
offering and sale of such Representative's Securities (or the portions
thereof so designated by such managing underwriter) for such period,
not to exceed 90 days, as the managing underwriter shall request,
provided that no such delay shall be required as to any
Representative's Securities if any securities of the Company are
included in such registration statement for the account of any person
other than the Company and the Holder unless the securities included
in such registration statement for such other person shall have been
reduced pro rata to the reduction of the Representative's Securities
which were requested to be included in such registration.
b. If at any time after _____________, 1998 (the
Effective Date of the Registration Statement), and before ___________,
2003 (five years after the Effective Date of the Registration
Statement), the Company shall receive a written request from holders
of Representative's Securities who, in the aggregate, own (or upon
exercise of all Representative's Options will own) a majority of the
total number of Warrants or underlying shares of Common Stock issued
or issuable upon exercise of the Representative's Options or
underlying Warrants, the Company shall, as promptly as practicable,
prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the
Representative's Securities, and will use its best efforts through its
officers, directors, auditors and counsel to cause such registration
statement to become effective as promptly as practicable; provided,
however, that the Company shall only be obligated to file and obtain
effectiveness of one such registration statement for which all
expenses incurred in connection with such registration (other than the
fees and disbursements of counsel for the Holder or such holders and
underwriting discounts, if any, payable in respect of the
6
<PAGE> 7
Representative's Securities sold by the Holder or any such holder)
shall be borne by the Company. In addition to the one demand
registration provided for hereinabove, the holders of the
Representative's Securities who, in the aggregate, own (or upon
exercise of all Representative's Options will own) a majority of the
total number of Warrants issued or issuable upon exercise of the
Representative's Options may request that the Company prepare and file
a registration statement to permit the public offering and sale of the
Representative's Securities on two additional occasions only, but the
costs of preparation and filing of such additional registration
statements shall be at the then holders' cost and expense unless the
Company elects to register additional shares of Common Stock, in which
case the cost and expense of such registration statements will be
prorated between the Company and the holders of the Representative's
Securities according to the aggregate sales price of the securities
being issued.
c. In the event of a registration pursuant to the
provisions of this paragraph 8, the Company shall use its best efforts
to cause the Representative's Securities so registered to be
registered or qualified for sale under the securities or blue sky laws
of such jurisdictions as the Holder or such holders may reasonably
request; provided, however, that the Company shall not be required to
qualify to do business in any state by reason of this paragraph 8(c)
in which it is not otherwise required to qualify to do business and
provided further, that the Company has no obligation to qualify the
Representative's Securities where such qualification would cause any
unreasonable delay or expenditure by the Company.
d. The Company shall keep effective any registration or
qualification contemplated by this paragraph 8 and shall from time to
time amend or supplement each applicable registration statement,
preliminary prospectus, final prospectus, application, document and
communication for such period of time as shall be required to permit
the Holder or such holders to complete the offer and sale of the
Representative's Securities covered thereby. The Company shall in no
event be required to keep any such registration or qualification in
effect for a period in excess of nine months from the date on which
the Holder and such holders are first free to sell such
Representative's Securities; provided, however, that if the Company is
required to keep any such registration or qualification in effect with
respect to securities other than the Representative's Securities
beyond such period, the Company shall keep such registration or
qualification in effect as it relates to the
7
<PAGE> 8
Representative's Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of
such other securities.
e. In the event of a registration pursuant to the
provisions of this paragraph 8, the Company shall furnish to the
Holder and to each such holder such reasonable number of copies of the
registration statement and of each amendment and supplement thereto
(in each case, including all exhibits), such reasonable number of
copies of each prospectus contained in such registration statement and
each supplement or amendment thereto (including each preliminary
prospectus), all of which shall conform to the requirements of the Act
and the rules and regulations thereunder, and such other documents as
the Holder or such holders may reasonably request in order to
facilitate the disposition of the Representative's Securities included
in such registration.
f. In the event of a registration pursuant to the
provisions of this paragraph 8, the Company shall furnish the Holder
and each holder of any Representative's Securities so registered with
an opinion of its counsel to the effect that (i) the registration
statement has become effective under the Act and no order suspending
the effectiveness of the registration statement, preventing or
suspending the use of the registration statement, any preliminary
prospectus, any final prospectus, or any amendment or supplement
thereto has been issued, nor to such counsel's actual knowledge has
the Securities and Exchange Commission or any securities or blue sky
authority of any jurisdiction instituted or threatened to institute
any proceedings with respect to such an order and (ii) the
registration statement and each prospectus forming a part thereof
(including each preliminary prospectus), and any amendment or
supplement thereto, complies as to form with the Act and the rules and
regulations thereunder. Such counsel shall also provide a Blue Sky
Memorandum setting forth the jurisdictions in which the
Representative's Securities have been registered or qualified for sale
pursuant to the provisions of paragraph 8(c).
g. The Company agrees that until all the
Representative's Securities have been sold under a registration
statement or pursuant to Rule 144 under the Act, it shall keep current
in filing all reports, statements and other materials required to be
filed with the Commission to permit holders of the Representative's
Securities to sell such securities under Rule 144.
8
<PAGE> 9
h. The Holder and any holders who propose to register
their Representative's Securities under the Act shall execute and
deliver to the Company a selling stockholder questionnaire on a form
to be provided by the Company.
i. In addition to the rights above provided, the Company
will cooperate with the then holders of the Representative's Options
and underlying Representative's Securities in preparing and signing a
registration statement, on two occasions only in addition to the
registration statements discussed above, required in order to sell or
transfer the Representative's Securities and will supply all
information required therefor, but such additional registration
statements shall be at the then Holders' cost and expense unless the
Company elects to register additional shares of the Company's Common
Stock in which case the cost and expense of such registration
statements will be prorated between the Company and the Holders of the
Representative's Options and Representative's Securities according to
the aggregate sales prices of the securities being sold.
9. a. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Holder, any holder
of any of the Representative's Securities, their officers, directors,
partners, employees, agents and counsel, and each person, if any, who
controls any such person within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all loss, liability,
charge, claim, damage and expense whatsoever (which shall include, for
all purposes of this Section 9, but not be limited to, attorneys' fees
and any and all expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), as and when incurred, arising
out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus or final prospectus (as
from time to time amended and supplemented), or any amendment or
supplement thereto, or (B) in any application or other document or
communication (in this Section 9 collectively called an "application")
executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify any of the
Representative's Securities under the securities or blue sky laws
thereof or filed with the Commission or any securities exchange; or
any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the
9
<PAGE> 10
statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Company with respect to the Holder or any holder of
any of the Representative's Securities by or on behalf of such person
expressly for inclusion in any registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach
of any representation, warranty, covenant or agreement of the Company
contained in this Representative's Option. The foregoing agreement to
indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this
Representative's Option.
If any action is brought against the Holder or any holder of
any of the Representative's Securities or any of its officers,
directors, partners, employees, agents or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the
Company in writing of the institution of such action (but the failure
so to notify shall not relieve the Company from any liability it may
otherwise have to Holder or any holder of any of the Representative's
Securities) and the Company shall promptly assume the defense of such
action, including the employment of counsel (reasonably satisfactory
to such indemnified party or parties) and payment of expenses. Such
indemnified party or parties shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties
unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action
or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any
of which events such fees and expenses shall be borne by the Company
and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in
this paragraph to the contrary notwithstanding, the Company shall not
be liable for any settlement of any such claim or action effected
without its written consent.
10
<PAGE> 11
b. The Holder and each holder agrees to indemnify and
hold harmless the Company, each director of the Company, each officer
of the Company who shall have signed any registration statement
covering the Representative's Securities held by the Holder and each
holder and each other person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to
the Holder and each holder in paragraph 9(a), but only with respect to
statements or omissions, if any, made in any registration statement,
preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, or
in any application, in reliance upon and in conformity with written
information furnished to the Company with respect to the Holder and
each holder by or on behalf of the Holder and each holder expressly
for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, and in respect of which indemnity may
be sought against the Holder and each holder pursuant to this
paragraph 9(b), the Holder and each holder shall have the rights and
duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of paragraph 9(a).
c. To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to
paragraph 9(a) or 9(b) (subject to the limitations thereof) but it is
found in a final judicial determination, not subject to further
appeal, that such indemnification may not be enforced in such case,
even though this Agreement expressly provides for indemnification in
such case, or (ii) any indemnified or indemnifying party seeks
contribution under the Act, the Exchange Act or otherwise because the
indemnification provided for in this Section 9 is for any reason held
to be unenforceable by the Company and the Holder and any holder, then
the Company (including for this purpose any contribution made by or on
behalf of any director of the Company, any officer of the Company who
signed any such registration statement and any controlling person of
the Company), as one entity, and the Holder and any holder of any of
the Representative's Securities included in such registration in the
aggregate (including for this purpose any
11
<PAGE> 12
contribution by or on behalf of the Holder or any holder), as a second
entity, shall contribute to the losses, liabilities, claims, damages
and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault
of the Company and the Holder or any such holder in connection with
the facts which resulted in such losses, liabilities, claims, damages
and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information
supplied by the Company, by the Holder or by any holder of
Representative's Securities included in such registration, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Holder agree that
it would be unjust and inequitable if the respective obligations of
the Company and the Holder for contribution were determined by pro
rata or per capita allocation of the aggregate losses, liabilities,
claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by
any other method of allocation that does not reflect the equitable
considerations referred to in this paragraph 9(c). No person guilty
of a fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation. For purposes of this
paragraph 9(c), each person, if any, who controls the Holder or any
holder of any of the Representative's Securities within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent and counsel of each such
person, shall have the same rights to contribution as such person and
each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed any such registration
statement, and each director of the Company shall have the same rights
to contribution as the Company, subject in each case to the provisions
of this paragraph 9(c). Anything in this paragraph 9(c) to the
contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected without
its written consent. This paragraph 9(c) is intended to supersede any
right to contribution under the Act, the Exchange Act or otherwise.
12
<PAGE> 13
10. The securities issued upon exercise of the Representative's
Options shall be subject to a stop transfer order and the certificate or
certificates evidencing any such securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND WITH THE SECURITIES ADMINISTRATORS OF CERTAIN STATES
UNDER THE SECURITIES ("BLUE SKY") LAWS OF SUCH STATES. HOWEVER,
NEITHER THE REPRESENTATIVE'S OPTIONS NOR SUCH SECURITIES MAY BE SOLD,
TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (I) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT, (II) A
SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (III) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND UNDER THE APPLICABLE BLUE SKY
LAWS.
11. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of any Representative's Option (and upon
surrender of any Representative's Option if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Option of like date, tenor
and denomination.
12. The Holder of any Representative's Option shall not have,
solely on account of such status, any rights of a stockholder of the Company,
either at law or in equity, or to any notice of meetings of stockholders or of
any other proceedings of the Company, except as provided in this
Representative's Option.
13. This Representative's Option shall be construed in accordance
with the laws of the State of Colorado, without giving effect to conflict of
laws.
Dated: ____________, 1998
FACTUAL DATA CORP.
By:
-----------------------------------------
Jerald H. Donnan, Chief Executive Officer
[SEAL]
13
<PAGE> 14
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Option.)
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________ Representative's Options to
purchase __________ Warrants of Factual Data Corp. (the "Company"), together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________________ attorney to transfer such
Representative's Options on the books of the Company, with full power of
substitution.
Dated:
-----------------
Signature:
----------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must
be guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
14
<PAGE> 15
ELECTION TO EXERCISE
(To be executed by the holder if such holder desires to
exercise the attached Representative's Option)
The undersigned hereby exercises his or its rights to subscribe for
__________ Warrants covered by the within Representative's Option (each as
defined in the within Representative's Option) and tenders payment herewith in
the amount of $__________ in accordance with the terms thereof, and requests
that certificates for such Warrants be issued in the name of, and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security or
Tax Identification Number)
and, if such number of Warrants (or portions thereof) shall not be all the
Warrants covered by the within Representative's Option, that a new
Representative's Option for the balance of the Representative's Options (or
portions thereof) covered by the within Representative's Option be registered
in the name of, and delivered to, the undersigned at the address stated below.
Name:
---------------------------------------------------------------------------
(Print)
Address:
------------------------------------------------------------------------
- --------------------------------------
(Signature)
Dated: Signature Guaranteed:
--------------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must
be guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
15
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
--------------------
FACTUAL DATA CORP.
AND
AMERICAN SECURITIES TRANSFER & TRUST, INC.
WARRANT AGENT
MARCH ___, 1998
--------------------
<PAGE> 2
WARRANT AGREEMENT
THIS AGREEMENT dated as of March ___, 1998, between Factual Data Corp.,
a Colorado corporation (the "Company"), and American Securities Transfer &
Trust, Inc., a transfer agency located in Denver, Colorado (the "Warrant
Agent").
WHEREAS:
In connection with a public offering (the "Public Offering") of
1,200,000 shares (the "Firm Shares") of Common Stock of the Company, ("Common
Stock") and 1,200,000 warrants ("Firm Warrants"), each Warrant entitling the
Registered Owner thereof to purchase one share of Common Stock, or an aggregate
of 1,200,000 shares of Common Stock of the Company on exercise of all Firm
Warrants; and
The Company also has granted the several underwriters (the
"Underwriters") of the Company's Public Offering pursuant to an underwriting
agreement (the "Underwriting Agreement"), the option to purchase up to an
additional 180,000 shares (the "Over- Allotment Shares") and 180,000 warrants
(the "Over-Allotment Warrants") exercisable to purchase up to an aggregate of
180,000 shares of Common Stock; and
The Company desires to provide for the issuance, registration,
transfer, exchange and exercise of certificates (the "Warrant Certificates")
representing the Firm Warrants and the Over-Allotment Warrants (collectively,
herein, the "Warrants") and for the exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrant Certificates and the Warrants, and the respective
rights and obligations thereunder of the Company, the registered holders of the
Warrant Certificates and the Warrant Agent, the parties hereto agree as follows:
<PAGE> 3
1. Definitions. As used herein:
(a) "Common Stock" shall mean Common Stock, of the Company,
whether now or hereafter authorized, holders of which have the right to
participate in the distribution of earnings and assets of the Company without
limit as to amount or percentage.
(b) "Corporate Office" shall mean the place of business of the
Warrant Agent (or its successor) located in Denver, Colorado, which office is
presently located at 1825 Lawrence Street, Denver, Colorado 80202.
(c) "Effective Date" shall mean ___________________, 1998, the
date on which the Company's Registration Statement is declared effective by the
Securities and Exchange Commission.
(d) "Exercise Date" shall mean the date of surrender for
exercise of any Warrant Certificate, provided the exercise form on the back of
the Warrant Certificate or a form substantially similar thereto has been
completed in full by the Registered Owner or a duly appointed attorney and the
Warrant Certificate is accompanied by payment in full of the Exercise Price.
(e) "Exercise Period" shall mean the period commencing on the
Effective Date and extending to and through the Expiration Date.
(f) "Exercise Price" shall mean a purchase price of $_________
per share of Common Stock (130% of the offering price for one Firm Share);
provided, however, that in the event the Company reduces the Exercise Price in
accordance with Section 9(i) hereof, the Exercise Price shall be as established
by the Company in accordance with such Section.
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<PAGE> 4
(g) "Expiration Date" shall mean 5:00 P.M. Mountain Standard
or Daylight Time on the last day of the 3 year period commencing on the
Effective Date, subject to the terms provided in Section 5 herein for redemption
and subject to extension by the Board of Directors of the Company; provided
however, if such date shall be a holiday or a day on which banks are authorized
to close, then Expiration Date shall mean 5:00 p.m., Mountain Standard or
Daylight Time on the next following day which in the State of Colorado is not a
holiday or a day on which banks are authorized to close. The Expiration Date may
be extended from time to time, by resolution of the Board of Directors of the
Company, to a later date upon giving notice to the Warrant Agent and the
Registered Owners; provided, however, that notice to the Registered Owners of an
extension of the Expiration Date may be made by publication or by release to Dow
Jones, P.R. Newswire or other means of general distribution. If the Company
redeems the Warrants as provided in Section 5 of this agreement, the Expiration
Date shall be the date fixed for redemption.
(h) "Firm Warrants" shall mean 1,200,000 Warrants to purchase
1,200,000 shares of Common Stock, all of which will be purchased by the several
Underwriters from the Company and sold in the Public Offering in accordance with
the Underwriting Agreement.
(i) "Over-Allotment Warrants" shall mean 180,000 Warrants to
purchase 180,000 shares of Common Stock, any or all of which may be purchased by
the Representative for the several Underwriters from the Company in accordance
with the Underwriting Agreement. The Over-Allotment Warrants shall have
identical terms and conditions to those established for the Firm Warrants,
subject to their issuance in accordance with Section 2 hereof.
(j) "Representative" shall mean Schneider Securities, Inc.,
the representative of the several Underwriters.
-3-
<PAGE> 5
(k) "Registered Owner" shall mean the person in whose name any
Warrant Certificate shall be registered on the books maintained by the Warrant
Agent pursuant to Section 6 of this Agreement.
(l) "Registration Statement" shall mean the Company's
Registration Statement on Form SB-2 (S.E.C. File No. 333-____), as amended.
(m) "Subsidiary" shall mean any corporation of which shares
having ordinary voting power to elect a majority of the Board of Directors of
such corporation (regardless of whether the shares of any other class or classes
of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or one or more subsidiaries of the Company.
(n) "Warrant" or the "Warrants" shall mean and include up to
1,380,000 Warrants to purchase 1,380,000 authorized and unissued Shares of
Common Stock of the Company and, unless otherwise noted, shall include 1,200,000
Firm Warrants and 180,000 Over-Allotment Warrants.
(o) "Warrant Agent" shall mean American Securities Transfer &
Trust, Inc., or its successor, as the transfer agent and registrar of the
Warrants.
(p) "Warrant Shares" shall mean and include up to 1,380,000
authorized and unissued shares of Common Stock reserved for issuance on exercise
of the Warrants, and unless otherwise noted, shall include 1,200,000 shares of
Common Stock issuable upon exercise of the Firm Warrants and 180,000 shares of
Common Stock issuable upon exercise of the Over-Allotment Warrants and any
additional shares of Common Stock or other property which may hereafter be
issuable or deliverable on exercise of the Warrants pursuant to Section 9 of
this Agreement.
-4-
<PAGE> 6
2. Warrants and Issuance of Warrant Certificates. Each Warrant
shall initially entitle the Registered Owner of the Warrant Certificates
representing such Warrant to purchase one share of Common Stock on exercise
thereof, subject to modification and adjustment as hereinafter provided in
Section 9. Warrant Certificates representing 1,200,000 Firm Warrants and
evidencing the right to purchase an aggregate of 1,200,000 shares of Common
Stock of the Company shall be executed by the proper officers of the Company and
delivered to the Warrant Agent for countersignature. Certificates representing
the Firm Warrants to be delivered to the Warrant Agent shall be in direct
relation to the Firm Shares sold in the Company's Public Offering and shall be
attached to certificates representing an equal number of Firm Shares. The
Warrant Certificates representing the Firm Warrants will be issued and delivered
on written order of the Company signed by its President and attested by its
Secretary or Assistant Secretary. The Warrant Agent shall deliver Warrant
Certificates in required whole number denominations to the persons entitled
thereto in connection with any transfer or exchange permitted under this
Agreement.
The Over-Allotment Warrants shall carry identical terms and conditions
to those established for the Firm Warrants and outlined herein. Up to 180,000
Over-Allotment Warrants may be issued and such Over-Allotment Warrants shall
evidence the right of the Registered Owners thereof to purchase an aggregate of
up to 180,000 shares of Common Stock of the Company. Any Warrant Certificates
for Over-Allotment Warrants to be issued will be executed by the proper officers
of the Company and delivered to the Warrant Agent for countersignature on
exercise of the option to purchase Over-Allotment Warrants by the several
Underwriters in accordance with the Underwriting Agreement. Certificates
representing Over-Allotment Warrants will be initially attached to certificates
representing an equal number of Over-Allotment Shares.
Except as provided in Section 8 hereof, share certificates representing
the Warrant Shares shall be issued only on or after the Exercise Date on
exercise of the Warrants or
-5-
<PAGE> 7
on transfer or exchange of the Warrant Shares. The Warrant Agent, if other than
the Company's Transfer Agent, shall arrange with the Transfer Agent for the
issuance and registration of all Warrant Shares.
3. Form and Execution of Warrant Certificates. The Warrant
Certificates shall be substantially in the form attached as Exhibit "A" and may
have such letters, numbers or other marks of identification and such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement. The Warrant Certificates shall be dated as of the date of
issuance, whether on initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates.
Each Warrant Certificate for Firm Warrants shall be initially issued
only when attached to a certificate representing the same number of Firm Shares
of Common Stock as Firm Warrants and shall be separately transferable from the
certificate representing Firm Shares immediately upon issuance. Warrant
Certificates issued for Over-Allotment Warrants shall be issued together with
certificates representing the same number of shares of Common Stock as
Over-Allotment Warrants.
The Warrant Certificates shall be executed on behalf of the Company by
its President and Secretary, by manual signatures or by facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the Company's
seal. The Warrant Certifi cates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. In the
event any officer of the Company who executed the Warrant Certificates shall
cease to be an officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature and delivery by the Warrant Agent, such
Warrant Certificates may be countersigned, issued and delivered by the Warrant
Agent with the same force and effect as though the person who signed such
Warrant Certificates had not ceased to be an officer of the Company.
-6-
<PAGE> 8
4. Exercise. The exercise of Warrants in accordance with this
Agreement shall only be permitted during the Exercise Period.
Warrants shall be deemed to have been exercised immediately prior to
the close of business on the Exercise Date. The exercise form shall be executed
by the Registered Owner thereof or his attorney duly authorized in writing and
shall be delivered together with payment to the Warrant Agent, in cash or by
official bank or certified check, of an amount in lawful money of the United
States of America. Such payment shall be in an amount equal to the Exercise
Price as hereinabove defined.
The person entitled to receive the number of Warrant Shares deliverable
on such exercise shall be treated for all purposes as the Registered Owner of
such Warrant Shares as of the close of business on the Exercise Date. The
Company shall not be obligated to issue any fractional share interests in
Warrant Shares. If Warrants represented by more than one Warrant Certificate
shall be exercised at one time by the same Registered Owner, the number of full
Warrant Shares which shall be issuable on exercise thereof shall be computed on
the basis of the aggregate number of full Warrant Shares issuable on such
exercise.
As soon as practicable on or after the Exercise Date and in any event
within 30 days after such date, the Warrant Agent shall cause to be issued and
delivered by the Transfer Agent to the person or persons entitled to receive the
same, a certificate or certificates for the number of Warrant Shares deliverable
on such exercise. No adjustment shall be made in respect of cash dividends on
Warrant Shares deliverable on exercise of any Warrant. The Warrant Agent shall
promptly notify the Company in writing of any exercise and of the number of
Warrant Shares caused to be delivered and shall cause payment of an amount in
cash equal to the Exercise Price to be made promptly to the order of the
Company. The parties contemplate such payments will be made by the Warrant Agent
to the Company on a weekly basis and will consist of collected funds only. The
Warrant Agent shall hold
-7-
<PAGE> 9
any proceeds collected and not yet paid to the Company in a Federally-insured
escrow account at a commercial bank selected by agreement of the Company and the
Warrant Agent, at all times relevant hereto. Following a determination by the
Warrant Agent that collected funds have been received, the Warrant Agent shall
cause the Transfer Agent to issue share certificates representing the number of
Warrant Shares purchased by the Registered Owner.
Expenses incurred by the Warrant Agent, including administrative costs,
costs of maintaining records and other expenses, shall be paid by the Company
according to the standard fees imposed by the Warrant Agent for such services.
All expenses incurred by the Warrant Agent and to be paid by the Company shall
be deducted from the Escrow Account prior to distribution of funds to the
Company.
A detailed accounting statement setting forth the number of Warrants
exercised, the number of Warrant Shares issued, the net amount of exercised
funds and all expenses incurred by the Warrant Agent shall be transmitted to the
Company on payment of each exercise amount. Such accounting statement shall
serve as an interim accounting for the Company during the Exercise Period. The
Warrant Agent shall render to the Company, at the completion of the Exercise
Period, a complete accounting setting forth the number of Warrants exercised,
the identity of persons exercising such Warrants, the number of Warrant Shares
issued, the amounts distributed to the Company, and all expenses incurred by the
Warrant Agent.
The Company may be required to deliver a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933, as amended (the "1933
Act") with delivery of the Warrant Shares and must have a registration statement
(or a post-effective amendment to an existing registration statement) effective
under the 1933 Act in order for the Company to comply with any such prospectus
delivery requirements. The Company will advise the Warrant Agent of the status
of any such registration statement under the
-8-
<PAGE> 10
1933 Act and of the effectiveness of the Company's registration statement or
lapse of effectiveness.
No issuance of Warrant Shares shall be made unless there is an
effective registration statement under the 1933 Act, and registration or
qualification of the Warrant Shares, or an exemption therefrom, has been
obtained from state or other regulatory authorities in the jurisdiction in which
such Warrant Shares are sold. The Company will provide to the Warrant Agent
written confirmation of all such registration or qualification, or an exemption
therefrom, when requested by the Warrant Agent.
5. Redemption. Commencing one year from the Effective Date, the
Company may, at its option, redeem the Warrants in whole, but not in part, for a
redemption price of $.05 per Warrant, on not less than 30 days' notice to the
Registered Owners. The right to redeem the Warrants may be exercised by the
Company following such one year period and during the Exercise Period only in
the event (i) the closing bid price for Company's shares of Common Stock has
equalled or exceeded $_________ (150% of the Warrant Exercise Price) for 20
consecutive trading days, (ii) any notice of the call for redemption is given
not more than five (5) business days after the conclusion of the 20 consecutive
trading days referred to in the foregoing (i), (iii) the Company has a
registration statement (or a post-effective amendment to an existing
registration statement) pertaining to the Warrant Shares effective with the
Securities and Exchange Commission, which registration statement would enable a
Registered Owner to exercise the Warrants, and (iv) the expiration of the 30 day
notice period is within the Exercise Period. In the event the Company exercises
its right to redeem the Warrants, the Expiration Date will be deemed to be, and
the Warrants will be exercisable until the close of business on, the date fixed
for redemption in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the Registered Owner
thereof will be entitled only to the redemption price.
-9-
<PAGE> 11
6. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available from its
authorized shares of Common Stock such number of shares of Common Stock as shall
then be issuable on exercise of all outstanding Warrants. The Company covenants
that all Warrant Shares issuable shall be duly and validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof.
The Registered Owner shall pay all documentary, stamp or similar taxes
and other government charges that may be imposed with respect to the issuance of
the Warrants, or the issuance, transfer or delivery of any Warrant Shares on
exercise of the Warrants. In the event the Warrant Shares are to be delivered in
a name other than the name of the Registered Owner of the Warrant Certificates,
no such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent or Transfer Agent the amount of any such taxes or charges
incident thereto.
The Company will supply the Warrant Agent with blank Warrant
Certificates, so as to maintain an inventory satisfactory to the Warrant Agent.
The Company will file with the Warrant Agent a statement setting forth the name
and address of its Transfer Agent for Warrant Shares and of each successor
Transfer Agent, if any.
7. Registration of Transfer. The Warrant Certificates may be
transferred in whole or in part and may be separately transferred from the
Common Stock share certificate to which such Warrant Certificate is attached
upon initial issuance, if any, at any time during the Exercise Period. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent at its
corporate office. The Company shall execute and the Warrant Agent shall
countersign, issue and deliver in exchange therefor, the Warrant Certificate or
Certificates which the holder making the transfer shall be entitled to receive.
-10-
<PAGE> 12
The Warrant Agent shall keep transfer books at its corporate office on
which Warrant Certificates and the transfer thereof shall be registered. On due
presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and deliver
to the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants.
All Warrant Certificates presented for registration of transfer or
exercise shall be duly endorsed or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and the Warrant
Agent.
Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may treat the Registered Owner of any Warrant
Certificate as the absolute owner thereof (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company or the
Warrant Agent) and the parties hereto shall not be affected by any notice to the
contrary.
8. Loss or Mutilation. On receipt by the Company and the Warrant
Agent of evidence satisfactory as to the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof, a new
Warrant Certificate representing an equal aggregate number of Warrants. In the
case of loss, theft or destruction of any Warrant Certificate, the Registered
Owner requesting issuance of a new Warrant Certificate shall be required to
secure an indemnity bond in favor of the Company and Warrant Agent in an amount
satisfactory to each of them. In the event a Warrant Certificate is mutilated,
such Certificate shall be surrendered and cancelled by the Warrant Agent prior
to delivery of a new Warrant Certificate. Applicants for a substitute Warrant
Certificate shall also comply with such other regulations and pay such other
reasonable charges as the Company may prescribe.
-11-
<PAGE> 13
9. Adjustment of Exercise Price and Shares.
(a) If at any time prior to the expiration of the Warrants by
their terms or by exercise, the Company increases or decreases the number of its
issued and outstanding shares of Common Stock, or changes in any way the rights
and privileges of such shares of Common Stock, by means of (i) the payment of a
share dividend or the making of any other distribution on such shares of Common
Stock payable in its shares of Common Stock, (ii) a split or subdivision of
shares of Common Stock, or (iii) a consolidation or combination of shares of
Common Stock, then the Exercise Price in effect at the time of such action and
the number of Warrants required to purchase each Warrant Share at that time
shall be proportionately adjusted so that the numbers, rights and privileges
relating to the Warrant Shares then purchasable upon the exercise of the
Warrants shall be increased, decreased or changed in like manner, for the same
aggregate purchase price set forth in the Warrants, as if the Warrant Shares
purchasable upon the exercise of the Warrants immediately prior to the event had
been issued, outstanding, fully paid and nonassessable at the time of that
event. Any dividend paid or distributed on the shares of Common Stock in shares
of any other class of shares of the Company or securities convertible into
shares of Common Stock shall be treated as a dividend paid in shares of Common
Stock to the extent shares of Common Stock are issuable on the payment or
conversion thereof.
(b) In the event, prior to the expiration of the Warrants by
exercise or by their terms, the Company shall be recapitalized by reclassifying
its outstanding shares of Common Stock into shares with a different par value,
or by changing its outstanding shares of Common Stock to shares without par
value or in the event of any other material change in the capital structure of
the Company or of any successor corporation by reason of any reclassification,
recapitalization or conveyance, prompt, proportionate, equitable, lawful and
adequate provision shall be made whereby any Registered Owner of the Warrants
shall thereafter have the right to purchase, on the basis and the terms and
conditions specified
-12-
<PAGE> 14
in this Agreement, in lieu of the Warrant Shares theretofore purchasable on the
exercise of any Warrant, such securities or assets as may be issued or payable
with respect to or in exchange for the number of Warrant Shares theretofore
purchasable on exercise of the Warrants had such reclassification,
recapitalization or conveyance not taken place; and in any such event, the
rights of any Registered Owner of a Warrant to any adjustment in the number of
Warrant Shares purchasable on exercise of such Warrant, as set forth above,
shall continue and be preserved in respect of any stock, securities or assets
which the Registered Owner becomes entitled to purchase.
(c) In the event the Company, at any time while the Warrants
shall remain unexpired and unexercised, shall sell all or substantially all of
its property, or dissolves, liquidates or winds up its affairs, prompt,
proportionate, equitable, lawful and adequate provision shall be made as part of
the terms of such sale, dissolution, liquidation or winding up such that the
Registered Owner of a Warrant may thereafter receive, on exercise thereof, in
lieu of each Warrant Share which he would have been entitled to receive, the
same kind and amount of any stock, securities or assets as may be issuable,
distributable or payable on any such sale, dissolution, liquidation or winding
up with respect to each share of Common Stock of the Company; provided, however,
that in the event of any such sale, dissolution, liquidation or winding up, the
right to exercise the Warrants shall terminate on a date fixed by the Company,
such date to be not earlier than 5:00 P.M., Mountain Time, on the 30th day next
succeeding the date on which notice of such termination of the right to exercise
the Warrants has been given by mail to the Registered Owners thereof at such
addresses as may appear on the books of the Company.
(d) In the event prior to the expiration of the Warrants by
exercise or by their terms, the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to purchase its shares of
Common Stock at a price per share more than 10% below the then-current market
price per share (as defined below) at the date of taking such record, then, (i)
the number of Warrant Shares purchasable pursuant
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<PAGE> 15
to the Warrants shall be redetermined as follows: the number of Warrant Shares
purchasable pursuant to a Warrant immediately prior to such adjustment (taking
into account fractional interests to the nearest 1,000th of a share) shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock of the Company outstanding (excluding shares of Common Stock
then owned by the Company) immediately prior to the taking of such record, plus
the number of additional shares offered for purchase, and the denominator of
which shall be the number of shares of Common Stock of the Company outstanding
(excluding shares of Common Stock owned by the Company) immediately prior to the
taking of such record, plus the number of shares which the aggregate offering
price of the total number of additional shares so offered would purchase at such
current market price; and (ii) the Exercise Price per Warrant Share purchasable
pursuant to a Warrant shall be redetermined as follows: the Exercise Price in
effect immediately prior to the taking of such record shall be multiplied by a
fraction, the numerator of which is the number of Warrant Shares purchasable
immediately prior to the taking of such record, and the denominator of which is
the number of Warrant Shares purchasable immediately after the taking of such
record as determined pursuant to clause (i) above; provided, however, (i) that
any adjustment in the number of shares issuable as set forth above shall be
effective only to the extent sufficient shares of Common Stock have been
registered through a registration statement effective under the 1933 Act, and
(ii) that any adjustment in the Exercise Price does not cause the Company to
receive proceeds in excess of the amount authorized by any such registration
statement. For the purpose hereof, the current market price per share at any
date shall be deemed to be the average of (i) the highest bid-and-asked prices
as reported by The Nasdaq Stock Market, Inc. if the Common Stock is quoted
thereon, or (ii) if no such quotation is available, the average of the mean
between the bid and asked prices as quoted by any two independent persons or
entities making a market for the Common Stock. Such bid and asked prices shall
be for 10 consecutive business days commencing 30 business days prior to the
record date.
-14-
<PAGE> 16
(e) On exercise of the Warrants by the Registered Owners, the
Company shall not be required to deliver fractions of Warrant Shares; provided,
however, that the Company shall make prompt, proportionate, equitable, lawful
and adequate provisions in respect of any such fraction of one Warrant Share
either on the basis of adjustment in the then applicable Exercise Price or a
purchase of the fractional interest at the price of the Company's shares of
Common Stock or such other reasonable basis as the Company may determine.
(f) In the event, prior to expiration of the Warrants by
exercise or by their terms, the Company shall determine to take a record of the
holders of its shares of Common Stock for the purpose of determining
shareholders entitled to receive any stock dividend, distribution or other right
which will cause any change or adjustment in the number, amount, price or nature
of the shares of Common Stock or other stock, securities or assets deliverable
on exercise of the Warrants pursuant to the foregoing provisions, the Company
shall give to the Registered Owners of the Warrants at the addresses as may
appear on the books of the Company at least 30 days' prior written notice to the
effect that it intends to take such a record provided, however, that notice to
the Registered Owners of an extension of the Expiration Date may be made by
publication or by release to Dow Jones, P.R. Newswire or other means of general
distribution. Such notice shall specify the date as of which such record is to
be taken; the purpose for which such record is to be taken; and the number,
amount, price and nature of the shares of Common Stock or other stock,
securities or assets which will be deliverable on exercise of the Warrants after
the action for which such record will be taken has been completed. Without
limiting the obligation of the Company to provide notice to the Registered
Owners of the Warrants of any corporate action hereunder, the failure of the
Company to give notice shall not invalidate such corporate action of the
Company.
(g) The Warrants shall not entitle the Registered Owner
thereof to any of the rights of shareholders or to any dividend declared on the
shares of Common Stock
-15-
<PAGE> 17
unless the Warrant is exercised and the Warrant Shares purchased prior to the
record date fixed by the Board of Directors of the Company for the determination
of holders of shares of Common Stock entitled to such dividend or other right.
(h) No adjustment of the Exercise Price shall be made as a
result of or in connection with (i) the issuance of shares of Common Stock of
the Company pursuant to options, warrants, employee stock ownership plans and
share purchase agreements outstanding or in effect on the date hereof, (ii) the
establishment of additional option plans of the Company, the modification,
renewal or extension of any plan now in effect or hereafter created, or the
issuance of shares of Common Stock on exercise of any options pursuant to such
plans, and (iii) the issuance of shares of Common Stock in connection with
compensation arrangements for officers, employees or agents of the Company or
any subsidiary, and the like.
(i) The Company shall be empowered, in the sole and
unconditional discretion of the Board of Directors, at any time during the
Exercise Period, to reduce the applicable Exercise Price of the Warrants. Any
such reduction in the applicable Exercise Price shall be effective upon written
notice to the Warrant Agent, which notice shall be given pursuant to a duly and
validly authorized resolution of the Board of Directors of the Company. Any such
reduction in the Exercise Price shall not entitle the Registered Owners to
issuance of any additional Common Shares pursuant to the adjustment provisions
set forth elsewhere herein, regardless of whether the reduction in the Exercise
Price was effected either prior to or following exercise of Warrants by the
Registered Owners thereof. A nonexercising Registered Owner shall have no remedy
or rights to receive any additional Warrant Shares as a result of any reduction
in any applicable Exercise Price pursuant to this subsection.
10. Duties, Compensation and Termination of Warrant Agent. The
Warrant Agent shall act hereunder as agent and in a ministerial capacity for the
Company, and its
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<PAGE> 18
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity, value or
authorization of the Warrant Certifi cate or the Warrants represented thereby or
of the Warrant Shares or other property delivered on exercise of any Warrant.
The Warrant Agent shall not be under any duty or responsibility to any holder of
the Warrant Certificates to make or cause to be made any adjustment of the
Exercise Price or to determine whether any fact exists which may require any
such adjustments.
The Warrant Agent shall not (i) be liable for any recital or statement
of fact contained herein or for any action taken or omitted by it in reliance on
any Warrant Certificate or other document or instrument believed by it in good
faith to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in the Warrant Certificates, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or willful
misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in accordance
with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by its
President and attested by its Secretary or Assistant Secretary. The Warrant
Agent shall not be liable for any action taken or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or demand.
-17-
<PAGE> 19
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse the Warrant Agent for its reasonable
expenses. The Company further agrees to indemnify the Warrant Agent against any
and all losses, expenses and liabilities, including judgments, costs and counsel
fees, for any action taken or omitted by the Warrant Agent in the execution of
its duties and powers hereunder, excepting losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties or the Company may terminate
the Warrant Agent and the Warrant Agent shall be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or willful misconduct) on 30 days' prior written
notice to the other party. At least 12 days prior to the date such resignation
is to become effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Owner of each Warrant Certificate. On
such resignation or termination, the Company shall appoint a new Warrant Agent.
If the Company shall fail to make such appointment within a period of 30 days
after it has been notified in writing of the resignation by the Warrant Agent,
then the Registered Owner of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new Warrant Agent. Any new
Warrant Agent, whether appointed by the Company or by such court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its shareholders, of not less than $1,000,000, and having
its principal office in the United States.
After acceptance in writing of an appointment of a new Warrant Agent is
received by the Company, such new Warrant Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; provided, however, if it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and
-18-
<PAGE> 20
validly executed. The Company shall file a notice of appointment of a new
Warrant Agent with the resigning Warrant Agent and shall forthwith cause a copy
of such notice to be mailed to the Registered Owner of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new Warrant Agent
may be converted or merged, or any corporation resulting from any consolidation
to which the Warrant Agent or any new Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent
shall be a successor Warrant Agent under this Agreement, provided that such
corporation is eligible for appointment as a successor to the Warrant Agent. Any
such successor Warrant Agent shall promptly cause notice of its succession as
Warrant Agent to be mailed to the Company and to the Registered Owner of each
Warrant Certificate. No further action shall be required for establishment and
authorization of such successor Warrant Agent.
The Warrant Agent, its officers or directors and it subsidiaries or
affiliates may buy, hold or sell Warrants or other securities of the Company and
otherwise deal with the Company in the same manner and to the same extent and
with like effect as though it were not the Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company.
11. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement they
shall deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or mistake or error herein contained. Additionally, the
parties may make any changes or corrections deemed necessary which shall not
adversely affect the interests of the Registered Owners of Warrant Certificates;
provided, however, this Agreement shall not otherwise be modified, supplemented
or altered in any respect except with the consent in writing of the Registered
Owners of Warrant Certificates representing not less than a majority of the
Warrants outstanding. Additionally, no change in the number or nature of
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<PAGE> 21
the Warrant Shares purchasable on exercise of a Warrant or the Exercise Price
therefor shall be made without the consent in writing of the Registered Owner of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement.
12. Notices. All notices, demands, elections, opinions or requests
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by tested telex, telegram or
cable to, in the case of the Company:
Factual Data Corp.
3665 JFK Parkway
Building 1, Suite 200
Fort Collins, Colorado 80525
and in the case of the Warrant Agent:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
with a copy to:
Robert W. Walter, Esq.
Berliner Zisser Walter and Gallegos, P.C.
1700 Lincoln Street, Suite 4700
Denver, Colorado 80203
and if to the Registered Owner of a Warrant Certificate, at the address of such
Registered Owner as set forth on the books maintained by the Warrant Agent.
13. Persons Benefitting. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and their respective
successors and assigns, and the Registered Owners and beneficial owners from
time to time of the Warrant Certificates. Nothing in this Agreement is intended
or shall be construed to confer on any
-20-
<PAGE> 22
other person any right, remedy or claim or to impose on any other person any
duty, liability or obligation.
14. Further Instruments. The parties shall execute and deliver any
and all such other instruments and shall take any and all such other actions as
may be reasonable or necessary to carry out the intention of this Agreement.
15. Severability. If any provision of this Agreement shall be
held, declared or pronounced void, voidable, invalid, unenforceable or
inoperative for any reason by any court of competent jurisdiction, government
authority or otherwise, such holding, declaration or pronouncement shall not
affect adversely any other provision of this Agreement, which shall otherwise
remain in full force and effect and be enforced in accordance with its terms,
and the effect of such holding, declaration or pronouncement shall be limited to
the territory or jurisdiction in which made.
16. Waiver. All the rights and remedies of either party under this
Agreement are cumulative and not exclusive of any other rights and remedies as
provided by law. No delay or failure on the part of either party in the exercise
of any right or remedy arising from a breach of this Agreement shall operate as
a waiver of any subsequent right or remedy arising from a subsequent breach of
this Agreement. The consent of any party where required hereunder to any act or
occurrence shall not be deemed to be a consent to any other action or
occurrence.
17. General Provisions. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of Colorado.
Except as otherwise expressly stated herein, time is of the essence in
performing hereunder. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, and this Agreement may not
be modified or amended or any term or provision hereof waived or
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<PAGE> 23
discharged except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. The headings of this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning thereof. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above mentioned.
THE COMPANY:
FACTUAL DATA CORP.
(CORPORATE SEAL)
By:
-----------------------------
Jerald H. Donnan, President
ATTEST:
- ---------------------------------
, Secretary
- ---------------------
THE WARRANT AGENT:
AMERICAN SECURITIES TRANSFER &
TRUST, INC.
By:
-----------------------------
Title:
--------------------------
ATTEST:
- ---------------------------------
Title:
---------------------------
-22-
<PAGE> 1
EXHIBIT 10.1
OFFICE LEASE
BETWEEN
FDC OFFICE I, LLC,
A COLORADO LIMITED LIABILITY COMPANY
(AS LANDLORD)
AND
LENDERS RESOURCE INCORPORATED
A COLORADO CORPORATION
(AS TENANT)
<TABLE>
<CAPTION>
Section Page
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<S> <C>
1. PRINCIPAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. GENERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. COMPLETION OF THE PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
8. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9. DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10. CHARACTER OF OCCUPANCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12. ALTERATIONS AND REPAIRS BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
13. MECHANICS' LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14. SUBLETTING AND ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
15. DAMAGE TO PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
16. INDEMNITY TO LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<TABLE>
<S> <C>
17. SURRENDER AND NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . 11
19. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
20. DEFAULT BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
21. DEFAULT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
22. SUBORDINATION AND ATTORNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
23. REMOVAL OF TENANT'S PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
24. HOLDING OVER: TENANCY MONTH-TO-MONTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
25. PAYMENTS AFTER TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
26. STATEMENT OF PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
27. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
28. AUTHORITIES FOR ACTION AND NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
29. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
30. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
31. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
32. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
33. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
34. PERMIT CONTINGENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
35. EXPANSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
36. GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
37. RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 3
LEASE AGREEMENT
THIS LEASE, dated as of August 14, 1997, is by and between FDC OFFICE
I, LLC, a Colorado limited liability company ("Landlord"), and LENDERS
RESOURCE INCORPORATED, a Colorado corporation ("Tenant").
W I T N E S S E T H :
1. PRINCIPAL TERMS. Capitalized terms, first appearing in
quotations in this Section, elsewhere in the Lease or any Exhibits, are
definitions of such terms as used in the Lease and Exhibits and shall have the
defined meaning whenever used.
1.1 "BUILDING": FDC Office I located at, _________
Loveland, CO 80538 in the Rocky
Mountain Village Business Park.
1.2 "PREMISES": approximately 15,879 rentable
square feet Suite #________
1.3 "INITIAL TERM": 20 years
"Commencement Date": The date of
Substantial Completion, as defined
in the attached Work Letter.
"Expiration Date": The last day of
the month in which the twentieth
anniversary of the day immediately
prior to the Commencement Date
occurs.
1.4 "BASE RENT": For each of the first 5 years of the
Initial Term, the annual Base Rent
shall equal the lesser of (i) the
Total Construction Costs for the
Premises, as said term is defined in
the attached Work Agreement times
11% (i.e., assuming Total
Construction Costs of $106.80 x
15,879 sq. ft. = $1,695,877.20 x 11%
= $186,547.00 or (ii) $186,578.00
(i.e., $11.75 x 15,879 sq. ft.). For
each of the 6th through the 10th
years of the Initial Term, the
annual Base Rent shall equal 115% of
the Base Rent payable in the 5th
year. For each of the 11th through
the 15th years of the Initial Term,
the Base Rent shall equal 115% of
the Base Rent payable in the 10th
year. For the 16th through the 20th
years of the Initial Lease Term, the
Base Rent shall equal 115% of the
Base Rent payable in the 15th year.
The Base Rent for the first (1st)
month of the Initial Term shall be
abated.
1.5 OPERATING EXPENSES: Pro Rata Share: 50%
1.6 "DEPOSIT": $15,545.00
1.7 "PERMITTED USE": General Office
1.8 "GUARANTOR": Factual Data Corp.
1.9 PARKING: 65 spaces
1.10 LANDLORD'S NOTICE
ADDRESS: 200 East 7th Street, Suite 314
Loveland, Colorado 80537
<PAGE> 4
With copy to:
Isaacson, Rosenbaum, Woods &
Levy, P.C.
633 17th Street, Suite 2200
Denver, Colorado 80202
1.11 LANDLORD'S TAX I.D.: 84-1412236
1.12 TENANT'S NOTICE
ADDRESS:
Precommencement
Address: Lenders Resource Incorporated
c/o Factual Data, Corp.
3665 JFK Parkway, Bldg. 1, 2nd Floor
Fort Collins, CO 80527-0458
Post Commencement
Address: Lenders Resource Incorporated
------------------------------------
Loveland, CO 80538
with copy to: Ramsey D. Myatt
March & Myatt
110 East Oak Street, Suite 200
Ft. Collins, Colorado 80524
1.13 TENANT'S TAX I.D.: 84-1289881
1.14 LANDLORD'S BROKER: Kast Real Estate Services
1.15 COOPERATING BROKER: None
1.16 ATTACHMENTS: [check if applicable]
Addendum
---
x Work Letter
---
x Exhibit A - The Premises
---
x Exhibit B - Real Property
---
x Exhibit C - Commencement
Certificate
x Exhibit D - Rules and Regulations
---
x Exhibit E - Form of Guaranty
---
2. GENERAL COVENANTS. Tenant covenants and agrees to pay Rent and
perform the obligations hereafter set forth and in consideration therefor
Landlord leases to Tenant the Premises as depicted on the attached EXHIBIT A,
together with a non-exclusive right, subject to the provisions hereof, to use
plazas, common areas, or other areas on the real property legally described on
EXHIBIT B (the "Real Property") designated by Landlord for the exclusive or
non-exclusive use of the tenants of the Building ("Common Areas"). The
Building, Real Property, Common Areas, and appurtenances are hereinafter
collectively sometimes called the "Building Complex."
3. TERM. The Initial Term of the Lease commences at 12:01 a.m. on
the Commencement Date and terminates at 12:00 midnight on the Expiration Date
(the Initial Term together with any extensions thereof is herein referred to as
the "Term.").
4. RENT. Subject to the provisions below, commencing on the
Commencement Date and on the first day of each month thereafter, Tenant shall
pay Base Rent in the amount stated in Section 1.4, in advance without notice
(all amounts,
2
<PAGE> 5
including Base Rent, to be paid by Tenant pursuant to this Lease as the context
requires are sometimes referred to collectively as "Rent(s)"). Rents shall be
paid without set off, abatement, or diminution, at the office of Landlord in
Loveland, Colorado, or at such other place as Landlord from time to time
designates in writing. Notwithstanding the foregoing or the provisions of
Section 1.4 to the contrary, the Base Rent for the first month shall be abated.
5. COMPLETION OF THE PREMISES.
5.1 Provisions regarding completion of the Premises are set
forth in the attached Work Letter. "Initial Tenant Finish" means the Premises
in its as-is condition as modified by all work, if any, performed by Landlord
at its expense prior to the Commencement Date in accordance with the Work
Letter. Except as provided in the Work Letter, Landlord has no obligation for
the completion or remodeling of the Premises, and Tenant accepts the Premises
in its "as is" condition on the Commencement Date. If Landlord is delayed in
delivering the Premises to Tenant in accordance with the Work Letter then the
Commencement Date will be postponed to the date Landlord delivers the Premises
to Tenant. If delivery is on other than the first day of the month, then the
Commencement Date will be the first day of the month following the delivery
date but all provisions hereof, including Tenant's obligation to pay Rent
(prorated for a partial month), will be in effect as of the delivery date. The
postponement of Tenant's obligation to pay Rent is in full settlement of all
claims which Tenant may otherwise have by reason of such delay. If the
Commencement Date is delayed, the Expiration Date shall be extended so that the
Term will continue for the full period set forth in Section 1.3. As soon as
the Term commences, Landlord and Tenant agree to execute a commencement
agreement in the form attached as EXHIBIT C, setting forth the exact
Commencement Date and Expiration Date.
5.2 Except as provided in the Work Letter, taking possession
of the Premises by Tenant is conclusive evidence that the Premises are in the
condition agreed between Landlord and Tenant and acknowledgment by Tenant of
satisfactory completion of any work which Landlord has agreed to perform.
6. OPERATING EXPENSES.
6.1 Definitions. The additional terms below have the
following meanings in this Lease:
(1) "Landlord's Accountants" means that individual or
firm employed by Landlord from time to time to keep the books and records for
the Building Complex, and/or to prepare the federal and state income tax
returns for Landlord with respect to the Building Complex, which books and
records shall be certified to by a representative of Landlord. All
determinations made hereunder shall be made by Landlord's Accountants unless
otherwise stated.
(2) "Rentable Area" means approximately 31,000 rentable
square feet of space. If there is a significant change in the aggregate
Rentable Area as a result of an addition, partial destruction, modification to
building design, or similar cause which causes a reduction or increase in the
Rentable Area on a permanent basis or, if Landlord remeasures the Building and
a change in Rentable Area occurs, Landlord's Accountants shall make such
adjustments in the computations as are necessary to provide for such change.
(3) "Tenant's Pro Rata Share" means the percentage set
forth in Section 1.5, which percentage has been computed by dividing the total
rentable square footage of the Premises by the Rental Area. If Tenant, at any
time during the Term, leases additional space in the Building or if the
Rentable Area is adjusted, Tenant's Pro Rata Share shall be recomputed by
dividing the total rentable square footage of space then leased by Tenant
(including any additional space) by the Rentable Area and the resulting figure
shall become Tenant's Pro Rata Share.
(4) "Operating Expense Year" means each calendar year
during the Term, except that the first Operating Expense Year begins on the
Commencement Date and ends on December 31 of such year and the last Operating
Expense Year begins on January 1 of the calendar year in which this Lease
expires or is terminated and ends on the date of such expiration or
termination. If an Operating Expense Year is less than twelve (12) months,
Operating Expenses for such year shall be prorated.
3
<PAGE> 6
(5) "Operating Expenses" means all operating expenses
of any kind or nature, paid or incurred by the Landlord, which are in
Landlord's reasonable judgment necessary, appropriate, or customarily incurred
in connection with the operation, service and maintenance of the Building
Complex including costs incurred in fulfillment of Landlord's services,
operation and maintenance obligations under the terms of this Lease. Operating
Expenses include:
(a) All real property taxes and assessments
levied against the Building Complex by any governmental or
quasi-governmental authority, including taxes, assessments, surcharges,
or service or other fees of a nature not presently in effect which are
hereafter levied on the Building Complex as a result of the use,
ownership or operation of the Building Complex or for any other reason,
whether in lieu of or in addition to, any current real estate taxes and
assessments. However, any taxes which are levied on the rent of the
Building Complex will be determined as if the Building Complex were
Landlord's only real property. In no event do taxes and assessments
include any federal or state income taxes levied or assessed on
Landlord. Expenses for tax consultants to contest taxes or assessments
are also included as Operating Expenses (all of the foregoing are
collectively referred to herein as "Taxes"). Taxes also include
special assessments, license taxes, business license fees, business
license taxes, commercial rental taxes, levies, charges, penalties or
taxes, imposed by any authority against the Premises, Building Complex
or any legal or equitable interest of Landlord. Special assessments
are deemed payable in such number of installments permitted by law,
whether or not actually so paid, and include any applicable interest on
such installments. Taxes (other than special assessments) are computed
on an accrual basis based on the year in which they are levied, even
though not paid until the following Operating Expense Year;
(b) Costs of supplies, including costs of
relamping and replacing ballasts in all Building standard tenant
lighting;
(c) Costs of energy for the Building Complex,
including costs of propane, butane, natural gas, steam, electricity,
solar energy and fuel oils, coal or any other energy sources;
(d) Costs of water and sanitary and storm
drainage services;
(e) Costs of security services;
(f) Costs of general maintenance, repairs, and
replacements including costs under HVAC and other mechanical
maintenance contracts; and repairs and replacements of equipment used
in maintenance and repair work;
(g) Costs of maintenance, repair and replacement
of landscaping;
(h) Insurance premiums for the Building Complex,
including all-risk or multi-peril coverage, together with loss of rent
endorsement; the part of any claim paid under the deductible portion of
any insurance policy carried by Landlord; public liability insurance;
and any other insurance carried by Landlord on any component parts of
the Building Complex;
(i) All labor costs, including wages, costs of
worker's compensation insurance, payroll taxes, fringe benefits,
including pension, profit-sharing and health, and legal fees and other
costs incurred in resolving any labor dispute;
(j) Professional building management fees, costs
and expenses, including costs of office space and storage space
required by management for performance of its services (said building
management may, at Landlord's option, be performed either by a
third-party or Landlord affiliated property management company);
4
<PAGE> 7
(k) Legal, accounting, inspection, and other
consulting fees (including fees for consultants for services designed
to produce a reduction in Operating Expenses or improve the operation,
maintenance or state of repair of the Building Complex);
(l) Costs of capital improvements and structural
repairs and replacements to the Building Complex to conform to changes
subsequent to the date of issuance of the shell and core certificate of
occupancy for the Building in any Applicable Laws hereinafter defined
(herein "Required Capital Improvements"); and the costs of any capital
improvements and structural repairs and replacements designed primarily
to reduce Operating Expenses (herein "Cost Savings Improvements").
Expenditures for Required Capital Improvements and Cost Savings
Improvements will be amortized at a market rate of interest over the
useful life of such capital improvement (as determined by Landlord's
Accountants); however, the amortized amount of any Cost Savings
Improvement in any year will be equal to the estimated resulting
reduction in Operating Expenses;
(m) Costs incurred for Landlord's Accountants
including costs of any experts and consultants engaged to assist in
making the computations; and
(n) All dues, assessments, impositions and
charges payable to associations;
"Operating Expenses" do not include:
(i) Costs of work, including
painting and decorating, which Landlord performs for any tenant other
than work of a kind and scope which Landlord is obligated to furnish to
all tenants whose leases contain a rental adjustment provision similar
to this one;
(ii) Costs of repairs or other
work occasioned by fire, windstorm or other insured casualty to the
extent of insurance proceeds received;
(iii) Leasing commissions,
advertising expenses, and other costs incurred in leasing space in the
Building;
(iv) Costs of repairs or
rebuilding necessitated by condemnation;
(v) Interest on borrowed money or
debt amortization, except as specifically set forth above;
(vi) Depreciation on the Building
Complex; or.
(vii) To the extent paid directly
by the Tenant, as hereinafter provided, electrical costs for the
Premises and janitorial services for the Premises.
If any lease entered into by Landlord with any tenant in the Building provides
for a separate basis of computation for any Operating Expenses with respect to
its leased premises, Landlord's Accountants may modify the computation of Base
Operating Expenses, Rentable Area, and Operating Expenses for a particular
Operating Expense Year to eliminate or modify any expenses which are paid for
in whole or in part by such tenant. If the Rentable Area is not fully occupied
during any particular Operating Expense Year, Landlord's Accountants may adjust
those Operating Expenses which are affected by occupancy for the particular
Operating Expense Year to reflect 100% occupancy. Furthermore, in making any
computations contemplated hereby, Landlord's Accountants may make such other
modifications to the computations as are required in their judgment to achieve
the intention of the parties hereto.
6.2 Estimated Payments. During each Operating Expense Year
beginning with the first month of the first Operating Expense Year and
continuing each month thereafter throughout the Term, Tenant shall pay
Landlord, at the same
5
<PAGE> 8
time as Base Rent is paid, an amount equal to 1/12 of Landlord's estimate of
Tenant's Pro Rata Share of any projected increases in Operating Expenses for
the particular Operating Expense Year in excess of Base Operating Expenses
("Estimated Payment").
6
<PAGE> 9
6.3 Annual Adjustments.
(1) Following the end of each Operating Expense Year,
Landlord shall submit to Tenant a statement setting forth the exact amount of
Tenant's Pro Rata Share of the Operating Expenses for the Operating Expense
Year just completed. Beginning with the statement for the second Operating
Expense Year, each statement shall set forth the difference, if any, between
Tenant's actual Pro Rata Share for the Operating Expense Year just completed
and the estimated amount for such Operating Expense Year. Each statement shall
also set forth the projected increase, if any, in Operating Expenses for the
new Operating Expense Year and the corresponding increase or decrease in
Tenant's monthly Rent for such new Operating Expense Year above or below the
Rent paid by Tenant for the immediately preceding Operating Expense Year.
(2) To the extent that Tenant's Pro Rata Share of
Operating Expenses for the period covered by a statement is different from the
Estimated Payment during the Operating Expense Year just completed, Tenant
shall pay Landlord the difference within 30 days following receipt by Tenant of
the statement or receive a credit against the next due Rent, as the case may
be. Until Tenant receives a statement, Tenant's Estimated Payment for the new
Operating Expense Year shall continue to be paid at the prior Estimated
Payment, but Tenant shall commence payment of Rent based on the new Estimated
Payment beginning on the first day of the month following the month in which
Tenant receives the statement. Tenant shall also pay Landlord or deduct from
the Rent, as the case may be, on the date required for the first payment, as
adjusted, the difference, if any, between the Estimated Payment for the new
Operating Expense Year set forth in the statement and the Estimated Payment
actually paid during the new Operating Expense Year. If, during any Operating
Expense Year, there is a change in the information on which Tenant is then
making its Estimated Payments so that the prior estimate is no longer accurate,
Landlord may revise the estimate and there shall be such adjustments made in
the monthly Rent on the first day of the month following notice to Tenant as
shall be necessary by either increasing or decreasing, as the case may be, the
amount of monthly Rent then being paid by Tenant for the balance of the
Operating Expense Year.
6.4 Miscellaneous. In no event will any decrease in Rent
pursuant to any provision hereof result in a reduction of Rent below the Base
Rent. Delay by Landlord in submitting any statement for any Operating Expense
Year does not affect the provisions of this Section or constitute a waiver of
Landlord's rights for such Operating Expense Year or any subsequent Operating
Expense Years.
6.5 Dispute. If Tenant disputes an adjustment submitted by
Landlord or a proposed increase or decrease in the Estimated Payment, Tenant
shall give Landlord notice of such dispute within 30 days after Tenant's
receipt of the adjustment. If Tenant does not give Landlord timely notice,
Tenant waives its right to dispute the particular adjustment. If Tenant timely
objects, Tenant may engage its own certified public accountants ("Tenant's
Accountants") to verify the accuracy of the statement complained of or the
reasonableness of the estimated increase or decrease. If Tenant's Accountants
determine that an error has been made, Landlord's Accountants and Tenant's
Accountants shall endeavor to agree upon the matter, failing which such matter
shall be submitted to an independent certified public accountant selected by
Landlord, with Tenant's reasonable approval, for a determination which will be
conclusive and binding upon Landlord and Tenant. All costs incurred by Tenant
for Tenant's Accountants shall be paid for by Tenant unless Tenant's
Accountants disclose an error, acknowledged by Landlord's Accountants (or found
to have occurred through the above independent determination), of more than 25%
in the computation of the total amount of Operating Expenses, in which event
Landlord shall pay the reasonable costs incurred by Tenant to obtain such
audit. Notwithstanding the pendency of any dispute, Tenant shall continue to
pay Landlord the amount of the Estimated Payment or adjustment determined by
Landlord's Accountants until the adjustment has been determined to be
incorrect. If it is determined that any portion of the Operating Expenses were
not properly chargeable to Tenant, then Landlord shall promptly credit or
refund the appropriate sum to Tenant.
7. SERVICES.
7.1 Subject to the provisions below, Landlord agrees, in
accordance with standards determined by Landlord from time to time for the
Building: (1) to furnish running water at those points of supply for general
use of tenants of the Building; (2) during Ordinary Business Hours to furnish
to interior Common Areas heated or cooled air (as applicable),
7
<PAGE> 10
electrical current, janitorial services, and maintenance; (3) to furnish heated
or cooled air to the Premises for standard office use provided the
recommendations of Landlord's engineer regarding occupancy and use of the
Premises are complied with by Tenant; (4) to provide, during Ordinary Business
Hours, the general use of passenger elevators for ingress and egress to and
from the Premises (at least one such elevator shall be available at all times
except in the case of emergencies or repair); (items (1) through (4) are
collectively called "Services"). "Ordinary Business Hours" means 7:00 AM to
6:00 PM Monday through Friday and from 7:00 AM to 12:00 Noon Saturdays,
excepting all legal holidays generally recognized in the State of Colorado
("Business Hours").
7.2 The Premises shall be separately metered and Tenant shall
obtain all electricity for the Premises directly from the public utility
company furnishing the same. Tenant shall pay all utility deposits, fees and
monthly service charges for electricity services for the Premises. Tenant
shall also pay the cost of replacing light bulbs and/or tubes and ballast used
in all lighting in the Premises other than that provided by Landlord to all
tenants of the Building.
7.3 Landlord may temporarily discontinue, reduce, or curtail
Services when necessary due to accident, repairs, alterations, strikes,
lockouts, Applicable Laws, or any other happening beyond Landlord's reasonable
control. Landlord is not liable for damages to Tenant or any other party as a
result of any interruption, reduction, or discontinuance of Services (either
temporary or permanent) nor shall the temporary occurrence of any such event be
construed as an eviction of Tenant, cause or permit an abatement, reduction or
setoff of Rent, or operate to release Tenant from Tenant's obligations.
7.4 Tenant shall promptly notify Landlord of any accidents or
defects in the Building of which Tenant becomes aware, including defects in
pipes, electric wiring, and HVAC equipment, and of any condition which may
cause injury or damage to the Building or any person or property therein.
7.5 As Tenant requires its own janitorial services, Tenant
shall separately contract and pay for such services with any company approved
by Landlord, in its reasonable discretion and accordingly, Landlord shall not
be required to provide any janitorial services to the Premises.
8. QUIET ENJOYMENT. So long as an Event of Default has not
occurred, Tenant is entitled to the quiet enjoyment and peaceful possession of
the Premises subject to the provisions of this Lease.
9. DEPOSIT. Tenant has deposited and will keep on deposit at all
times during the Term with Landlord the Deposit as security for the payment and
performance of Tenant's obligations under this Lease. If, at any time, Tenant
is in default, Landlord has the right to use the Deposit, or so much thereof as
necessary, in payment of Rent, in reimbursement of any expense incurred by
Landlord, and in payment of any damages incurred by Landlord by reason of such
default. In such event, Tenant shall on demand of Landlord forthwith remit to
Landlord a sufficient amount in cash to restore the Deposit to the original
amount. If the entire Deposit has not been utilized, the remaining amount will
be refunded to Tenant or to whoever is then the holder of Tenant's interest in
this Lease, without interest, within 60 days after full performance of this
Lease by Tenant. Landlord may commingle the Deposit with other funds of
Landlord. Landlord may deliver the Deposit to any purchaser of Landlord's
interest in the Premises and Landlord shall be discharged from further
liability therefor. Tenant agrees that if a Mortgagee succeeds to Landlord's
interest in the Premises by reason of foreclosure or deed in lieu of
foreclosure, Tenant has no claim against the Mortgagee for the Deposit or any
portion thereof unless such Mortgagee has actually received the same from
Landlord. If claims of Landlord exceed the Deposit, Tenant shall remain liable
for the balance.
10. CHARACTER OF OCCUPANCY. Tenant shall occupy the Premises for
the Permitted Use and for no other purpose, and use it in a careful, safe, and
proper manner and pay on demand for any damage to the Premises caused by misuse
or abuse by Tenant, Tenant's agents or employees, or any other person entering
upon the Premises under express or implied invitation of Tenant (collectively,
"Tenant's Agents"). Tenant, at Tenant's expense, shall comply with all
applicable federal, state, city, quasi-governmental and utility provider laws,
codes, rules, and regulations now or hereafter in effect ("Applicable Laws")
which impose any duty upon Landlord or Tenant with respect to the occupation or
alteration of the Premises. Tenant shall not commit or permit waste or any
nuisance on or in the Premises. Tenant agrees not to store,
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keep, use, sell, dispose of or offer for sale in, upon or from the Premises any
article or substance prohibited by any insurance policy covering the Building
Complex nor shall Tenant keep, store, produce or dispose of on, in or from the
Premises or the Building Complex any substance which may be deemed an
infectious waste or hazardous substance under any Applicable Laws, except
customary office and cleaning supplies.
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.
11.1 Landlord will (i) make repairs and replacements to HVAC,
mechanical, life safety and electrical systems in the Premises (to the extent
such systems are Building standard) deemed necessary by Landlord for normal
operations of the Building Complex; and (ii) provide upkeep, maintenance, and
repairs to all Common Areas. Except as provided in this Section or otherwise
expressly required in this Lease, Landlord is not required to make improvements
or repairs to the Premises during the Term.
11.2 Landlord or Landlord's agents may at any time enter the
Premises for examination and inspection, or to perform, if Landlord elects, any
obligations of Tenant which Tenant fails to perform or such cleaning,
maintenance, repairs, replacements, additions, or alterations as Landlord deems
necessary for the safety, improvement, or preservation of the Premises or other
portions of the Building Complex or as required by Applicable Laws. Landlord
or Landlord's agents may also show the Premises to prospective tenants,
purchasers and Mortgagees. Any such reentry does not constitute an eviction or
entitle Tenant to abatement of Rent. Landlord may make such alterations or
changes in other portions of the Building Complex as Landlord desires so long
as such alterations and changes do not unreasonably interfere with Tenant's
occupancy of the Premises. Landlord may use the Common Areas and one or more
entrances to the Building Complex as may be necessary in Landlord's judgment to
complete such work.
12. ALTERATIONS AND REPAIRS BY TENANT.
12.1 Tenant shall not make any alterations to the Premises
during the Term, including installation of equipment or machinery which
requires modifications to existing electrical outlets or increases Tenant's
usage of electricity beyond building design standards (collectively
"Alterations") without in each instance first obtaining the written consent of
Landlord. Landlord's consent or approval of the plans, specifications and
working drawings for any Alterations shall not constitute any warranty or
representation by Landlord (and shall not impose any liability on Landlord) as
to their completeness, design sufficiency, or compliance with Applicable Laws.
Tenant shall at its cost: pay all engineering and design costs incurred by
Landlord as to all Alterations, obtain all governmental permits and approvals
required, and cause all Alterations to be completed in compliance with
Applicable Laws and requirements of Landlord's insurance. All such work
relating to Alterations shall be performed in a good and workmanlike manner,
using new materials and equipment at least equal in quality to the Initial
Tenant Finish. All Alterations, repair and maintenance work performed by
Tenant shall be done at Tenant's expense by Landlord's employees or, with
Landlord's prior consent and subject to any conditions imposed by Landlord, by
other persons requested by Tenant; however, if such work is not performed by
Landlord's employees, Tenant shall pay Landlord a supervisory fee upon receipt
of an invoice. If Landlord authorizes such persons to perform work, Tenant
shall deliver to Landlord prior to commencement certificates issued by
insurance companies qualified to do business in the State of Colorado,
evidencing that worker's compensation, public liability insurance, and property
damage insurance (in amounts, with companies and on forms satisfactory to
Landlord) are in force and maintained by all contractors and subcontractors
engaged to perform such work. All liability policies shall name Landlord,
Building Manager, and Mortgagee as additional insureds. Each certificate shall
provide that the insurance may not be cancelled or modified without 10 days'
prior written notice to Landlord and Mortgagee. Landlord also has the right to
post notices in the Premises in locations designated by Landlord stating that
Landlord is not responsible for payment for such work and containing such other
information as Landlord deems necessary. All such work shall be performed in a
manner which does not unreasonably interfere with Landlord or other tenants of
the Building, or impose additional expense upon Landlord in the operation of
the Building Complex.
12.2 Tenant shall keep the Premises in as good order,
condition, and repair and in an orderly state, as on the Commencement Date,
loss by fire or other casualty or ordinary wear excepted.
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12.3 All Alterations, including partitions, paneling,
carpeting, drapes or other window coverings, and light fixtures (but not
including movable office furniture not attached to the Building), are deemed a
part of the real estate and the property of Landlord and remain upon and be
surrendered with the Premises at the end of the Term, whether by lapse of time
or otherwise, unless Landlord notifies Tenant no later than 15 days prior to
the end of the Term that it elects to have Tenant remove all or part of such
Alterations, and in such event, Tenant shall at Tenant's expense promptly
remove the Alterations specified and restore the Premises to its prior
condition, reasonable wear and tear excepted.
13. MECHANICS' LIENS. Tenant shall pay for all work done on the
Premises by Tenant or at its request (other than the Total Construction Costs)
of a character which may result in liens on Landlord's or Tenant's interest and
Tenant will keep the Premises free of all mechanics' liens, and other liens on
account of such work. Tenant indemnifies, defends, and saves Landlord harmless
from all liability, loss, damage, or expenses, including attorneys' fees, on
account of any claims of laborers, materialmen or others for work performed or
for materials or supplies furnished to Tenant or persons claiming under Tenant.
If any lien is recorded against the Premises or Building or any suit affecting
title thereto is commenced as a result of such work, or supplying of materials,
Tenant shall cause such lien to be removed of record within 5 days after notice
from Landlord. If Tenant desires to contest any claim, Tenant must furnish
Landlord adequate security of at least 150% of the amount of the claim, plus
estimated costs and interest and, if a final judgment establishing the validity
of any lien is entered, Tenant shall immediately pay and satisfy the same. If
Tenant fails to proceed as aforesaid, Landlord may pay such amount and any
costs, and the amount paid, together with reasonable attorneys' fees incurred,
shall be immediately due Landlord upon notice.
14. SUBLETTING AND ASSIGNMENT.
14.1 Tenant, as well as any other party that has acquired an
interest in this Lease by virtue of a sublease or assignment, shall not sublet
any part of the Premises nor assign or otherwise transfer this Lease or any
interest herein (sometimes referred to as "Transfer," and the subtenant or
assignee may be referred to as "Transferee") without the consent of Landlord
first being obtained, which consent will not be unreasonably withheld provided
that: (1) Tenant complies with the provisions of Section 14.4; (2) Landlord
declines to exercise its rights under Section 14.3; (3) the Transferee is
engaged in a business and the portion of the Premises will be used in a manner
which is in keeping with the then standards of the Building and does not
conflict with any exclusive use rights granted to any other tenant of the
Building Complex; (4) the Transferee has reasonable financial worth in light of
the responsibilities involved; (5) Tenant is not in default at the time it
makes its request; (6) the Transferee is not a governmental or
quasi-governmental agency; (7) the Transferee is not a tenant or currently
negotiating a lease with Landlord in any Building owned by Landlord in the
Loveland - Ft. Collins area (including the Building Complex); and (8) the rent
to be paid by the Transferee is not less than the Rent paid by Tenant for such
space and is not less than 85% of the rental rate then being offered by
Landlord for similar space in the Building. Transfer includes a sale by Tenant
of substantially all of its assets or stock if Tenant is a publicly traded
corporation, a merger of Tenant with another corporation, the transfer of 25%
or more of the stock in a corporate tenant whose stock is not publicly traded,
or transfer of 25% or more of the beneficial ownership interests in a
partnership or limited liability company tenant. Notwithstanding the foregoing
provisions, a Transfer shall not include a sale or transfer of stock by Tenant
pursuant to an I.P.O. or any form of public offering of Tenant's stock, as long
as Tenant's current shareholders retain at least 25% of the issued and
outstanding stock thereof.
14.2 Following any Transfer in accordance with this Section 14,
Landlord may, after default by Tenant, collect rent from the Transferee or
occupant and apply the net amount collected to the Rent, but no Transfer or
collection will be deemed an acceptance of the Transferee or occupant as Tenant
or release Tenant from its obligations. Consent to a Transfer shall not
relieve Tenant from obtaining Landlord's consent to any other Transfer.
Notwithstanding Landlord's consent to a Transfer, Tenant shall continue to be
primarily liable for its obligations. If Tenant collects any rent or other
amounts from a Transferee in excess of the Rent for any monthly period, Tenant
shall pay Landlord the excess monthly, as and when received.
14.3 Notwithstanding the above, if Tenant requests Landlord's
consent to sublet 25% or more of the Premises, Landlord may refuse to grant
such consent in its sole discretion and terminate this Lease as to the portion
of the Premises with respect to which such consent was requested; provided,
however, if Landlord does not consent and elects to terminate
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the Lease as to such portion, Tenant may within 15 days after notice from
Landlord to this effect withdraw Tenant's request for consent. If such
termination occurs, it shall be effective on the date designated in a notice
from Landlord and shall not be more than 30 days following such notice.
14.4 Tenant must notify Landlord at least 90 days prior to the
desired date of the Transfer ("Tenant's Notice"). Tenant's Notice shall
describe the portion of the Premises to be transferred and the terms and
conditions. Landlord has, without obligation, 60 days following receipt of
Tenant's Notice to sublet the space on Tenant's behalf or to exercise its
rights pursuant to Section 14.3 if Tenant's Notice discloses that 25% or more
of the Premises is involved. If the space covered by Tenant's Notice is
subleased by Landlord, rent and other sums due from the subtenant will be paid
to Tenant directly and Landlord has no responsibility for the performance by
such subtenant of its obligations under its sublease with Tenant. If Landlord
is unwilling or unable to locate a subtenant (and, if applicable, declines to
exercise its rights under Section 14.3), Landlord will notify Tenant not later
than 60 days after receipt of Tenant's Notice and Tenant shall be free to
sublet the specified portion of the Premises to any third party on terms
substantially identical to those described in Tenant's Notice, subject to
Landlord's consent as set forth above. If Tenant does not sublet such portion
of the Premises within 60 days following Landlord's notice to Tenant, Tenant
must reoffer the Premises to Landlord in accordance with the provisions hereof
prior to subleasing to a third party.
14.5 All documents utilized by Tenant to evidence a Transfer
are subject to approval by Landlord. Tenant shall pay Landlord's expenses,
including reasonable attorneys' fees, of determining whether to consent and in
reviewing and approving the documents. Tenant shall provide Landlord with such
information as Landlord reasonably requests regarding a proposed subtenant,
including financial information.
14.6 If a trustee or debtor in possession in bankruptcy is
entitled to assume control over Tenant's rights under this Lease and assigns
such rights to any third party notwithstanding the provisions hereof, the rent
to be paid by such party shall be increased to the current Base Rent (if
greater than that being paid for the Premises) which Landlord charges for
comparable space in the Building as of the date of such third party's
occupancy. If Landlord is entitled under the Bankruptcy Code to "Adequate
Assurance" of future performance of this Lease, the parties agree that such
term includes the following:
(1) Any assignee must demonstrate to Landlord's
reasonable satisfaction a net worth and (as defined in accordance with
generally accepted accounting principles consistently applied) at least as
large as the net worth credit of Tenant on the Commencement Date increased by
7%, compounded annually, for each year thereafter through the date of the
proposed assignment. Tenant's financial condition was a material inducement to
Landlord in executing this Lease.
(2) The assignee must assume and agree to be bound by
the provisions of this Lease.
15. DAMAGE TO PROPERTY. Tenant agrees Landlord is not liable for
any injury or damage, either proximate or remote, occurring through or caused
by fire, water, steam, or any repairs, alterations, injury, accident, or any
other cause to the Premises, to any furniture, fixtures, Tenant improvements,
or other personal property of Tenant kept or stored in the Premises, or in
other parts of the Building Complex, whether by reason of the negligence or
default of Landlord, other occupants, any other person, or otherwise; and the
keeping or storing of all property of Tenant in the Premises and Building
Complex is at the sole risk of Tenant.
16. INDEMNITY TO LANDLORD.
16.1 Tenant agrees to indemnify, defend, and hold Landlord and
Building Manager harmless from all liability, costs, or expenses, including
attorneys' fees, on account of damage to the person or property of any third
party, including any other tenant in the Building Complex, to the extent caused
by the negligence or breach of this Lease by the Tenant or Tenant's Agents.
16.2 Tenant shall maintain throughout the Term a commercial
general liability policy, including protection against death, personal injury
and property damage, issued by an insurance company qualified to do business in
the State
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of Colorado, with a single limit of not less than $1,000,000.00. Such policy
shall name Landlord, Building Manager, and Mortgagee as additional insureds, be
primary to any other similar insurance of such additional insureds, and provide
that it may not be cancelled or modified without at least 20 days' prior notice
to Landlord and Mortgagee. The minimum limits of such insurance do not limit
the liability of Tenant hereunder. Prior to occupancy of the Premises, and
prior to expiration of the then-current policy, Tenant shall deliver
certificates evidencing that insurance required under this Lease is in effect.
17. SURRENDER AND NOTICE. Upon the expiration or other termination
of this Lease, Tenant shall immediately quit and surrender to Landlord the
Premises broom clean, in good order and condition, ordinary wear and tear and
loss by fire or other casualty excepted, and Tenant shall remove all of its
movable furniture and other effects, all telephone cable and related equipment
in the Building installed for Tenant, and such Alterations, as Landlord
requires. If Tenant fails to timely vacate the Premises as required, Tenant is
responsible to Landlord for all resulting costs and damages of Landlord,
including any amounts paid to third parties who are delayed in occupying the
Premises.
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES.
18.1 Landlord shall maintain property insurance for the
Building Complex, the shell and core of the Building and the Premises in such
amounts, from such companies, and on such terms and conditions, including
insurance for loss of Rent as Landlord deems appropriate, from time to time.
18.2 Tenant shall maintain throughout the Term insurance
coverage at least as broad as ISO Special Form Coverage against risks of direct
physical loss or damage (commonly known as "all risk") for the full replacement
cost of Tenant's property and betterments in the Premises, including tenant
finish in excess of the Initial Tenant Finish.
18.3 If the Building is damaged by fire or other casualty which
renders the Premises wholly untenantable or the damage is so extensive that an
architect selected by Landlord certifies in writing to Landlord and Tenant
within 60 days of said casualty that the Premises cannot, with the exercise of
reasonable diligence, be made fit for occupancy within 180 working days from
the happening thereof, then, at the option of Landlord or Tenant exercised in
writing to the other within 30 days of such determination, this Lease shall
terminate as of the occurrence of such damage. In the event of termination,
Tenant shall pay Rent duly apportioned up to the time of such casualty and
forthwith surrender the Premises and all interest. If Tenant fails to do so,
Landlord may reenter and take possession of the Premises and remove Tenant.
If, however, the damage is such that the architect certifies that the Premises
can be made tenantable within such 180-day period or neither Landlord or Tenant
elects to terminate the Lease despite the extent of damage, then the provisions
below apply.
18.4 If the Premises are damaged by fire or other casualty that
does not render it wholly untenantable or require a repair period in excess of
180 days, Landlord shall with reasonable promptness except as hereafter
provided repair the Premises to the extent of the Initial Tenant Finish.
18.5 If the Building is damaged (though the Premises may not be
affected, or if affected, can be repaired within 180 days) and within 60 days
after the damage Landlord decides not to reconstruct or rebuild the Building,
then, notwithstanding anything contained herein, upon notice to that effect
from Landlord within said 60 days, Tenant shall pay the Rent apportioned to
such date, this Lease shall terminate from the date of such notice, and both
parties discharged from further obligations except as otherwise expressly
provided.
18.6 Landlord and Tenant waive all rights of recovery against
the other and its respective officers, partners, members, agents,
representatives, and employees for loss or damage to its real and personal
property kept in the Building Complex which is capable of being insured against
under ISO Special Form Coverage, or for loss of business revenue or extra
expense arising out of or related to the use and occupancy of the Premises.
Tenant also waives all such rights of recovery against Building Manager. Each
party shall, upon obtaining the property damage insurance required by this
Lease, notify the insurance carrier that the foregoing waiver is contained in
this Lease and use reasonable efforts to obtain an appropriate waiver of
subrogation provision in the policies.
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18.7 Rent shall abate during any period of repair and
restoration in the same proportion that the part of the Premises rendered
untenantable bears to the whole.
19. CONDEMNATION. If the Premises or substantially all of it or any
portion of the Building Complex which renders the Premises untenantable is
taken by right of eminent domain, or by condemnation (which includes a
conveyance in lieu of a taking), this Lease, at the option of either Landlord
or Tenant exercised by notice to the other within 30 days after the taking,
shall terminate and Rent shall be apportioned as of the date of the taking.
Tenant shall forthwith surrender the Premises and all interest in this Lease,
and, if Tenant fails to do so, Landlord may reenter and take possession of the
Premises. If less than all the Premises is taken, Landlord shall promptly
repair the Premises as nearly as possible to its condition immediately prior to
the taking, unless Landlord elects not to rebuild under Section 18.5. Landlord
shall receive the entire award or consideration for the taking.
20. DEFAULT BY TENANT.
20.1 Each of the following events is an "Event of Default":
(1) Any failure by Tenant to pay Rent on the due date
unless such failure is cured within 10 business days after notice by Landlord;
however, Tenant is not entitled to more than 2 notices of delinquent payments
during any calendar year and, if thereafter during such calendar year any Rent
is not paid when due, an Event of Default shall automatically occur;
(2) Tenant vacates or abandons the Premises;
(3) This Lease or Tenant's interest is transferred
whether voluntarily or by operation of law except as permitted in Section 14;
(4) This Lease or any part of the Premises is taken by
process of law and is not released within 15 days after a levy;
(5) Commencement by Tenant of a proceeding under any
provision of federal or state law relating to insolvency, bankruptcy, or
reorganization ("Bankruptcy Proceeding");
(6) Commencement of a Bankruptcy Proceeding against
Tenant, unless dismissed within 60 days after commencement;
(7) The insolvency of Tenant or execution by Tenant of
an assignment for the benefit of creditors; the convening by Tenant of a
meeting of its creditors or any significant class thereof for purposes of
effecting a moratorium upon or extension or composition of its debts; or the
failure of Tenant generally to pay its debts as they mature;
(8) The admission in writing by Tenant (or any general
partner of Tenant if Tenant is a partnership), that it is unable to pay its
debts as they mature or it is generally not paying its debts as they mature;
(9) Tenant fails to take possession of the Premises on
the Commencement Date;
(10) Tenant fails to perform any of its other
obligations and non-performance continues for 30 days after notice by Landlord
or, if such performance cannot be reasonably had within such 30 day period,
Tenant does not in good faith commence performance within such 30 day period
and diligently proceed to completion; provided, however, Tenant's right to cure
shall not exceed the period provided by Applicable Law.
20.2 Remedies of Landlord. If an Event of Default occurs,
Landlord may then or at any time thereafter, either:
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(1) (a) Without further notice except as required by
Applicable Laws, reenter and repossess the Premises or any part and expel
Tenant and those claiming through or under Tenant and remove the effects of
both without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or preceding breach of this
Lease. Should Landlord reenter or take possession pursuant to legal
proceedings or any notice provided for by Applicable Law, Landlord may, from
time to time, without terminating this Lease, relet the Premises or any part,
either alone or in conjunction with other portions of the Building Complex, in
Landlord's or Tenant's name but for the account of Tenant, for such periods
(which may be greater or less than the period which would otherwise have
constituted the balance of the Term) and on such conditions and upon such other
terms (which may include concessions of free rent and alteration and repair of
the Premises) as Landlord, in its sole discretion, determines and Landlord may
collect the rents therefor. Landlord is not in any way responsible or liable
for failure to relet the Premises, or any part thereof, or for any failure to
collect any rent due upon such reletting; provided, however that Landlord
agrees to use reasonable efforts to relet the Premises and to collect rent due
upon such reletting. No such reentry or repossession or notice from Landlord
shall be construed as an election by Landlord to terminate this Lease unless
specific notice of such intention is given Tenant. Landlord reserves the right
following any reentry and/or reletting to exercise its right to terminate this
Lease by giving Tenant notice, in which event this Lease will terminate as
specified in the notice.
(b) If Landlord takes possession of the Premises
without terminating this Lease, Tenant shall pay Landlord (i) the Rent which
would be payable if repossession had not occurred, less (ii) the net proceeds,
if any, of any reletting of the Premises after deducting all of Landlord's
expenses incurred in connection with such reletting, including all repossession
costs, brokerage commissions, attorneys' fees, expenses of employees,
alteration, and repair costs (collectively "Reletting Expenses"). If, in
connection with any reletting, the new lease term extends beyond the Term or
the premises covered thereby include other premises not part of the Premises, a
fair apportionment of the rent received from such reletting and the Reletting
Expenses, will be made in determining the net proceeds received from the
reletting. In determining such net proceeds, rent concessions will also be
apportioned over the term of the new lease. Tenant shall pay such amounts to
Landlord monthly on the days on which the Rent would have been payable if
possession had not been retaken, and Landlord is entitled to receive the same
from Tenant on each such day; or
(2) Give Tenant notice of termination of this Lease on
the date specified and, on such date, Tenant's right to possession of the
Premises shall cease and the Lease will terminate except as to Tenant's
liability as hereafter provided as if the expiration of the term fixed in such
notice were the end of the Term. If this Lease terminates pursuant to this
Section, Tenant remains liable to Landlord for damages in an amount equal to
the Rent which would have been owing by Tenant for the balance of the Term had
this Lease not terminated, less the net proceeds, if any, of reletting of the
Premises by Landlord subsequent to termination after deducting Reletting
Expenses. Landlord may collect such damages from Tenant monthly on the days on
which the Rent would have been payable if this Lease had not terminated and
Landlord shall be entitled to receive the same from Tenant on each such day.
Alternatively, if this Lease is terminated, Landlord at its option may recover
forthwith against Tenant as damages for loss of the bargain and not as a
penalty an amount equal to the worth at the time of termination of the excess,
if any, of the Rent reserved in this Lease for the balance of the Term over the
then Reasonable Rental Value of the Premises for the same period plus all
Reletting Expenses. "Reasonable Rental Value" is the amount of rent Landlord
can obtain for the remaining balance of the Term.
20.3 Cumulative Remedies. Suits to recover Rent and damages
may be brought by Landlord, from time to time, and nothing herein requires
Landlord to await the date the Term would expire had there been no Event of
Default or termination, as the case may be. Each right and remedy provided for
in this Lease is cumulative and non-exclusive and in addition to every other
right or remedy now or hereafter existing at law or equity, including suits for
injunctive relief and specific performance. The exercise or beginning of the
exercise by Landlord of one or more rights or remedies shall not preclude the
simultaneous or later exercise by Landlord of other rights or remedies. All
costs incurred by Landlord to collect any Rent and damages or to enforce this
Lease are also recoverable from Tenant. If any suit is brought because of an
alleged breach of this Lease, the prevailing party is also entitled to recover
from the other party all reasonable attorneys' fees and costs incurred in
connection therewith.
20.4 No Waiver. No failure by Landlord to insist upon strict
performance of any provision or to exercise any right or remedy upon a breach
thereof, and no acceptance of full or partial Rent during the continuance of
any breach
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constitutes a waiver of any such breach or such provision, except by written
instrument executed by Landlord. No waiver shall affect or alter this Lease
but each provision hereof continues in effect with respect to any other then
existing or subsequent breach thereof.
20.5 Bankruptcy. Nothing contained in this Lease limits
Landlord's right to obtain as liquidated damages in any bankruptcy or similar
proceeding the maximum amount allowed by law at the time such damages are to be
proven, whether such amount is greater, equal to, or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Section. Notwithstanding anything in this Section to the
contrary, any proceeding described in Section 20.1(5),(6),(7) and (8) is an
Event of Default only when such proceeding is brought by or against the then
holder of the leasehold estate under this Lease.
20.6 Late Payment Charge. Any Rent not paid within 10 days
after the due date shall thereafter bear interest at 5 percentage points above
the Prime Rate or the highest rate permitted by law, whichever is lower, until
paid. Further, if such Rent is not paid within 10 days after notice, Tenant
agrees Landlord will incur additional administrative expenses, the amount of
which will be difficult to determine; Tenant therefore shall also pay Landlord
a late charge for each late payment of 5% of such payment. Any amounts paid by
Landlord to cure a default of Tenant which Landlord has the right but not the
obligation to do, shall, if not repaid by Tenant within 10 days of demand by
Landlord, thereafter bear interest at 5 percentage points above the Prime Rate
until paid. "Prime Rate" means that the base rate on Corporate Loans posted by
at least 75% of the Nation's 30 largest banks (as shown in the Wall Street
Journal) on the date closest to the date interest commences.
20.7 Waiver of Jury Trial. Tenant and Landlord waive any right
to a trial by jury in suits arising out of or concerning the provisions of this
Lease.
21. DEFAULT BY LANDLORD. In the event of any alleged default on the
part of Landlord, Tenant shall give notice to Landlord and afford Landlord a
reasonable opportunity to cure such default. Such notice shall be ineffective
unless a copy is simultaneously also delivered in the manner required in this
Lease to any holder of a mortgage and/or deed of trust affecting all or any
portion of the Building Complex (collectively, "Mortgagee"), provided that
prior to such notice Tenant has been notified (by way of notice of Assignment
of Rents and Leases, or otherwise), of the address of a Mortgagee. If Landlord
fails to cure such default within the time provided, then Mortgagee shall have
an additional 30 days following a second notice from Tenant or, if such default
cannot be cured within that time, such additional time as may be necessary
provided within such 30 days, Mortgagee commences and diligently pursues a cure
(including commencement of foreclosure proceedings if necessary to effect such
cure). Tenant's sole remedy will be equitable relief or actual damages but in
no event is Landlord or any Mortgagee responsible for consequential damages or
lost profit incurred by Tenant as a result of any default by Landlord.
22. SUBORDINATION AND ATTORNMENT.
22.1 This Lease at Landlord's option will be subordinate to any
mortgage, deed of trust and related documents now or hereafter placed upon the
Building Complex (including all advances made thereunder), and to all
amendments, renewals, replacements, or restatements thereof (collectively,
"Mortgage"). Tenant agrees that no documentation other than this Lease is
required to evidence such subordination; provided, that Landlord shall provide
to Tenant, on or before the Commencement Date, a non-disturbance, subordination
and attornment agreement ("SNDA") from the holder of any Mortgage ("Mortgagee")
now or then encumbering the Building, in such Mortgagee's standard SNDA form.
Landlord shall also request a SNDA from any Mortgagee hereinafter encumbering
the Building, in such future Mortgagee's standard form.
22.2 If any Mortgagee elects to have this Lease superior to the
lien of its Mortgage and gives notice to Tenant, this Lease will be deemed
prior to such Mortgage whether this Lease is dated prior or subsequent to the
date of such Mortgage or the date of recording thereof.
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22.3 In confirmation of subordination or superior position, as
the case may be, Tenant will execute such documents (including any SNDA) as may
be required by Mortgagee and if it fails to do so within 10 days after demand,
Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact and in
Tenant's name, place, and stead, to do so.
22.4 Tenant hereby attorns to all successor owners of the
Building, whether such ownership is acquired by sale, foreclosure of a
Mortgage, or otherwise.
23. REMOVAL OF TENANT'S PROPERTY.
23.1 All movable personal property of Tenant not removed from
the Premises upon vacation, abandonment, or termination of this Lease shall be
conclusively deemed abandoned and may be sold, or otherwise disposed of by
Landlord without notice to Tenant and without obligation to account; Tenant
shall pay Landlord's expenses in connection with such disposition.
23.2 Subject to any purchase money security interests granted
by Tenant, Tenant conveys to Landlord all of Tenant's property at any time
situated on the Premises (and all replacements) as security for the performance
of its obligations; Tenant shall execute such documents as Landlord requires to
evidence and perfect Landlord's security interest, and for this purpose this
Lease is considered a security agreement covering such personal property. Upon
the occurrence of an Event of Default, Landlord may exercise all rights of a
secured party under the Colorado Uniform Commercial Code. Such security
interest is prior and superior to any other security interest except a purchase
money security interest. Tenant's property shall not be removed from the
Premises without Landlord's consent unless such property is replaced with an
item of equal or greater value.
24. HOLDING OVER: TENANCY MONTH-TO-MONTH. If, after the expiration
or termination of this Lease, Tenant remains in possession of the Premises and
continues to pay rent without a written agreement as to such holding over, even
though Landlord accepts such rent, such possession is a tenancy from
month-to-month, subject to all provisions hereof but at a monthly rent
equivalent to 150% of the monthly Rent paid by Tenant immediately prior to
such expiration or termination. Rent shall continue to be payable in advance
on the first day of each calendar month. Such tenancy may be terminated by
either party upon 10 days' notice prior to the end of any monthly period.
Nothing contained herein obligates Landlord to accept rent tendered after the
expiration of the Term or relieves Tenant of its liability under Section 17.
25. PAYMENTS AFTER TERMINATION. No payments by Tenant after
expiration or termination of this Lease or after any notice (other than a
demand for payment of money) by Landlord to Tenant reinstates, continues,
extends the Term, or affects any notice given to Tenant prior to such payments.
After notice, commencement of a suit, or final judgment granting Landlord
possession of the Premises, Landlord may collect any amounts due or otherwise
exercise Landlord's remedies without waiving any notice or affecting any suit
or judgment.
26. STATEMENT OF PERFORMANCE. Tenant agrees at any time upon not
less than 10 days' notice to execute and deliver to Landlord a written
statement certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same is in full force and
effect as modified stating the modifications); that there have been no defaults
by Landlord or Tenant (or, if there have been defaults, setting forth the
nature thereof); the date to which Rent has been paid in advance and such other
information as Landlord requests. Such statement may be relied upon by a
prospective purchaser of Landlord's interest or Mortgagee. Tenant's failure to
timely deliver such statement is conclusive upon Tenant that: (i) this Lease is
in full force and effect without modification except as may be represented by
Landlord; (ii) there are no uncured defaults in Landlord's performance; and
(iii) not more than 1 month's Rent has been paid in advance. Upon request,
Tenant will furnish Landlord an appropriate resolution confirming that the
party signing the statement is authorized to do so.
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27. MISCELLANEOUS.
27.1 Transfer by Landlord. The term "Landlord" means so far as
obligations of Landlord are concerned, only the owner of the Building at the
time in question and, if any transfer of the title occurs, Landlord herein
named (and in the case of any subsequent transfers, the then grantor) is
automatically released from and after the date of such transfer of all
liability as respects performance of any obligations of Landlord thereafter to
be performed. Any funds in Landlord's possession at the time of transfer in
which Tenant has an interest will be turned over to the grantee and any amount
then due Tenant under this Lease will be paid to Tenant.
27.2 No Merger. The termination or mutual cancellation of this
Lease will not work a merger, and such termination or cancellation will at the
option of Landlord either terminate all subleases or operate as an automatic
assignment to Landlord of such subleases.
27.3 Common Area Use. Landlord may use any of the Common Areas
for the purposes of completing or making repairs or alterations in any portion
of the Building Complex.
27.4 Independent Covenants. This Lease is to be construed as
though the covenants between Landlord and Tenant are independent and not
dependent and Tenant is not entitled to any setoff of the Rent against Landlord
if Landlord fails to perform its obligations; provided, however, the foregoing
does not impair Tenant's right to commence a separate suit against Landlord for
any default by Landlord so long as Tenant complies with Section 21.
27.5 Validity of Provisions. If any provision is invalid under
present or future laws, then it is agreed that the remainder of this Lease is
not affected and that in lieu of each provision that is invalid, there will be
added as part of this Lease a provision as similar to such invalid provision as
may be possible and is valid and enforceable.
27.6 Captions. The caption of each Section is added for
convenience only and has no effect in the construction of any provision of this
Lease.
27.7 Construction. The parties waive any rule of construction
that ambiguities are to be resolved against the drafting party. Any words
following the words "include," "including," "such as," "for example," or
similar words or phrases shall be illustrative only and are not intended to be
exclusive, whether or not language of non- limitation is used.
27.8 Applicability. Except as otherwise provided, the
provisions of this Lease are applicable to and binding upon Landlord's and
Tenant's respective heirs, successors and assigns. Such provisions are also
considered to be covenants running with the land to the fullest extent
permitted by law.
27.9 Authority. Tenant and the party executing this Lease on
behalf of Tenant represent to Landlord that such party is authorized to do so
by requisite action of Tenant and agree, upon request, to deliver Landlord a
resolution, similar document, or opinion of counsel to that effect.
27.10 Severability. If there is more than one party which is
the Tenant, the obligations imposed upon Tenant are joint and several.
27.11 Acceptance of Keys, Rent or Surrender. No act of Landlord
or its representatives during the Term, including any agreement to accept a
surrender of the Premises or amend this Lease, is binding on Landlord unless
such act is by a partner, member or officer of Landlord, as the case may be, or
other party designated in writing by Landlord as authorized to act. The
delivery of keys to Landlord or its representatives will not operate as a
termination of this Lease or a surrender of the Premises. No payment by Tenant
of a lesser amount than the entire Rent owing is other than on account of such
Rent nor is any endorsement or statement on any check or letter accompanying
payment an accord and satisfaction. Landlord may accept payment without
prejudice to Landlord's right to recover the balance or pursue any other remedy
available to Landlord.
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27.12 Building Name and Size. Landlord may as it relates to the
Building and Building Complex: increase the size by adding additional real
property, construct other buildings or improvements, change the location and/or
character, or make alterations or additions. If additional buildings are
constructed or the size is increased, Landlord and Tenant shall execute an
amendment which incorporates any necessary modifications to Tenant's Pro Rata
Share.
27.13 Diminution of View. Tenant agrees that no diminution of
light, air, or view from the Building entitles Tenant to any reduction of Rent
under this Lease, results in any liability of Landlord, or in any way affects
Tenant's obligations.
27.14 Limitation of Liability. Notwithstanding anything to the
contrary contained in this Lease, Landlord's liability is limited to Landlord's
interest in the Building.
27.15 Non-Reliance. Tenant confirms it has not relied on any
statements, representations, or warranties by Landlord or its representatives
except as set forth herein.
27.16 Written Modification. No amendment or modification of
this Lease is valid or binding unless in writing and executed by the parties.
27.17 Lender's Requirements. Tenant will make such
modifications to this Lease as may hereafter be required to conform to any
lender's requirements, so long as such modifications do not increase Tenant's
obligations or materially alter its rights.
27.18 Effectiveness. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option to lease and it is not effective unless and until execution and delivery
by both Landlord and Tenant.
27.19 Survival. This Lease, notwithstanding expiration or
termination, continues in effect as to any provisions requiring observance or
performance subsequent to termination or expiration.
27.20 Time of Essence. Time is of the essence herein.
27.21 Rules and Regulations. If rules and regulations are
attached hereto, they are a part of this Lease and Tenant agrees that Tenant
and Tenant's Agents shall at all times abide by such rules and regulations.
27.22 Recording. Tenant will not record this Lease. Recording
of the Lease by or on behalf of Tenant is an Event of Default.
28. AUTHORITIES FOR ACTION AND NOTICE.
28.1 Unless otherwise provided, Landlord may act through
Landlord's Building Manager or other designated representatives from time to
time.
28.2 All notices or other communications required or desired to
be given to Landlord must be in writing and shall be deemed received when
delivered personally to any officer, partner, or member of Landlord (depending
upon the nature of Landlord) or the manager of the Building (the "Building
Manager") or when deposited in the United States mail, postage prepaid,
certified or registered, return receipt requested, addressed as set forth in
Section 1.10. All notices or communications required or desired to be given to
Tenant shall be in writing and deemed duly served when delivered personally to
any officer, employee, partner, or member of Tenant (depending upon the nature
of Tenant), Tenant whose office is in the Building, when deposited in the
United States mail, postage prepaid, certified or registered, return receipt
requested, addressed to the appropriate address set forth in Section 1.12.
Either party may designate in writing served as above provided a different
address to which notice is to be mailed. The foregoing does not prohibit
notice from being given as provided in Rule 4 of Colorado Rules of Civil
Procedure, as amended from time to time.
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29. PARKING. Of the 120 parking spaces in the Building Complex
parking lot, Landlord will make available to the tenant the number of parking
spaces set forth in Section 1.9. All parking spaces shall be non-assigned
parking spaces in the parking lot of the Building Complex. Tenant may also
utilize additional parking spaces in the parking lot unless and until such
additional usage adversely affects the rights of other tenants to use the
parking spaces allocated to such tenants. Notwithstanding the above, the
rights granted to Tenant to use all such spaces is a license only and excessive
use of parking spaces by other tenants shall not constitute a breach by
Landlord of its obligations hereunder and Tenant has no rights to use the
parking lot except as provided in this Section. All vehicles parked in the
parking lot and the personal property therein shall be at the sole risk of
Tenant, Tenant's Agents and the users of such spaces and Landlord shall have no
liability for loss or damage thereto for whatever cause.
30. BROKERAGE. Tenant represents it has not employed any broker
with respect to this Lease and has no knowledge of any broker's involvement in
this transaction except those listed in Sections 1.14 and 1.15 (collectively,
the "Brokers"). Tenant shall indemnify Landlord against any expense incurred
by Landlord as a result of any claim for commissions or fees by any other
broker, finder, or agent, whether or not meritorious, employed by Tenant or
claiming by, through, or under Tenant, other than the Brokers. Tenant
acknowledges Landlord is not liable for any representations by the Brokers
regarding the Premises, Building, Building Complex, or this Lease.
31. COUNTERPARTS. This Lease may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Any one or more
counterpart signature pages may be removed from one counterpart of the Lease
and annexed to another counterpart of the Lease to form a completely executed
original instrument without impairing the legal effect of the signature
thereon.
32. EXHIBITS. See the Work Letter and Exhibits A, B, C, D and E
attached hereto and incorporated herein.
33. OPTIONS.
33.1 First Option. Landlord grants Tenant an option (the
"First Option") to extend the term of the Lease for one (1) additional term of
five (5) years (the "First Option Term"). The First Option applies only to the
Premises and is on the following conditions:
A. Notice of Tenant's interest in exercising the First
Option must be given to Landlord no earlier than fourteen (14) months and no
later than twelve (12) months prior to the Expiration Date.
B. Tenant's rights pursuant to this paragraph are
personal to Tenant and may not be assigned. Tenant's right to exercise the
First Option is conditioned on: (i) Tenant not being in default at the time of
exercise or at the time of commencement of the First Option Term; and (ii)
Tenant not having subleased or vacated more than 25% of the Premises or
assigned its interest under the Lease as of the commencement of the First
Option Term. Upon an assignment of the Lease, this Section is null and void.
C. The First Option granted hereunder will be upon the
terms of the Lease, except that the annual Base Rent during each year of the
First Option Term will be an amount equal to 115% of the Base Rent payable in
the last year of the Initial Term, as more specifically referenced in the
commencement agreement executed by Tenant on or about the Commencement Date.
D. After failure to exercise the First Option, Tenant
shall have no further rights to extend the Term.
33.2 Second Option. If Tenant exercises the First Option,
Landlord grants Tenant an additional option (the "Second Option") to extend the
term of the Lease for one (1) additional term of five (5) years (the "Second
Option Term"). The Second Option applies only to the Premises and is on the
following conditions:
A. Notice of Tenant's interest in exercising the
Second Option must be given to Landlord no earlier than fourteen (14) months
and no later than twelve (12) months prior to the last day of the First Option
Term.
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B. Tenant's rights pursuant to this paragraph are
personal to Tenant and may not be assigned. Tenant's right to exercise the
Second Option is conditioned on: (i) Tenant not being in default at the time
of exercise or at the time of commencement of the Second Option Term; and (ii)
Tenant not having subleased or vacated more than 25% of the Premises or
assigned its interest under the Lease as of the commencement of the Second
Option Term. Upon an assignment of the Lease, this Section is null and void.
C. The Second Option granted hereunder will be upon
the terms of the Lease, except that the annual Base Rent during each year of
the Second Option Term will be an amount equal to 115% of the Base Rent payable
in the last year of the First Option Term, as more specifically referenced in
the commencement agreement executed by Tenant on or about the Commencement
Date.
D. After failure to exercise the Second Option,
Tenant shall have no further rights to extend the Term.
34. PERMIT CONTINGENCY. Tenant acknowledges and agrees that the
Lease and Landlord's obligations hereunder are contingent on Landlord's
obtaining all licenses, permits, approvals and consents necessary or required
pursuant to Applicable Laws to allow Landlord to construct Landlord's Work, as
defined in the attached Work Letter.
35. EXPANSION. The parties acknowledge that they will continue
discussions on terms similar to those stated in this Lease, regarding expansion
opportunities and needs of the Tenant; provided, however, that any such
understandings shall not be deemed valid or binding unless in writing and
executed by both parties.
36. GUARANTY. It is understood and agreed concurrently with
Tenant's execution of this Lease, Tenant shall cause the form of Guaranty
attached as EXHIBIT E to be executed by the named Guarantor.
37. RIGHT OF FIRST REFUSAL. In the event that Landlord should elect
to sell all or any portion of the Premises during the Term, whether separately
or as a part of a larger parcel of which the Premises may be a part, Tenant
shall have the right of first refusal to meet any bona fide offer to purchase
(an "Offer") on the same terms and conditions as such Offer. If the Offer
covers other property in addition to the Premises, then the purchase price for
the Premises or portion thereof shall be separately stated, and Tenant shall
have the right to acquire the Premises or portion thereof without acquiring
such other property. The Offer may, at Landlords option, either be in the form
of a (i) term sheet or letter of intent setting forth the essential terms and
conditions of the proposed purchase and sale transaction ("LOI"), or (ii) fully
negotiated purchase and sale agreement ("Agreement"). Tenant's election to
purchase the Premises or portion thereof shall be exercised by Tenant's
delivery to Landlord of a notice of exercise, together with (a) a purchase and
sale agreement for the Premises or portion thereof on the same terms and
conditions contained in the LOI if the Offer shall be in the form of the LOI,
or (b) the Agreement signed by Tenant if the Offer shall be in the form of the
Agreement and (c) any earnest money deposit required to be deposited pursuant
to the terms and conditions of the LOI or Agreement. Upon Tenant's failure to
accept the Offer by delivery of the items referenced in the previous sentence
within ten (10) days after Tenant's receipt of the Offer from Landlord, then
Landlord shall be free to sell the Premises or portion thereof to such third
party in accordance with the terms and conditions of the Offer. If Tenant does
not exercise its right of first refusal as provided in this paragraph, and
Landlord does not close the transaction on the same business terms and
conditions contained in the Offer within one hundred eighty (180) days after
the notice thereof to Tenant, then such transaction shall not take place and
the requirements of this paragraph shall remain in full force and effect as to
any future Offers. In furtherance of the foregoing but not in limitation
thereof, if the Offer is in the form of the LOI and the purchase and sale
agreement entered (or to be entered into) between Landlord and the prospective
purchaser is on business terms and conditions which are materially different
than those set forth in the LOI, then such purchase and sale agreement shall
constitute a new Offer which shall be subject to the provisions of this
paragraph. The covenants of this paragraph are of a continuing nature and
shall not be exhausted by one or more sales of the Premises. This right of
first refusal shall not apply to the reorganization, merger, stock sales or
transfers, membership transfers or sales of Landlord.
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IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written and it is effective upon delivery of a
fully-executed copy to Tenant.
LENDERS RESOURCE INCORPORATED, FDC OFFICE I, LLC, a Colorado
a Colorado corporation limited liability company
By: /s/ James N. Donnan By: McWHINNEY MANAGEMENT COMPANY,
-------------------------------- LLC, a Colorado limited
liability company
Print Name: James N. Donnan
------------------------
Print Title: President
ATTEST: By: /s/ Chad McWhinney
--------------------------------
Managing Director
-----------------
By: /s/ James N. Donnan "Landlord"
-------------------------------
Print Name: James N. Donnan
-----------------------
Print Title: President
----------------------
"Tenant"
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WORK LETTER
This Work Letter is attached to and made a part of that certain Office
Lease dated as of the 14th day of August, 1997 (the "Lease"), by and between
FDC OFFICE I, LLC, a Colorado limited liability company, ("Landlord") and
LENDERS RESOURCE INCORPORATED, a Colorado corporation.
(a) Tenant's Authorized Representative. Tenant designates Jerald
H. and Marcia Donnan ("Tenant's Representative"), as its sole representative
with respect to the matters set forth in this Work Letter and who shall have
full authority and responsibility to act on behalf of Tenant as required in
this Work Letter. Tenant shall not change Tenant's Representative without
notice to Landlord. Tenant's Representative shall be authorized to approve in
writing all matters pursuant to this Work Letter.
(b) Landlord's Work. Landlord shall construct the base-building
core and shell, as generally described on attached Schedule 1, the sitework on
the Real Property, and the surface parking areas on the Real Property
(collectively, the "Base Building Work"), and the Initial Tenant Finish
improvements in the Premises (the Base Building Work and the Initial Tenant
Finish being collectively referred to herein as the "Landlord's Work").
Expressly excluded from the definition of Landlord's Work is all data
telecommunications design and Tenant's furniture, fixtures and equipment. All
of Landlord's Work shall be performed in a good and workmanlike manner.
Landlord shall be responsible for causing Landlord's Work to comply with all
current Applicable Laws including (without limitation) requirements of the
Americans with Disabilities Act and Landlord shall indemnify Tenant and hold it
harmless with respect to any loss, cost, damage or liability arising from
claims of third parties resulting from Landlord's breach of this obligation
(which indemnification shall survive the expiration or termination of the
Lease). Where the plans or specifications for Landlord's Work require the use
or inclusion of specific components or materials, Landlord shall be able to
utilize substitute materials or components of substantially equal quality,
texture or color.
(c) Base Building Work. The Base Building Work shall be
constructed by Landlord in accordance with conceptual drawings dated August 13,
1997, prepared by Landlord's consultant, Neenan Archistruction, (the
"Consultant") and previously approved by Landlord and Tenant ("Conceptual
Drawings"). The Consultant shall prepare final plans and specifications for
the Base Building Work which are consistent with the approved Conceptual
Drawings. The Base Building Plans shall not include any design specifications
that are inconsistent with the building shell or requiring a higher performance
standard than any standard, typical office performance specifications.
(d) Initial Tenant Finish. The Initial Tenant Finish shall be
constructed by Landlord in accordance with plans and specifications prepared by
Landlord's Consultant working with Tenant (the "Premises Plans"). The Premises
Plans shall incorporate the design layout concepts set forth in the space plan
prepared by the Consultant dated June 28, 1997, previously approved by Landlord
and Tenant. Each party shall review the Premises Plans, or any portion or
progress set thereof, as promptly as possible after their preparation by
Landlord's Consultant, and in any event within ten (10) business days after
they are submitted for review in the case of the original complete set of the
Premises Plans and any structural modifications thereto and within two (2)
business days in the case of any nonstructural modifications to the Premises
Plans. In the event either party disapproves the Premises Plans or any portion
thereof or any modifications thereto, the notice of disapproval shall specify
in detail the reasonable basis for such disapproval. Landlord's Consultant
shall promptly make such revisions to the Premises Plans as may be necessary to
address either party's reasonable objections, and shall resubmit the Premises
Plans to both parties for their approval. Each party shall review such revised
plans as promptly as reasonably possible and notify the other party and
Landlord's Consultant whether such party approves or reasonably disapproves the
Premises Plans as modified. This process shall be repeated, if necessary, until
both party's reasonable objections to the Premises Plans have been addressed
and both parties have approved the Premises Plans. Landlord and Tenant
acknowledge and agree that __________, 199__ is the date by which the Premises
Plans are to be finalized and mutually approved.
(e) Schedule. Landlord and Tenant shall both comply with the
design and construction schedule attached hereto as Schedule 2.
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(f) Project Budget. Attached hereto as Schedule 3 is Landlord's
preliminary budget for Landlord's Work. Such budget may be modified as the
design and construction pricing for Landlord's Work are further developed and
clarified, and any such modifications shall be reflected in an updated Schedule
3 to be initialed by Landlord and Tenant and substituted for the Schedule 3
initially attached hereto. It is expressly acknowledged by Landlord that, in
establishing the Base Rent under the Lease, Landlord has taken into account the
fact that Schedule 3 represents a preliminary budget, subject to change, and
Landlord has expressly agreed that such Base Rent for the first five (5) years
shall not exceed $11.75 per rentable square foot notwithstanding any increase
that may be experienced with respect to the project budget. Notwithstanding
the foregoing, Tenant expressly acknowledges and agrees that any increase
resulting from change orders initiated by Tenant which results in the Total
Construction Costs, as hereinafter defined, exceeding $1,602,000.00 will be at
Tenant's cost.
(g) Tenant Improvement Allowance/Building Signage. Landlord shall
contribute to the costs and expenses of all costs for the planning and design
of the Initial Tenant Finish, including all permits, licenses and construction
fees in constructing the Initial Tenant Finish in an amount not to exceed
$20.00 per rentable square foot of the Premises ("Tenant Improvement
Allowance"). If the final cost for the Initial Tenant Finish exceeds the
Landlord's Contribution Tenant shall reimburse such excess Initial Tenant
Finish Costs, from time to time, as Initial Tenant Finish progresses, within
ten (10) days after submission by Landlord to Tenant of an invoice for the
amount as then due and payable. Further, it is agreed that Landlord, as part
of Landlord's Work will cause to be installed building signage to identify the
Building as "FACTUAL DATA CORP" as shown on the Building Plans but all such
costs associated with the design, fabrication and installation thereof shall be
reimbursed by Tenant to Landlord within 10 days after Landlord's submission to
Tenant of an invoice for such costs.
(h) Change Orders. Tenant may submit to the Landlord for
approval a request for changes to the Base Building Plans or the Premises Plans
following their final approval by Landlord and Tenant. If Landlord agrees to
make such change, before any such change is implemented, a written change order
setting forth the cost of the change and any anticipated delay that will result
therefrom shall be prepared and submitted to Tenant. Landlord shall not
implement any change (other than minor field modifications) until such a change
order has been prepared and has been executed by Tenant's Authorized
Representative. Landlord's Consultant will keep both Landlord and Tenant
informed as to the progress of work on the change order in relation to the
anticipated completion date for the change order. Upon completion of
construction under the change order, Landlord and Tenant will execute a letter
agreement which stipulates the actual delay resulting from the respective
change order and, if applicable, the amount of such construction costs increase
Tenant shall reimburse to Landlord pursuant to paragraph (f) above prior to the
commencement of any such construction.
(i) Substantial Completion. Landlord's Work shall be deemed
substantially complete when all the work and materials to be furnished by
Landlord pursuant to this Work Letter have been completed, subject to minor
items of adjustment and completion that do not materially interfere with
Tenant's use of the Premises ("punchlist items"), and a temporary or permanent
certificate of occupancy for Tenant's occupancy of the Premises has been issued
("Substantial Completion"). Notwithstanding any provision herein or in the
Lease to the contrary, the Landlord agrees to use reasonable efforts to cause
Substantial Completion and, resultingly the Commencement Date, to occur on or
before April 10, 1998 ("Anticipated Commencement Date"). The inability of the
Landlord to meet the Anticipated Commencement Date (subject, however, to the
extension of the same for Tenant Delays and Force Majeure Delays, as each term
is hereinafter defined) shall not affect the obligations of the Tenant
hereunder, except that (i) the first year's rent shall be abated for each day
the Anticipated Commencement Date is delayed by the lesser of: (a) the
difference between the base rent and holdover rent paid by Tenant under its
current lease, or (b) $250.00 per day. If the Commencement Date has not
occurred on or before October 1, 1998, Tenant may, at its option, terminate
this Lease by written notice to Landlord on or before the earlier of October
31, 1998, or the Commencement Date, whereupon the Security Deposit shall be
returned to the Tenant, this Lease shall be deemed terminated and the parties
relieved of any and all obligations hereunder.
(j) Landlord's Work. Landlord's Work shall be completed by
Landlord's Consultant and subcontractors working pursuant to contracts with
Landlord's Consultant. Landlord agrees that all dealings between Landlord and
Consultant and subcontractors shall be on an "open book" basis. Tenant's
Authorized Representative shall be permitted to attend all construction
meetings and to visit the project site to observe and inspect the progress of
construction.
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(k) Tenant Delay. Notwithstanding any provision herein or in the
Lease to the contrary, the Commencement Date and Tenant's rental obligations
and other obligations will not be delayed or extended by any Tenant Delay. The
term "Tenant Delay", as referred to above, shall mean any delay: (i) resulting
from Tenant's failure to comply with any of the deadlines set forth in this
Work Letter (including the Schedules attached hereto); (ii) caused by change
orders initiated by Tenant; or (iii) of any other kind or nature in the
completion of Landlord's Work caused by Tenant (or its agents or employees),
provided Tenant was furnished with written notice thereof when such delay first
occurred, and provided further that the delay with which Tenant is charged
hereunder shall be reduced to the extent that Tenant is thereafter able to
offset or mitigate the effects thereof. All delay other than Tenant Delay
shall be deemed Landlord Delay.
(l) Total Construction Costs. For purposes of the calculation of
Base Rent as set forth in Section 1.4 of the Lease, the term "Total
Construction Cost" shall include (i) the total costs of the Real Property
calculated at $2.50 per square foot (ii) the final Total Construction Costs for
Landlord's Work including planning, permitting, development, overhead and
administrative fees (limited to an amount equal to five percent (5%) of the
total hard construction costs, and (iii) financing fees, interim interest
costs, commissions, legal fees and all other soft costs associated with the
Landlord's Work; provided, however, Total Construction Costs shall not include
any sums that Tenant reimburses directly to Landlord pursuant to paragraphs
(f), (g) or (h) above.
(m) Tenant's Early Entry. Landlord shall keep Tenant informed
from time to time of changes in the estimated completion date, to assist Tenant
in planning for Tenant's installation of fixtures and equipment. Tenant shall
have a right to have its contractors enter into the Premises (i) for purposes
of installation of computer and telecommunications wiring and cabling; (ii)
for purposes of installation of Tenant's telephone switch thirty (30) days
prior to the Commencement Date (and Landlord agrees that the telephone switch
room within the Building shall be completed by such date to the condition
required for installation of Tenant's telephone switch); and (iii) for purposes
of installation of Tenant's telephone system, furniture, fixtures and equipment
when Landlord notifies Tenant that Landlord's Work has been completed to such
extent as to permit such entry without substantial interference with Landlord's
Work, which date shall be ten (10) days before the Commencement Date. In that
event, Tenant shall have the right to arrange for Tenant's contractors to enter
the Premises to complete such work, provided that all such work is coordinated
with Landlord's representative and Consultant, so as to minimize interference
with completion of Landlord's Work. If Tenant has Tenant's contractors enter
the Premises for such work, such entry shall be subject to all terms and
provisions of this Lease (including, but not limited to Section 13) other than
the payment of Rent, and any delay in completion of Landlord's Work caused by
Tenant's contractors shall be deemed Tenant Delay hereunder. Further, Tenant
shall deliver to Landlord, prior to Tenant's contractors entry into the
Premises, certificates issued by insurance companies qualified to do business
in the State of Colorado, evidencing that worker's compensation, public
liability insurance, and property damage insurance (in amounts and with
companies and on forms satisfactory to Landlord) are in force and maintained by
all contractors engaged to perform such work. All policies shall name
Landlord, Building Manger, Consultant and Mortgagee as additional insureds.
Each certificate shall provide that the insurance may not be cancelled or
modified without 10 days' prior written notice to Landlord and Mortgagee.
Landlord also has the right to post the Premises in locations designated by
Landlord stating that Landlord is not responsible for payment for such work and
containing such other information as Landlord deems necessary. All such work
shall be performed in a manner that does not unreasonably interfere with the
performance of Landlord's work.
(n) Ownership of Improvements. Landlord and Tenant hereby agree
and acknowledge that Landlord's Work shall be and remain the property of
Landlord, and shall not thereafter (except as otherwise provided in the Lease)
be subject to removal by Tenant or in any other manner be deemed the property
of Tenant.
(o) Force Majeure Delay. For purposes of Section (i) above, a
"Force Majeure Delay(s)" shall mean any delay from causes beyond the reasonable
control of the Landlord, such as, but not limited to, acts of God, strikes,
work stoppages, a delay (not resulting from Grantee's actions or inactions) in
receiving applicable governmental permits, unavailability of or delay in
receiving labor or materials, defaults by contractors or subcontractors,
weather conditions, or fire or other casualty.
(p) Incorporation. All schedules referenced herein and attached
hereto shall be incorporated herein by this reference.
3
<PAGE> 27
SCHEDULE 1
TO
WORK LETTER
Core and Shell Elements
(See attached)
5
<PAGE> 28
SCHEDULE 2
TO
WORK LETTER
Design and Construction Schedule
(See attached)
6
<PAGE> 29
SCHEDULE 3
TO
WORK LETTER
Preliminary Budget
(See attached)
7
<PAGE> 30
EXHIBIT A TO LEASE
THE PREMISES
(See attached)
A-1
<PAGE> 31
EXHIBIT B TO LEASE
REAL PROPERTY
A tract of land being a portion of Tract B, McWhinney Addition located in the
Southeast Quarter of Section 9, Township 5 North, Range 68 West of the 6th
Principal Meridian, City of Loveland, County of Larimer, State of Colorado,
being more particularly described as follows:
Considering the South line of the Southwest Quarter of Section 10, Township 5
North, Range 68 West of the 6th Principal Meridian as bearing North 89 degrees
25'17" East and with all bearings contained herein relative thereto:
Commencing at the Southwest corner of said Section 10; thence, North 01 degrees
39'24" West, 113.20 feet; thence, North 05 degrees 49'54" East, 18.19 feet;
thence, North 00 degrees 42'55" West, 1715.52 feet; thence, South 86 degrees
24'11" West, 50.06 feet to a point on the West right-of-way line of Rocky
Mountain Avenue, said point being the POINT OF BEGINNING; thence, South 86
degrees 24'11" West, 548.87 feet; thence, North 00 degrees 00'00" East, 183.02
feet to a point on a non- tangent curve concave to the Northwest having a
central angle of 05 degrees 30'11", a radius of 630.00 feet and the chord of
which bears North 77 degrees 02'11" East, 60.49 feet; thence along the arc of
said curve 60.51 feet; thence, North 74 degrees 17'05" East, 189.75 feet to a
curve concave to the Southeast having a central angle of 15 degrees 00'00", a
radius of 570.00 feet and the chord of which bears North 81 degrees 47'05" East,
148.80 feet; thence along the arc of said curve 149.23 feet; thence, North 89
degrees 17'05" East, 140.97 feet to a curve concave to the Southwest having a
central angle of 90 degrees 00'00", a radius of 15.00 feet and the chord of
which bears South 45 degrees 42'55" East, 21.21 feet; thence along the arc of
said curve 23.56 feet to a point on the West right-of-way line of Rocky Mountain
Avenue; thence along said West line, South 00 degrees 42'55" East, 221.78 feet
to the Point of Beginning.
To be known as:
Lot 1, McWhinney 9th Subdivision upon recording of the lat for the
Property.
The above described tract of land contains 2.834 acres and is subject to all
easements and rights-of-way now on record or existing.
B-1
<PAGE> 32
EXHIBIT C TO LEASE
COMMENCEMENT CERTIFICATE
__________________, 19__
- ------------------------
- ------------------------
- ------------------------
RE: Lease dated as of _________, 1997 (the "Lease"), by and between FDC
OFFICE I, LLC, a Colorado limited liability company, as Landlord, and
LENDERS RESOURCE INCORPORATED, a Colorado corporation, as Tenant,
pertaining to approximately 15,000 rentable square feet of space
located in Suite ______ (the "Premises") of the Building
Dear Tenant:
With regard to the referenced Lease, Landlord and Tenant acknowledge
the following (initially capitalized words not otherwise defined have the same
meaning set forth in the Lease):
1. In accordance with Section 1.3 and 5 of the Lease, the
Commencement Date is 12:01 a.m., __________________ and the Expiration Date is
12:00 midnight, ___________________.
2. In accordance with Sections 1.4 and ____ Base Rent is as
follows:
<TABLE>
<CAPTION>
PERIOD ANNUAL MONTHLY
------ ------ -------
<S> <C> <C>
Years 1-5 $________________________ $_______________________
Years 6-10 $________________________ $_______________________
Years 11-15 $________________________ $_______________________
Years 16-20 $________________________ $_______________________
</TABLE>
<TABLE>
<CAPTION>
FIRST RENEWAL PERIOD ANNUAL MONTHLY
----- ------- ------ ------ -------
<S> <C> <C>
Years 21-25 $________________________ $_______________________
</TABLE>
<TABLE>
<CAPTION>
SECOND RENEWAL PERIOD ANNUAL MONTHLY
------ ------- ------ ------ -------
<S> <C> <C>
Years 26-30 $________________________ $_______________________
</TABLE>
C-1
<PAGE> 33
Please acknowledge the foregoing by having an authorized officer sign
in the space provided below and return to our office. This document may be
executed in counterparts, each of which shall constitute the original.
Facsimile signatures shall be binding as original signatures.
FDC OFFICE I, LLC, a Colorado
limited liability company
By: McWHINNEY MANAGEMENT COMPANY, LLC,
a Colorado limited liability company
By:
------------------------------------------
Chad McWhinney,
-------------------
"Landlord"
ACKNOWLEDGED AND AGREED this ________
day of _________________:
LENDERS RESOURCE INCORPORATED,
a Colorado corporation
By:
---------------------------
Print Name:
-------------------
President
ATTEST:
By:
---------------------------
Print Name:
-------------------
Print Title:
------------------
"Tenant"
C-2
<PAGE> 34
EXHIBIT D TO LEASE
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or used for
any purpose other than ingress and egress. The sashes, sash doors, skylights,
windows, and doors that reflect or admit light and air into halls, passageways
or other public places in the Building shall not be covered or obstructed by
Tenant, nor shall any bottles, parcels or other articles be placed on the
windowsills. Tenant shall not throw anything out of doors, windows or
skylights or down the passageways.
2. No awnings or other projection shall be attached to the outside
walls of the Building. No sign, advertisement or notice shall be exhibited,
painted or affixed by Tenant on any part of the Premises or the Building
without the prior written consent of the Landlord. Tenant shall not place any
radio or television antenna on the roof or on any part of the inside or the
outside of the Building, other than the inside of the Premises, without the
prior written consent of the Landlord.
3. No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with, any window or door of the Premises other
than Landlord's approved window coverings or as shown on original tenant finish
plans. Neither the interior nor exterior of any windows shall be coated or
otherwise sun-screened without the express written consent of Landlord. All
electric ceiling fixtures hung in offices or spaces along the perimeter of the
Buildings must be fluorescent, of a quality type, design and bulb color
approved by Landlord. Tenant shall keep all window coverings closed when the
Building air conditioning, heating and ventilation systems are in operation,
and Landlord shall not be responsible for variance in room temperatures caused
by Tenant's failure to comply with this Rule.
4. Interior signs on doors and directory tablets shall be
inscribed, painted or affixed for Tenant by the Landlord at the expense of
Tenant, and shall be of a size, color and style prescribed by Landlord. The
directory tablets will be provided exclusively for the display of the name and
location of tenants only and Landlord reserves the right to exclude any other
names therefrom. Nothing may be placed on the exterior of corridor walls or
corridor doors other than Landlord's standard lettering. All doors opening
onto public corridors shall be kept closed, except when in use for ingress and
egress.
5. The water and wash closets and other plumbing fixtures shall not
be used for any purpose other than those for which they were constructed and no
sweepings, rubbish, rags or other substances shall be thrown therein.
6. Tenant shall not mark, paint, bore or drill into, or in any way
deface any part of the Premises or the Building, or string any wires.
7. The laying of linoleum or other similar floor coverings shall be
permitted only with the prior written consent of the Landlord and as the
Landlord may direct. Tenant shall place particle boards or plastic chair mats
under all desk or secretarial chairs. Said mats shall be provided and
maintained at tenant's cost and expense.
8. No bicycles or vehicles of any kind shall be brought into,
stored or kept in or about the Premises. There shall not be used in any space,
or in the Common Areas of the Building, either by Tenant or others, any hand
trucks except those equipped with rubber tires and rubber side guards or such
other material handling equipment as Landlord may approve.
D-1
<PAGE> 35
9. No birds, pets or animals of any kind shall be brought into or
kept in or about the Premises.
10. No cooking shall be done or permitted by Tenant on the Premises,
except that the preparation of coffee, tea, hot chocolate and microwaving of
food and similar items for Tenant and its employees shall be permitted,
provided the power requirement does not exceed that amount which can be
provided by a 30 amp circuit. Tenant shall not cause or permit any unusual or
objectionable odors to be produced or permeate the Premises or the Building.
No vending or similar machines shall be installed, maintained or operated upon
the Premises without the written consent of Landlord.
11. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use of
the Premises for general office purposes or Tenant's use of the Premises as set
forth in the Lease. Tenant shall not occupy or permit any portion of its
Premises to be occupied as an office for a public stenographer or typist, or
for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as
a medical office, or as a barber or manicure shop, or as an employment bureau.
12. Tenant shall neither use the Premises as a location to pay
employees working outside the Premises, nor advertise for laborers giving an
address at the Premises.
13. The Premises shall not be used for lodging or sleeping or for
any immoral or illegal purposes.
14. Tenant shall not make, or permit to be made, any unseemingly or
disturbing noises or disturb or interfere with occupants of the Building, or
neighboring buildings or premises, or those having business with them, whether
by the use of any musical instrument, radio, phonograph, unusual noise, or any
other way. Tenant shall not operate or permit to be operated any musical or
sound producing instrument or device inside or outside the Premises which may
be heard outside the Premises, or operate any electrical device from which may
emanate electrical waves which may interfere with or impair radio or television
broadcasting or reception from or in the Building or elsewhere, without the
Landlord prior written consent.
15. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by Tenant, nor shall any changes be made in
existing locks or the mechanism thereof. Tenant must, upon the termination of
its tenancy, restore to the Landlord all keys of stores, offices, and toilet
rooms, either furnished to, or otherwise procured by Tenant and in the event of
the loss of any keys so furnished, Tenant shall pay to the Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
16. All moving of safes, freight, furniture, or bulky matter of any
description requiring the use of the Building's elevators must take place
between the hours of 9:00 - 11:30 a.m. and 1:30 - 4:15 p.m. Monday through
Friday (exclusive of holidays). The moving of safes, other fixtures, equipment
or bulky matter of any kind must be made upon previous notice to the management
of the Building and under its supervision, and the persons employed by Tenant
for such work must be acceptable to the Landlord. If additional expenses are
incurred by Landlord by reason of moving Tenant's safes, other fixtures,
equipment or bulky matter of any kind, such expenses shall be borne by Tenant.
The scheduling of moves of Tenant's furniture and equipment into or out of the
Building is subject to the reasonable discretion of Landlord. The person
employed to move such equipment in or out of the Building must be acceptable to
Landlord. Landlord will not be responsible for loss of, or damage to any such
equipment or other property from any cause, and all damage done to the Building
by maintaining or moving such equipment or other property shall be repaired at
the expense of Tenant.
D-2
<PAGE> 36
17. Tenant shall not place a load upon any floor of the Premises
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law. Landlord shall have the right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant, which cause noise or vibration that may be
transmitted to the structure of the Building, or to any space therein, to such
a degree as to be objectionable to Landlord, or to any tenants in the Building,
shall be placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate noise or vibration. The
Landlord reserves the right to inspect all safes, freight or other bulky
articles to be brought into the Building and to exclude from the Building all
safes, freight or bulky articles which violate any of these Rules and
Regulations or the Lease.
18. Tenant shall not purchase janitorial, maintenance or other like
services from any company or persons not approved by the Landlord, so long as
the company or persons approved by Landlord provide such services at a
reasonable cost. Any persons employed by Tenant to do janitorial work, shall,
while in the Building and outside of the Premises, be subject to and under the
control and direction of the management of the Building (but not as an agent or
servant of the Landlord), and Tenant shall be responsible for all acts of such
persons.
19. Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as an office building and, upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
20. The requirements of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from
Landlord.
21. Unless previously approved by Landlord, in its sole discretion,
canvassing, soliciting and peddling in the Building are prohibited and Tenant
shall cooperate to prevent the same.
22. No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the written consent of Landlord. Tenant
shall not connect any apparatus, device, conduit or pipe to the Building's
chilled or hot water supply lines or to the air conditioning system. Tenant's
use of electric current shall never exceed the electrical capacity of the floor
or Building or cause such capacity to be exceeded.
23. All electric wiring and electrical outlets and connections of
every kind shall be introduced and connected only by Landlord, and no boring or
cutting for wires shall be allowed except with the prior written consent of the
Landlord. The location of telephones, call boxes and other office equipment
affixed to the Premises shall be subject to the prior written approval of
Landlord. Neither Tenant nor Tenant's servants, employees, agents, visitors,
licensees or contractors shall, at any time, enter the mechanical installations
or facilities of the Building or adjust, tamper with, touch or otherwise in any
manner affect said installation or facilities.
24. Landlord reserves the right to exclude or expel from the
Building and the Premises any person who, in the judgement of Landlord, is
intoxicated or under the influence of liquor or drugs, creates a nuisance, is
trespassing, is engaged in criminal activities or who acts in violation of
these Rules and Regulations.
D-3
<PAGE> 37
25. Tenant shall comply with all rules and regulations applicable to
the parking lot established from time to time by the Landlord or Landlord's
parking garage operator.
26. Tenant shall store all its trash and garbage within its
Premises. Tenant shall not place in any trash box or receptacle any material
which cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. Tenant shall be solely responsible for the disposition of
any hazardous or infectious waste brought onto or generated by Tenant in the
Premises. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
27. The word "Tenant" as used herein shall include any sub-tenant.
D-4
<PAGE> 38
EXHIBIT E TO LEASE
FORM OF GUARANTY
THIS GUARANTY is executed as of August 14, 1997, by FACTUAL DATA CORP.,
Colorado corporation ("Factual Data") and FDC GROUP, INC., a Colorado
corporation ("FDC") (whether one or more, collectively, "Guarantor").
W I T N E S S E T H :
FDC OFFICE I, LLC, a Colorado limited liability company ("Landlord") is
willing to execute that certain Lease Agreement dated August 14, 1997, (the
"Lease"), between Landlord and LENDERS RESOURCE INCORPORATED, a Colorado
corporation ("Tenant") pertaining to FDC Office I, Loveland, Colorado, County
of Larimer, State of Colorado (the "Premises") on condition of receiving this
Guaranty;
NOW, THEREFORE, for and in consideration of Landlord's execution and
delivery of the Lease and for other good and valuable consideration, the
receipt and sufficiency of which is acknowledged by Guarantor, Guarantor hereby
agrees as follows:
1. Guarantor represents and warrants to Landlord that:
(1) Guarantor is financially interested in Tenant.
(2) The financial information provided to Landlord by Tenant
and Guarantor is accurate for the periods shown and there has been no material
adverse change since such dates in either Tenant or Guarantor.
(3) Both Factual Data Guarantor and FDC Guarantor are
corporations duly organized under the laws of the State of Colorado, in good
standing, and has full power and authority to make and deliver this Guaranty.
(4) The execution, delivery, and performance of this Guaranty
by Guarantor is duly authorized by all necessary actions and does not violate
the provisions of any applicable laws, organizational and operating document or
any agreement binding on it.
(5) This Guaranty has been duly executed and delivered by an
authorized person of Guarantor and constitutes a legally enforceable document.
2. Guarantor jointly and severally unconditionally and irrevocably
guarantees the prompt and faithful performance of all provisions of the Lease
by Tenant and any assignee of Tenant, including, but not limited to, payment of
all rent and other sums due Landlord. Guarantor waives each and every notice
to which Guarantor may be entitled under the Lease, or otherwise, and consents
to any extension of time, leniency, waiver, forbearance, or any amendment which
may be made in the Lease, and no amendment, waiver, or forbearance will release
Guarantor from any liability or obligation hereby guaranteed. Guarantor further
waives any notice of default under the Lease, and notice of acceptance of this
Guaranty. Guarantor shall have the same right to cure Tenant's default
afforded Tenant in the Lease during any cure period granted Tenant.
E-1
<PAGE> 39
3. If an Event of Default (as defined in the Lease) by Tenant
occurs, Landlord may commence suit against Guarantor and/or exercise any
available remedy at law or equity to enforce the provisions of this Guaranty
without first commencing any suit or otherwise proceeding against Tenant or
exhausting its remedies against Tenant. This is a guaranty of payment and
performance and not a guaranty of collection; Guarantor's liability under this
Guaranty is primary. Landlord's rights shall not be exhausted by its exercise
of any remedies or by any number of successive suits until and unless all
obligations hereby guaranteed have been fully performed.
4. Landlord and Guarantor each waives any right to a trial by jury
in suits arising out of or concerning the provisions of this Guaranty. If any
suit is commenced by Landlord to enforce this Guaranty, the prevailing party
shall also be entitled to recover all reasonable costs incurred in connection
therewith, including reasonable attorneys' fees.
5. No payment by Guarantor except full payment and performance
shall entitle Guarantor by subrogation or otherwise, to any payment by Tenant
under or out of the property of Tenant.
6. This Guaranty inures to the benefit of Landlord, its successors
and assigns and shall be binding upon the heirs, personal representatives,
successors, and assigns of Guarantor.
7. The liability of Guarantor is not affected by, and Guarantor
expressly waives any defenses by reason of, (a) the release or discharge of
Tenant in any bankruptcy or other proceedings; (b) the limitation or cessation
of the liability of Tenant; (c) the rejection or disaffirmance of the Lease in
any proceeding; (d) amendment, assignment or transfer of the Lease by Tenant;
or (e) any disability or other defense of Tenant.
8. Guarantor agrees that if Tenant files a petition for relief
under any provisions of the Federal Bankruptcy Code, or any similar law, if
such a petition filed by creditors of Tenant is approved by a Court, or if any
Court appoints a receiver tenant to operate, including Tenant's obligations
under the Lease and/or a substantial part of Tenant's property:
(a) if the Lease is terminated or rejected, or the
obligations of Tenant are modified, Landlord has the option either (i) to
require Guarantor to execute and deliver to Landlord a new lease as tenant for
the balance of the term and containing the same provisions as the Lease, or
(ii) to recover from Guarantor that which Landlord would have been entitled to
recover from Tenant upon a termination of the Lease due to a default by Tenant
even though Landlord may not be entitled to recover the same from Tenant in
such proceeding; and
(b) if any obligation under the Lease is performed by
Tenant and any part of such performance is avoided or recovered from Landlord
as a preference, fraudulent transfer or otherwise, the liability of Guarantor
under this Guaranty shall remain in effect.
E-2
<PAGE> 40
9. This Guaranty will be governed by the internal laws of the State
of Colorado and shall be deemed executed in the City and County of Denver.
Guarantor consents to and submits to the jurisdiction of the federal and state
courts located in Denver, Colorado, and any suit shall be brought in a federal
or state court located in Denver, Colorado, with appropriate jurisdiction over
the subject matter. Guarantor waives any defenses based on the venue,
inconvenience of the forum, lack of personal jurisdiction, sufficiency of
service of process or the like in any suit brought as aforesaid.
FACTUAL DATA CORP.,
a Colorado corporation
By /s/ Jerald H. Donnan
------------------------------------
"Guarantor"
Address: 3665 JFK Parkway, Fort Collins
Security #: N/A
FDC GROUP, INC., a Colorado corporation
By /s/ Jerald H. Donnan
------------------------------------
"Guarantor"
Address: 3665 JFK Parkway, Fort Collins
Security #: N/A
E-3
<PAGE> 41
STATE OF COLORADO )
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ____ day of
________________, 19__, by _______ as __________ of Factual Data Corp., a ______
corporation, Guarantor.
Witness my hand and official seal.
My commission expires:
------------------------
----------------------------------
Notary Public
STATE OF COLORADO )
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ____ day of
________________, 19__, by ________ as __________ of FDC Group, Inc., a ______
corporation, Guarantor.
Witness my hand and official seal.
My commission expires:
------------------------
----------------------------------
Notary Public
E-4
<PAGE> 42
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is entered into as of the
26th day of December, 1997, by and between FDC OFFICE I, LLC, a Colorado
limited liability company ("Landlord") and LENDERS RESOURCE INCORPORATED, a
Colorado corporation ("Tenant").
R E C I T A L S
A. Landlord and Tenant entered into an Office Lease dated August
14, 1997 ("Lease") for space known as Suite ____ in the Building known as
______________________________________________________ Loveland, Colorado 80538
in the Rocky Mountain Village Business Park ("Premises").
B. Landlord and Tenant now desire to further amend the terms of
the Lease as set forth below.
NOW, THEREFORE, for good and valuable consideration, Landlord and
Tenant hereby agree as follows:
1. Premises. The rentable square footage of the Premises is
increased by the addition of approximately 3931.6 rentable square feet located
in Space 4 (the "Additional Space") as depicted on Exhibit A attached hereto
and made a part hereof by reference for the term of the Lease. As of the
Additional Space Commencement Date, as hereinafter defined, any reference to
"Premises" in the Lease includes the Additional Space as part of the Premises.
Any references to Premises shall now refer to approximately 19,810.6 rentable
square feet, and Tenant's occupancy thereof is subject to all terms of the
Lease as otherwise specifically herein provided.
2. Base Rent. The Minimum Rent for the Additional Space shall be
$50,127.90 ($4,177.33 per month) for the first year following the Additional
Space Commencement Date, as hereinafter defined, which amount shall be added
to be Base Rental amount as provided in Section 1.4, and shall be increased
thereafter as provided in the Section 1.4 of the Lease.
3. Operating Costs. Commencing on the Additional Space
Commencement Date, Tenant will pay Tenant's Pro Rata Share of Operating
Expenses attributable to the Additional Space (12.7%) in accordance with the
Lease, thereby increasing Tenant's Pro Rata Share for the Premises (including
the Additional Space) for periods commencing on or after the Additional Space
Commencement Date to 64%.
<PAGE> 43
4. Term. Tenant's right to occupy the Additional Space and its
obligation to pay Base Rent and its pro rata share of Operating Expenses
attributable thereto commences on July 1, 1998 (the "Additional Space
Commencement Date") and terminates with the term of the Lease.
5. Tenant Improvements. Tenant shall be entitled to a Tenant
Finish Allowance in the amount of $20.00 per rentable square foot for the
Additional Space. Such Allowance shall be made available to Tenant on the same
terms and conditions as provided in the Lease.
6. Other Terms and Conditions. If there is any conflict between
the terms or provisions of this Amendment and the terms and provisions of the
Lease, the terms and provisions of this Amendment shall govern. All other
terms and conditions of the Lease shall remain in full force and effect and be
binding upon the parties in accordance with their terms.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first written above.
TENANT:
LENDERS RESOURCES INCORPORATED,
A COLORADO CORPORATION
By: /s/ Jerald H. Donnan
---------------------------------------------
Title: President
------------------------------------------
LANDLORD:
FDC OFFICE I, LLC, A COLORADO LIMITED LIABILITY
COMPANY
BY: MCWHINNEY MANAGEMENT COMPANY, LLC, A
COLORADO LIMITED LIABILITY COMPANY, MANAGER
By: /s/ McWhinney Management Company. LLC
---------------------------------------------
Title: Managing Member
------------------------------------------
2
<PAGE> 1
EXHIBIT 10.2
FACTUAL DATA CORP.
1997 STOCK INCENTIVE PLAN, AS AMENDED
<PAGE> 2
1997 STOCK INCENTIVE PLAN, AS AMENDED
OF
FACTUAL DATA CORP.
ARTICLE 1: PURPOSE
This 1997 Stock Incentive Plan, as amended, (the "Plan") is adopted by
the Board of Directors of Factual Data Corp. (the "Corporation") this 1st day
of February, 1998 in order that the interests of the Corporation may be
advanced by enabling the Corporation to attract persons of training, experience
and ability to continue as employees, directors and consultants of the
Corporation, and to furnish additional incentive to such persons, upon whose
initiative and efforts the successful conduct and development of the business
of the Corporation largely depends, by encouraging such persons to become
owners of the common stock of the Corporation.
ARTICLE 2: ADMINISTRATION
2.1 BOARD OF DIRECTORS: The Plan shall be administered by the Board of
Directors of the Corporation or by a committee consisting of at least two or
more non-employee directors (unless the context otherwise requires, the Board
of Directors of the Corporation or committee thereof as provided herein shall
be referred to herein as the "Board"). Acts of a majority of the Board, at
which a quorum is present, or acts approved in writing by all of the members of
the Board, shall be valid acts of the Board. The Board shall from time to time,
in its discretion, determine by resolution the eligible persons, as defined in
Article 3, who shall be granted options or restricted stock, the amount of
stock to be optioned or granted to each, the time (within the limitations
prescribed in Article 6) when such options shall become exercisable and the
conditions, if any, which must be met prior to exercise or the restricted stock
becomes unrestricted.
2.2 CONSTRUCTION: This interpretation and construction by the Board of
any provisions of the Plan, or of any option or restricted stock granted under
it, shall be final. No member of the Board shall be liable for any action or
determination made in good faith with respect to the Plan, option or restricted
stock granted under it.
2.3 INDEMNIFICATION: In addition to such other legal rights of
indemnification as they may have as members of the Board, the members of the
Board shall be indemnified by the Corporation to the full extent set forth in
the Corporation's Articles of Incorporation and Bylaws in respect of the
administration and construction of the Plan.
ARTICLE 3: ELIGIBILITY FOR PARTICIPATION
Options under the Plan may be granted to employees, directors and
consultants of the Corporation ("eligible person"). Notwithstanding the
foregoing, for purposes of the Plan, and the Plan only, no person shall be
granted an option or restricted stock award under the Plan unless such person:
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1. is an employee, director or consultant of by the Corporation;
and
2. shall have first been presented with financial statements for
the most recent fiscal year, plus all quarterly financial
reports of the Corporation since the most recent fiscal year.
Options or restricted stock may be issued to the same person on more
than one occasion.
ARTICLE 4: STOCK SUBJECT TO THE PLAN
The stock for which options or restricted stock may be granted and
which may be sold pursuant to the Plan shall not, subject to Article 7, exceed
in the aggregate 1,000,000 shares of the Corporation's common stock. Such
shares may be authorized and unissued shares or may be issued shares reacquired
by the Corporation and referred to in the Corporation's Balance Sheet as
"Treasury Stock." All shares for which an option or restricted stock award is
granted under the Plan, which for any reason are not issued as a result of
non-exercise of such option or fulfillment of the conditions and terms of a
restricted stock award, shall be available for the granting of further options
or restricted stock awards under the Plan.
ARTICLE 5: RESTRICTED STOCK AWARDS
5.1 GRANTS OF SHARES OF RESTRICTED STOCK: An award made pursuant to
this Article 5 shall be granted in the form of shares of common stock,
restricted as provided in this Article 5 ("Restricted Stock"). Shares of
Restricted Stock shall be issued to the eligible person upon the payment of
consideration as determined by the Board. The shares of Restricted Stock shall
be issued in the name of the eligible person and shall bear a restrictive
legend prohibiting sale, transfer, pledge or hypotheca tion of the shares of
Restricted Stock until the expiration of the restriction period.
The Board may also impose such other restrictions and conditions on
the shares of Restricted Stock as it deems appropriate, including but not
limited to requiring the eligible person to keep the Restricted Stock
certificates, duly endorsed, in the custody of the Corporation while the
restrictions remain in effect.
5.2 RESTRICTION PERIOD: At the time a Restricted Stock award is made,
the Board may establish a restriction period applicable to such award which
shall not be more than ten (10) years. Each Restricted Stock award may have a
different restriction period, at the discretion of the Board. In addition to or
in lieu of a restriction period, the Board may establish a performance goal
which must be achieved as a condition to the retention of the Restricted Stock.
The performance goal may be based on the attainment of specified types of
performance measurement criteria, which may differ as to various eligible
persons or classes or categories of eligible persons. Such criteria may
include, without limitation, the attainment of certain performance levels by
the eligible person, the
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Corporation, a department or division of the Corporation and/or a group or
class of eligible persons. Any such performance goals, together with the ranges
of Restricted Stock awards for which the eligible persons may be eligible shall
be set from time to time by the Board and shall be timely communicated in
writing to the eligible persons in advance of the commencement of the
performance of services to which such performance goals relate.
5.3 FORFEITURE OR PAYOUT OF AWARD: In the event an eligible person
ceases to be an employee, director or consultant during a restriction period,
or in the event performance goals attributable to a Restricted Stock award are
not achieved, subject to the terms of each particular Restricted Stock award, a
Restricted Stock award is subject to forfeiture of the shares of common stock
which had not previously been removed from restriction under the terms of the
award.
Any shares of Restricted Stock which are forfeited will be transferred
to the Corporation. Any consideration paid by the eligible person for the
Restricted Stock shall be returned, without interest, to such eligible person
upon forfeiture.
Upon completion of the restriction period and satisfaction of any
performance-goal criteria, all restrictions upon the award will expire and new
certificates representing the award will be issued or released without the
restrictive legend. As a condition precedent to receipt of the certificates,
the eligible person (or the designated beneficiary or personal representative
of the eligible person) will agree to make payment to the Corporation in the
amount of any taxes, payable by the eligible person, which are required to be
withheld with respect to such shares of common stock.
5.4 RIGHTS AS A STOCKHOLDER: An eligible person shall have all voting,
dividend, liquidation and other rights with respect to common stock in
accordance with its terms received by him or her as a Restricted Stock award
under this section upon his or her becoming the holder of record of such common
stock; provided, however, that the eligible person's right to sell, encumber or
otherwise transfer such common stock shall be subject to the restrictions set
forth in the grant of the award and elsewhere in this Plan.
ARTICLE 6: STOCK OPTIONS
6.1 GRANT OF OPTION: One or more options may be granted to any
eligible person. Upon the grant of an option to an eligible person, the Board
shall specify whether the option is intended to constitute a non-qualified
stock option or an incentive stock option; provided, however, that incentive
stock options may only be issued to persons who are employees of the
Corporation. An incentive stock option is an option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (or a successor
provision thereto).
6.2 STOCK OPTION AGREEMENT: Each option granted under the Plan shall
be evidenced by a written stock option agreement between the Corporation and the
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eligible person containing such terms and conditions as the Board determines,
including, without limitation, provisions to qualify Incentive Stock Options as
such under Section 422 of the Code. Such agreements shall incorporate the
provisions of this Plan by reference. The date of granting an option is the
date specified in the written stock option agreement which is signed by the
eligible person and the Corporation.
6.3 EXERCISE PRICE: The exercise price of the common stock offered to
eligible persons under the Plan by grant of an incentive stock option to
purchase common stock may not be less than the fair market value of the common
stock at the date of grant; provided, however, that the exercise price shall
not be less than 110% of the fair market value of the common stock on the date
of grant in the event an optionee owns 10% or more of the common stock of the
Corporation. The exercise price of the common stock offered to eligible persons
under the plan by grant of a non-qualified stock option may be less than fair
market value of the common stock at the date of grant.
6.4 TERM OF OPTIONS: The terms of each option shall be no more than
ten years from the date of grant as determined by the Board but shall be
subject to earlier termination as subsequently provided; however, if an
incentive stock option is granted to a person who, as of the date of grant,
owns 10% or more of the Corporation's common stock, the term of the option
shall be no more than five years.
6.5 SCHEDULE FOR EXERCISE: Immediately after grant of an option, it
may be exercised (subject to Sections 6.6 and 6.12) on terms and conditions as
the Board shall so determine on the date of grant. The Board may limit an
option by restricting its exercise in whole or in part for specified periods in
its sole discretion.
6.6 MANNER OF EXERCISE
6.6.1 NOTICE TO THE CORPORATION: Each exercise of an option
granted shall be made by the delivery by the optionee (or his legal
representative, as the case may be) of written notice of such election to the
Corporation, either in person or by certified mail to the Corporation's mailing
address, stating the number of shares with respect to which the option is being
exercised and specifying a date on which the shares will be taken and payment
made therefor. Such date shall be at least 30 days after such notice is given.
6.6.2 ISSUANCE OF STOCK: On the date specified in the notice
of election, the Corporation shall deliver, or cause to be delivered, to the
optionee (or his legal representative, as the case may be), stock certificates
for the number of shares with respect to which the option is being exercised,
against payment therefor. Delivery of the certificate(s) may be made at the
office of the Corporation or at the office of a transfer agent appointed for
the transfer of shares of the Corporation, as the Corporation shall determine.
Shares shall be issued in the name of the optionee (or his legal
representative, as the case may be). No shares shall be issued until full
payment therefor shall have been made by cash or by certified check equal to
the exercise price; provided
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however that the Board may adopt customary "cashless exercise" provisions if
deemed appropriate. In the event of an failure on the date stated to pay for
and accept delivery of the certificate(s) representing the full number of
shares specified in the notice of election, the option shall become inoperative
only as to those shares which are not paid for and accepted, but shall continue
with respect to any remaining shares subject to the option as to which exercise
has not yet been made.
6.7 PURCHASE OF INVESTMENT
6.7.1 WRITTEN AGREEMENT BY EMPLOYEES: Unless a registration
statement under the Securities Act of 1933 is then in effect with respect to
the common stock an eligible person receives upon exercise of his or her
option, an eligible person shall acquire the common stock he or she receives
upon exercise of the option for investment and not for resale or distribution,
and he or she shall furnish the Corporation with a written statement to that
effect when exercising the option and a reference to such investment warranty
shall be inscribed on the stock certificate(s).
6.7.2 REGISTRATION REQUIREMENT: Each option shall be subject
to the requirement that, if at any time the Board determines that the listing,
registration or qualification of the common stock subject to the option upon
any securities exchange or quotation system, or under any state or Federal law
is necessary or desirable as a condition of, or in connection with, the
issuance of the common stock thereunder, the option may not be exercised in
whole or in part unless such listing, registration or qualification shall have
been effected or obtained (and the same shall have been free of any conditions
not acceptable to the Board).
6.8 DATE OF GRANT Each option granted under the Plan, unless otherwise
specifically indicated, shall be granted as of the date of the Board's
resolution conferring the option ("date of grant").
6.9 ASSIGNMENT PROHIBITED: Any option granted under the Plan shall, by
its terms, be exercisable during the lifetime of the optionee only by the
optionee. It shall not be assigned, pledged or hypothecated in any way, shall
not be subject to execution, and shall not be transferable by the optionee
otherwise than by will or the laws of descent and distribution. With respect to
any option granted hereunder, any attempt of assignment, transfer, pledge,
hypothecation, or other disposition thereof which is contrary to the provisions
of the Plan, and the levy of any attachment or similar proceedings thereon,
shall be null and void.
6.10 TERMINATION OF OPTIONEE
6.10.1 TERMINATION OTHER THAN BY DEATH OR DISABILITY: If the
relationship of an optionee as identified in his particular stock option
agreement terminates for any reason other than death or total and permanent
disability, any options granted to the optionee under the Plan which have not
been exercised shall be canceled, except that
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<PAGE> 7
such optionee may exercise, within three months after such termination of such
relationship, an option granted to him or her to the extent the option was
exercisable on the date of termination of such relationship. The Plan will not
confer upon any optionee any right with respect to continuance of such
relationship with the Corporation; nor will it interfere in any way with the
Corporation's right to terminate such relationship at any time.
6.10.2 TERMINATION BY DEATH OR DISABILITY: In the event of
the death of an optionee, any option held by him at the time of his death shall
be transferred as provided in his will or as determined by the laws of descent
and distribution, and may be exercised by the estate of the optionee, or by any
person who acquired such option by bequest or inheritance from the optionee, at
any time or from time to time within three months after the date of disability
(such date to be determined by the Board), to the extent the option was
exercisable on such date.
6.11 RIGHTS AS A STOCKHOLDER: An optionee shall not by reason of any
option granted pursuant to the Plan have any rights of a stockholder of the
Corporation until the date of issuance of the stock certificate(s) to him in
respect of exercise of an option granted hereunder.
6.12 SPECIAL LIMITATIONS ON EXERCISE OF INCENTIVE STOCK OPTIONS: The
aggregate fair market value (determined at the time the incentive stock option
is granted) of the common stock with respect to which any incentive stock
option is first exercisable during any calendar year shall not exceed $100,000.
ARTICLE 7: CHANGES IN CAPITAL STRUCTURE
7.1 STOCK DIVIDENDS AND SPLIT-UPS: If the Corporation shall, at any
time prior to the termination date of the Plan, change its issued common stock
into a greater number of shares of stock through a stock dividend or split-up
of shares, the number of shares reserved for issuance under the Plan and the
number of shares of stock deliverable with respect to each payment of the
specified option price per share in connection with each exercise of an option
after the record or effective date of such stock dividend or split-up of shares
shall be proportionately increased and the price to be paid per share shall be
decreased proportionately. Conversely, if the issued common stock of the
Corporation shall, at any time within such period, be combined into a smaller
number of shares of stock, the number of shares reserved for issuance under the
Plan and the number of shares of stock deliverable with respect to each payment
of the specified option price per share in connection with the exercise of an
option after the record or effective date of such combination of shares shall
be proportionately reduced and the price to be paid per share shall be
increased proportionately. Notwithstanding any such proportionate increase or
decrease, no fraction of a share of stock shall be issued on the exercise of an
option.
7.2 REORGANIZATION: If within the duration of an option there shall
be a corporate merger consolidation, acquisition of assets, or other
reorganization, and if such
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transaction shall affect the optioned stock, the optionee shall thereafter be
entitled to receive upon exercise of his option those shares or securities that
he would have received had the option been exercised prior to such transaction
and the optionee had been a stockholder of the Corporation with respect to such
shares. If such transaction shall affect a restricted stock award, all
restrictions relating to the award will lapse and the common stock will become
unrestricted.
7.3 LIQUIDATION: Upon the complete liquidation of the Corporation,
other than pursuant to a plan of reorganization or similar transaction of the
nature specified in paragraph 7.2, any unexercised options granted under the
Plan shall be canceled.
ARTICLE 8: GOVERNING LAW
Options and restricted stock awards granted under the Plan shall be
construed and shall take effect in accordance with the laws of the State of
Colorado.
ARTICLE 9: AMENDMENT
The Board of Directors (but not a committee of the Board) may amend or
discontinue the Plan at any time provided that no unexercised option or
restricted stock award granted under the Plan may be altered or canceled,
except in accordance with its terms, without the written consent of the
eligible person to whom the option or restricted stock award has been granted.
ARTICLE 10: TAX WITHHOLDING
The Corporation shall have the right to deduct from an award pursuant
to the Plan any federal, state or local taxes as it deems to be required by law
to be withheld with respect to such award. In the case of awards paid in common
stock, the eligible person or other person receiving such common stock may be
required to pay to the Corporation the amount of any such taxes which the
Corporation is required to withhold with respect to such common stock. At the
request of an eligible person, or as required by law, such sums as may be
required for the payment of any estimated or accrued income tax liability may
be withheld and paid over to the governmental entity entitled to receive the
same. The Board may from time to time establish procedures for withholding of
common stock.
ARTICLE 11: TERM OF THE PLAN
No option or restricted stock award shall be granted hereunder after
the expiration of ten years from the earlier of the date on which the Plan was
adopted by the Board of Directors or the date it was approved by the
stockholders of the Corporation.
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FACTUAL DATA CORP.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this _____day of ________________, 199_, by and
between FACTUAL DATA CORP. ("Company"), and _______________________________
(the "Optionee");
W I T N E S S E T H :
WHEREAS, the Optionee on the date hereof is an employee of the
Company or any affiliated corporation or any division thereof; and
WHEREAS, to induce the Optionee to continue in his or her employ and
to further his or her efforts in its behalf, the Company desires to grant to
the Optionee an option to purchase shares of its Common Stock; and
WHEREAS, the Company's Board of Directors and shareholders have
adopted the 1997 Stock Incentive Plan (the "Plan").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Optionee hereby agree as
follows:
1. Grant of Option. The Company hereby grants to the Optionee on the
date of this Agreement the option to purchase ___________ (_________) shares of
Common Stock of the Company (the "Option Stock") subject to the terms and
conditions herein contained and subject to adjustment in such number of shares
as provided in the Plan. This option is intended to be granted as an incentive
stock option under the Internal Revenue Code of 1986.
2. Option Price. During the term of this option, the purchase price
for the shares of Option Stock granted herein is $________ per share, subject
only to adjustment of such price as provided in the Plan.
3. Exercisability and Term of Option. This option shall vest and
become exercisable to the extent of 33-1/3% of the total number of shares of
Option Stock specified in Paragraph 1 of this Agreement upon the first
anniversary of the date the option is granted, which shall be the date above
written. This option shall vest an additional 33-1/3% of the total number of
shares of Option Stock upon the second anniversary of the date the option is
granted and shall vest the final 33-1/3% of the total number of shares of
Option Stock upon the third anniversary of the date this option is granted. To
the extent the Optionee does not purchase in any option year the full number of
shares which he or she is entitled to purchase in that year, he or she may
purchase the same in any succeeding year until the term of such option shall
expire. This option shall terminate ___________ years from the date this option
is granted unless terminated earlier by reason of Optionee's death, disability
or termination of employment as provided in more detail in Section 6.10 of the
Plan and Paragraph 11 of this Agreement.
<PAGE> 10
4. Personal Exercise by Optionee. This option shall, during the
lifetime of the Optionee, be exercisable only by him or her and shall not be
transferable by the Optionee, in whole or in part, other than by will or by the
laws of descent and distribution. This option shall not, voluntarily or
involuntarily, be subjected to any lien, directly or indirectly, by operation
of law, or otherwise, including execution, levy, garnishment, attachment,
pledge or bankruptcy.
5. Manner of Exercise of Option. The option evidenced by this
Agreement may be exercised by the Optionee (or by his or her permitted
successor or successors) by giving written notice in the form of the notice
attached hereto (the "Election Notice") to the Company at its principal place
of business of an election to exercise such option. The Election Notice shall
specify the number of shares of Option Stock to be purchased hereunder and
specifying the date on which the shares will be taken and payment made therefor
(such date shall be at least 30 days after the Election Notice is given), along
with payment of the option price by ___________________ [CASH, CERTIFIED CHECK
OR CASHLESS EXERCISE] upon payment of the full purchase price for the shares to
be purchased. The Company shall deliver to the Optionee certificates for the
Option Stock so purchased on the date specified in the Election Notice.
6. Rights as a Shareholder. The Optionee or a transferee of this
option shall have no rights as a shareholder with respect to any Option Stock
until the date of the issuance of a stock certificate for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which
the record date is prior to the date such stock certificate is issued.
7. Stock Option Plan. The option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan is attached hereto and
hereby made a part of this Agreement. This Agreement is subject to and in all
respects limited and conditioned as provided in the Plan. The Plan governs this
Agreement, and, in the event of any question as to the construction of this
Agreement or of a conflict between the Plan and this Agreement, the Plan shall
govern, except as the Plan otherwise provides.
8. Withholding Taxes. Upon (i) the exercise of a non-statutory option
or (ii) the disposition of any stock acquired pursuant to the exercise of an
Incentive Stock Option prior to the expiration of two years from the date on
which the Incentive Stock Option was granted or prior to the expiration of one
year from the date on which the option was exercised, the Optionee shall
provide the information and make the arrangements as specified in Article 10 of
the Plan.
9. Investment Purpose and Risks. (a) As a condition to the issuance by
the Company of Option Stock pursuant to this Agreement, the Optionee, if
required by the Company, shall (a) represent that the shares of Option Stock
are being acquired for investment and not with a present intention of selling
or otherwise distributing and to make such other representations as may be
necessary in order to comply with federal and applicable state securities laws
or appropriate to qualify the issuance of the shares as exempt from the
Securities Act of 1933 and any other applicable securities laws, and (b)
represent that Optionee shall not dispose of the shares of Option Stock in
violation of the Securities Act of 1933 or any other applicable securities
laws. The Company reserves the right to place a legend on any stock certificate
issued pursuant to the exercise of this option to assure compliance with the
foregoing.
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<PAGE> 11
(b) Optionee acknowledges that (i) an investment in the Option
Stock involves significant risks and may represent an illiquid investment, (ii)
the Optionee is able to bear the economic risks of an investment in the Option
Stock and is able to maintain his or her investment in the Option Stock for an
indefinite period of time, and (iii) Optionee could bear a total loss of the
investment.
(c) Optionee is aware that he or she is afforded an opportunity to
discuss matters pertinent to an investment in the Option Stock with the Company
and is encouraged to request a copy of the Company's financial statement prior
to exercise.
(d) Optionee has such knowledge and experience in financial
business matters to enable Optionee to evaluate the merits and risks of an
investment in the Option Stock. Optionees without such knowledge and experience
are strongly encouraged to consult with a financial, tax or legal advisor
before investing in the Option Stock.
10. Compliance with Securities Laws. This option shall be subject to
the requirement that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the Option Stock upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of Option Stock thereunder,
such option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Board of Directors or committee
thereto. Nothing herein shall be deemed to require the Company to apply for or
to obtain such listing, registration or qualification.
11. Termination of Employment. In the event the Optionee shall cease
to be employed by the Company for reasons other than death, disability,
reorganization, or liquidation of the Company, this option shall terminate
(notwithstanding Paragraph 3 of this Agreement) within the earlier of (1) three
months after the date of termination or (2) the originally stated expiration
date. This option shall be exercisable as provided above only to the extent the
option was exercisable on the date of termination but had not previously been
exercised.
12. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 4 above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
FACTUAL DATA CORP.
By:
-------------------------------------
Its
----------------------------
-----------------------------------------
Optionee
3
<PAGE> 12
FACTUAL DATA CORP.
1997 Stock Incentive Plan
Exercise Notice
1. Number of shares with respect to which the Option is being exercised: ___
2. Date of grant of option _________________________________________________
3. Exercise price of option ________________________________________________
4. Method of payment (check one):
(A) Certified check _________________
(B) Cashiers check _________________
(C) Money order _________________
(D) Factual Data Corp. common stock _________________*
(E) Broker's check _________________
6. Method of tax withholding, if applicable (check one):
(A) Personal check _________________
(B) Payroll deduction _________________
(C) Stockbroker check _________________
7. Name _____________________________
8. Signature ________________________
* If authorized by the Board of Directors or committee thereof.
4
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is signed as of the 1st day of July, 1997, by and
between Factual Data Corp., a Colorado corporation (hereinafter referred to as
"FDC"), and Jerald H. Donnan (hereinafter referred to as "Donnan").
WITNESSETH THAT:
WHEREAS, Donnan has been employed by FDC as a full-time employee of
FDC; and
WHEREAS, FDC and Donnan desire to state in writing the terms and
conditions of their agreements and understandings, and to continue the term of
Donnan's employment on a full-time basis hereunder;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties,
intending legally to be bound, agree as follows:
1. Term of Employment
The term shall commence on July 1, 1997, and shall continue through
June 30, 2000, unless sooner terminated in accordance with the provisions of
Paragraph 14 below.
2. Duties.
2.1 It is understood and agreed that Donnan's principal duties on
behalf of FDC are and shall be as President and Chief Executive Officer and as
a member of the Board of Directors, or such responsibilities and title as may
be mutually agreed by Donnan and the Board of Directors of FDC.
2.2 Donnan covenants and agrees that at all times during the term
of this Agreement, he shall devote his best efforts to his duties as an
employee of FDC, provided, that he shall not be required to work on any set
schedule or for any set number of hours.
3. Compensation
3.1. Salary. As compensation for the services to be rendered by
Donnan for FDC under this Agreement, including services as a director of FDC,
Donnan shall be paid the following annual salary, on the same basis
(semimonthly) as FDC's payroll, during the term hereof:
<PAGE> 2
<TABLE>
<CAPTION>
Term Salary
- ---- ------
<S> <C>
1st Year (July 1, 1997 - June 30, 1998) $ 99,600
2nd Year $111,600
3rd Year $123,600
</TABLE>
Salary increases shall be paid in the 2nd and 3rd year only in the
event that FDC has net income in the immediately preceding fiscal year.
3.2 Bonus. The employee shall also be entitled to incentive
bonuses as, when and if declared by the Board of Directors.
4. Additional Benefits.
In addition to, and not in limitation of, the compensation referred to
in Paragraph 3, Donnan shall be paid the following additional benefits during
the term hereof:
4.1 Reimbursement. Reimbursement of all reasonable expenses
incurred by Donnan in connection with performance of his duties, upon
submission of vouchers. Reasonable expenses shall include, but not be limited
to all reasonable out-of-pocket expenses for entertainment, automobile
expenses, travel, meals, lodging, professional dues and the like incurred by
Donnan in the interest of FDC subject to such guidelines and policies as may be
promulgated by FDC for senior executives.
4.2 Death or Disability Payments. In the event of Donnan's total
disability or death prior to June 30, 2000, Donnan shall be paid death or
disability benefits equal to one year's salary.
4.3 Life Insurance. Donnan shall continue to be provided with the
existing $500,000 life insurance policy (the "Policy") during the term of this
Agreement. At the termination of this Agreement, Donnan shall have the right,
at his option, to take over full payments on the Policy, and the ownership of
the Policy.
4.4 Comparable Benefits. Donnan shall also be provided with the
same additional benefits comparable to other senior management Employees of
FDC, including but not limited to health, dental, and disability insurance,
Section 401(K) plan, and stock options, and shall be included in any FDC bonus
incentive plan established from time to time, and shall receive holiday, sick
leave, and vacation benefits (4 weeks per year) on the same basis as is
generally available to all senior executives of FDC. Donnan shall be eligible
for Stock Options on the same basis as other officers and employees of FDC.
2
<PAGE> 3
5. Disclosure of Information.
Donnan acknowledges that in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to confidential
information of a special and unique nature and value relating to such matters
as FDC's trade secrets, systems, procedures, manuals, confidential reports, and
lists of clients. As a material inducement to FDC to enter into this Agreement
and to pay to Donnan the compensation stated in Paragraph 3, as well as any
additional benefits stated in Paragraph 4, Donnan covenants and agrees that he
shall not, other than in the ordinary course of business conducted for FDC, at
any time during or following the term of his employment, directly or indirectly
divulge or disclose for any purpose whatsoever or appropriate to his own use or
to the use of others any confidential information that has been obtained by, or
disclosed to him, as a result of his employment by FDC.
6. Covenant Not to Compete.
Donnan agrees that he shall not directly or indirectly own, control,
operate, manage, consult, own shares in, be employed by, or otherwise
participate in any sole proprietorship, corporation, partnership or entity
whose primary business is the same or similar to the business of FDC during the
term of his employment hereunder, nor for a period of one (1) year after his
termination of employment, anywhere within the territory in which FDC does
business; provided, that the Board of Directors shall have the right (but not
be required) to waive this covenant not to compete in writing, with respect to
any specific situation presented to them in advance, in writing by Donnan,
where the Board of Directors, at their sole and absolute discretion, deem
Donnan's intended participation not to be adverse to FDC's interests.
The parties hereto recognize that Donnan has been retained as a member
of the senior executive management of FDC, and that in said position he is
considered to be part of the professional, management and executive staff of
the Corporation.
In the event Donnan violates this covenant of non-competition, both
parties acknowledge and agree that FDC shall have the right to bring a lawsuit
to enforce this covenant against Donnan, and to obtain equitable relief in the
form of an injunction and, where applicable, damages at law; that the District
Court for Larimer County, Colorado shall have venue, and exclusive jurisdiction
in such lawsuit; and that the Colorado law shall apply.
In the event FDC must bring such a lawsuit by reason of Donnan's
breach of this covenant of non-competition, FDC shall be entitled to recover
its reasonable attorneys' fees, costs and expenses of litigation, in the event
it prevails in such lawsuit.
3
<PAGE> 4
This covenant of non-competition has been negotiated and agreed to by
and between FDC and Donnan with full knowledge of, and pursuant to the
requirements of Section 8-2-113(2) Colorado Revised Statutes, as amended from
time to time, and is deemed by both parties to be fair and reasonable under the
terms of that statute.
7. Option to Extend.
At Donnan's and FDC's option, upon their mutual agreement, upon thirty
(30) days prior written notice, the term of this Agreement may be extended for
a period of two (2) additional years, on the same terms and conditions as
contained herein.
8. Indemnification.
So long as Donnan is not found by a court of law to be guilty of a
willful and material breach of this Agreement, or to be guilty of willful gross
misconduct, he shall be indemnified from and against any and all losses,
liability, claims and expenses, damages or causes of action, proceedings or
investigations, or threats thereof (including reasonable attorneys' fees and
expenses of counsel satisfactory to and approved by Donnan) incurred by Donnan,
arising out of, in connection with, or based upon Donnan's services and the
performance of his duties pursuant to this Agreement, or any other matter
contemplated by this Agreement, whether or not resulting in any such liability;
and Donnan shall be reimbursed by FDC as and when incurred for any reasonable
legal or other expenses incurred by Donnan in connection with investigating or
defending against any such loss, claim, damage, liability, action, proceeding,
investigation or threat thereof, or producing evidence, producing documents or
taking any other action in respect thereto (whether or not Donnan is a
defendant in or target of such action, proceeding or investigation).
9. Governing Law.
It is understood and agreed that the construction and interpretation
of this Agreement shall at all times and in all respects be governed by the
laws of the State of Colorado.
10. Severability.
The provisions of this Agreement shall be deemed severable, and the
invalidity or enforceability of any one or more of the provisions of this
Agreement shall not affect the validity and enforceability of the other
provisions.
4
<PAGE> 5
11. Notice.
Any notice required to be given shall be sufficient if it is in
writing and sent by certified or registered mail, return receipt requested,
first-class postage prepaid, to his residence in the case of Donnan, and to its
principal office in the case of FDC.
12. Entire Agreement; Cancellation of Prior Agreements.
12.1 This Agreement contains the entire agreement and understanding
by and between FDC and Donnan with respect to the employment of Donnan, and no
representations, promises, agreements, or understandings, written or oral, not
contained herein shall be of any force or effect. No change or modification of
this Agreement shall be valid or binding unless it is in writing and signed by
the party intended to be bound.
12.2 No waiver of any provision of this Agreement shall be valid
unless it is in writing and signed by the party against whom the waiver is
sought to be enforced. No valid waiver of any provision of this Agreement at
any time shall be deemed a waiver of any other provision of this Agreement at
such time or at any other time.
13. Burden and Benefit.
This Agreement shall be binding upon, and shall inure to the benefit
of, FDC and Donnan, and their respective heirs, personal and legal
representatives, successors, and assigns and shall be expressly binding upon
and inure to the benefit of any person or entity acquiring FDC, by merger,
consolidation, purchase of assets or stock, or otherwise.
The duties of Donnan hereunder are not assignable by Donnan without
the prior written consent of FDC, and the interests of Donnan hereunder are not
subject to the claims of his creditors, and may not be voluntarily or
involuntarily assigned, alienated or encumbered.
14. Termination.
14.1 By Donnan. Donnan may at his sole option, terminate this
Agreement, upon ninety (90) days written notice to FDC. Upon such termination
by Donnan, FDC shall have no further liabilities or obligations to Donnan
hereunder; except under Section 8 (Indemnification), and Donnan's only further
liabilities to FDC shall be his covenants under Section 5 (Disclosure of
Information), and Section 6 (Covenant not to Compete), which Sections shall
survive termination of this Agreement.
14.2 By FDC. FDC may terminate Donnan's employment hereunder
during the term or any extended term hereof only (1) in the event of Donnan's
death or disability, subject to the provisions of Section 4.2 above; or (2)
"for cause," which shall be defined as
5
<PAGE> 6
"the failure of Donnan for any reason, within thirty (30) days after receipt by
Donnan of written notice thereof from FDC, to correct, cease, or otherwise
alter any action or omission to act that constitutes a material and willful
breach of this Agreement likely to result in material damage to FDC, or willful
gross misconduct likely to result in material damage to FDC." Upon such
termination "for cause" under Section 14.2, FDC shall have no further
liabilities to Donnan, except under Section 8 (Indemnification), and Donnan's
only further liabilities to FDC shall be his covenants under Section 5
(Disclosure of Information), and Section 6 (Covenant Not to Compete), which
Sections shall survive termination of this Agreement.
15. Counterparts.
The Agreement may be executed in two or more counterparts, any one of
which shall be deemed the original without reference to the others.
IN WITNESS WHEREOF, FDC and Donnan have duly executed this Agreement
as of the day and year first above written.
FDC
ATTEST: FACTUAL DATA CORP.
/s/ Todd Neiberger By: /s/ Jerald H. Donnan
- ----------------------------------- ------------------------------------
President
DONNAN:
/s/ Jerald H. Donnan
----------------------------------------
Jerald H. Donnan
6
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is signed as of the 1st day of July, 1997, by and
between Factual Data Corp., a Colorado corporation (hereinafter referred to as
"FDC"), and Marcia R. Donnan (hereinafter referred to as "Donnan").
WITNESSETH THAT:
WHEREAS, Donnan has been employed by FDC as a full-time employee of
FDC; and
WHEREAS, FDC and Donnan desire to state in writing the terms and
conditions of their agreements and understandings, and to continue the term of
Donnan's employment on a full-time basis hereunder;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
legally to be bound, agree as follows:
1. Term of Employment
The term shall commence on July 1, 1997, and shall continue through
June 30, 2000, unless sooner terminated in accordance with the provisions of
Paragraph 14 below.
2. Duties.
2.1 It is understood and agreed that Donnan's principal duties on
behalf of FDC are and shall be as Executive Vice President and as a member of
the Board of Directors, or such responsibilities and title as may be mutually
agreed by Donnan and the Board of Directors of FDC.
2.2 Donnan covenants and agrees that at all times during the term of
this Agreement, she shall devote her best efforts to her duties as an employee
of FDC, provided, that she shall not be required to work on any set schedule or
for any set number of hours.
3. Compensation
3.1. Salary. As compensation for the services to be rendered by Donnan
for FDC under this Agreement, including services as a director of FDC, Donnan
shall be paid the following annual salary, on the same basis (semimonthly) as
FDC's payroll, during the term hereof:
<PAGE> 2
<TABLE>
<CAPTION>
Term Salary
- ---- ------
<S> <C>
1st Year (July 1, 1997 - June 30, 1998) $ 99,600
2nd Year $111,600
3rd Year $123,600
</TABLE>
Salary increases shall be paid in the 2nd and 3rd year only in the
event that FDC has net income in the immediately preceding fiscal year.
3.2 Bonus. The employee shall also be entitled to incentive bonuses as,
when and if declared by the Board of Directors.
4. Additional Benefits.
In addition to, and not in limitation of, the compensation referred to
in Paragraph 3, Donnan shall be paid the following additional benefits during
the term hereof:
4.1 Reimbursement. Reimbursement of all reasonable expenses incurred by
Donnan in connection with performance of her duties, upon submission of
vouchers. Reasonable expenses shall include, but not be limited to all
reasonable out-of-pocket expenses for entertainment, automobile expenses,
travel, meals, lodging, professional dues and the like incurred by Donnan in the
interest of FDC subject to such guidelines and policies as may be promulgated by
FDC for senior executives.
4.2 Death or Disability Payments. In the event of Donnan's total
disability or death prior to June 30, 2000, Donnan shall be paid death or
disability benefits equal to one year's salary.
4.3 Life Insurance. Donnan shall continue to be provided with the
existing $500,000 life insurance policy (the "Policy") during the term of this
Agreement. At the termination of this Agreement, Donnan shall have the right, at
her option, to take over full payments on the Policy, and the ownership of the
Policy.
4.4 Comparable Benefits. Donnan shall also be provided with the same
additional benefits comparable to other senior management Employees of FDC,
including but not limited to health, dental, and disability insurance, Section
401(K) plan, and stock options, and shall be included in any FDC bonus incentive
plan established from time to time, and shall receive holiday, sick leave, and
vacation benefits (4 weeks per year) on the same basis as is generally available
to all senior executives of FDC. Donnan shall be eligible for Stock Options on
the same basis as other directors of FDC.
2
<PAGE> 3
5. Disclosure of Information.
Donnan acknowledges that in and as a result of her employment
hereunder, she will be making use of, acquiring and/or adding to confidential
information of a special and unique nature and value relating to such matters as
FDC's trade secrets, systems, procedures, manuals, confidential reports, and
lists of clients. As a material inducement to FDC to enter into this Agreement
and to pay to Donnan the compensation stated in Paragraph 3, as well as any
additional benefits stated in Paragraph 4, Donnan covenants and agrees that she
shall not, other than in the ordinary course of business conducted for FDC, at
any time during or following the term of her employment, directly or indirectly
divulge or disclose for any purpose whatsoever or appropriate to her own use or
to the use of others any confidential information that has been obtained by, or
disclosed to her, as a result of her employment by FDC.
6. Covenant Not to Compete.
Donnan agrees that she shall not directly or indirectly own, control,
operate, manage, consult, own shares in, be employed by, or otherwise
participate in any sole proprietorship, corporation, partnership or entity whose
primary business is the same or similar to the business of FDC during the term
of her employment hereunder, nor for a period of one (1) year after her
termination of employment, anywhere within the territory in which FDC does
business; provided, that the Board of Directors shall have the right (but not be
required) to waive this covenant not to compete in writing, with respect to any
specific situation presented to them in advance, in writing by Donnan, where the
Board of Directors, at their sole and absolute discretion, deem Donnan's
intended participation not to be adverse to FDC's interests.
The parties hereto recognize that Donnan has been retained as a member
of the senior executive management of FDC, and that in said position she is
considered to be part of the professional, management and executive staff of the
Corporation.
In the event Donnan violates this covenant of non-competition, both
parties acknowledge and agree that FDC shall have the right to bring a lawsuit
to enforce this covenant against Donnan, and to obtain equitable relief in the
form of an injunction and, where applicable, damages at law; that the District
Court for Larimer County, Colorado shall have venue, and exclusive jurisdiction
in such lawsuit; and that the Colorado law shall apply.
In the event FDC must bring such a lawsuit by reason of Donnan's breach
of this covenant of non-competition, FDC shall be entitled to recover its
reasonable attorneys' fees, costs and expenses of litigation, in the event it
prevails in such lawsuit.
3
<PAGE> 4
This covenant of non-competition has been negotiated and agreed to by
and between FDC and Donnan with full knowledge of, and pursuant to the
requirements of Section 8-2-113(2) Colorado Revised Statutes, as amended from
time to time, and is deemed by both parties to be fair and reasonable under the
terms of that statute.
7. Option to Extend.
At Donnan's and FDC's option, upon their mutual agreement, upon thirty
(30) days prior written notice, the term of this Agreement may be extended for a
period of two (2) additional years, on the same terms and conditions as
contained herein.
8. Indemnification.
So long as Donnan is not found by a court of law to be guilty of a
willful and material breach of this Agreement, or to be guilty of willful gross
misconduct, she shall be indemnified from and against any and all losses,
liability, claims and expenses, damages or causes of action, proceedings or
investigations, or threats thereof (including reasonable attorneys' fees and
expenses of counsel satisfactory to and approved by Donnan) incurred by Donnan,
arising out of, in connection with, or based upon Donnan's services and the
performance of her duties pursuant to this Agreement, or any other matter
contemplated by this Agreement, whether or not resulting in any such liability;
and Donnan shall be reimbursed by FDC as and when incurred for any reasonable
legal or other expenses incurred by Donnan in connection with investigating or
defending against any such loss, claim, damage, liability, action, proceeding,
investigation or threat thereof, or producing evidence, producing documents or
taking any other action in respect thereto (whether or not Donnan is a defendant
in or target of such action, proceeding or investigation).
9. Governing Law.
It is understood and agreed that the construction and interpretation of
this Agreement shall at all times and in all respects be governed by the laws of
the State of Colorado.
10. Severability.
The provisions of this Agreement shall be deemed severable, and the
invalidity or enforceability of any one or more of the provisions of this
Agreement shall not affect the validity and enforceability of the other
provisions.
4
<PAGE> 5
11. Notice.
Any notice required to be given shall be sufficient if it is in writing
and sent by certified or registered mail, return receipt requested, first-class
postage prepaid, to her residence in the case of Donnan, and to its principal
office in the case of FDC.
12. Entire Agreement; Cancellation of Prior Agreements.
12.1 This Agreement contains the entire agreement and understanding by
and between FDC and Donnan with respect to the employment of Donnan, and no
representations, promises, agreements, or understandings, written or oral, not
contained herein shall be of any force or effect. No change or modification of
this Agreement shall be valid or binding unless it is in writing and signed by
the party intended to be bound.
12.2 No waiver of any provision of this Agreement shall be valid unless
it is in writing and signed by the party against whom the waiver is sought to be
enforced. No valid waiver of any provision of this Agreement at any time shall
be deemed a waiver of any other provision of this Agreement at such time or at
any other time.
13. Burden and Benefit.
This Agreement shall be binding upon, and shall inure to the benefit
of, FDC and Donnan, and their respective heirs, personal and legal
representatives, successors, and assigns and shall be expressly binding upon and
inure to the benefit of any person or entity acquiring FDC, by merger,
consolidation, purchase of assets or stock, or otherwise.
The duties of Donnan hereunder are not assignable by Donnan without the
prior written consent of FDC, and the interests of Donnan hereunder are not
subject to the claims of her creditors, and may not be voluntarily or
involuntarily assigned, alienated or encumbered.
14. Termination.
14.1 By Donnan. Donnan may at her sole option, terminate this
Agreement, upon ninety (90) days written notice to FDC. Upon such termination by
Donnan, FDC shall have no further liabilities or obligations to Donnan
hereunder; except under Section 8 (Indemnification), and Donnan's only further
liabilities to FDC shall be her covenants under Section 5 (Disclosure of
Information), and Section 6 (Covenant not to Compete), which Sections shall
survive termination of this Agreement.
14.2 By FDC. FDC may terminate Donnan's employment hereunder during the
term or any extended term hereof only (1) in the event of Donnan's death or
disability, subject to the provisions of Section 4.2 above; or (2) "for cause,"
which shall be defined as
5
<PAGE> 6
"the failure of Donnan for any reason, within thirty (30) days after receipt by
Donnan of written notice thereof from FDC, to correct, cease, or otherwise alter
any action or omission to act that constitutes a material and willful breach of
this Agreement likely to result in material damage to FDC, or willful gross
misconduct likely to result in material damage to FDC." Upon such termination
"for cause" under Section 14.2, FDC shall have no further liabilities to Donnan,
except under Section 8 (Indemnification), and Donnan's only further liabilities
to FDC shall be her covenants under Section 5 (Disclosure of Information), and
Section 6 (Covenant Not to Compete), which Sections shall survive termination of
this Agreement.
15. Counterparts.
The Agreement may be executed in two or more counterparts, any one of
which shall be deemed the original without reference to the others.
IN WITNESS WHEREOF, FDC and Donnan have duly executed this Agreement as
of the day and year first above written.
FDC
ATTEST: FACTUAL DATA CORP.
/s/ Todd Neiberger By: /s/ Jerald H. Donnan
- --------------------------- -------------------------------
President
DONNAN:
/s/ Marcia R. Donnan
----------------------------------
Marcia R. Donnan
6
<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into
as of the _____ day of January, 1998 by and between FACTUAL DATA CORP., INC., a
Colorado corporation ("Company"), and _______________ ("Indemnitee").
WHEREAS, competent and experienced persons are becoming more reluctant
to serve as directors and officers of corporations unless they are provided with
adequate protection against claims and actions against them for their activities
on behalf or at the request of such corporations, generally through insurance
and indemnification; and
WHEREAS, uncertainties in the interpretations of the statutes and
regulations, laws and public policies relating to indemnification of corporate
directors and officers are such as to make adequate, reliable assessment of the
risks to which directors and officers of corporations may be exposed difficult,
particularly in light of the proliferation of lawsuits against directors and
officers; and
WHEREAS, the Board of Directors of the Company, based upon the
foregoing and its business experience, has concluded that the Company should act
to provide its directors and officers with enhanced protection against
inordinate risks attendant on their positions in order to assure that the most
capable persons otherwise available will be attracted to such positions and, in
such connection, such directors have further concluded that it is not only
reasonable and prudent, but necessary, for the Company to contractually obligate
itself to indemnify to the fullest extent permitted by applicable law its
directors and certain of its officers and to assume, to the maximum extent
permitted by applicable law, financial responsibility for expenses and
liabilities which might be incurred by such individuals in connection with
claims lodged against them for their decisions, actions and omissions in such
capacities; and
WHEREAS, the Colorado Business Corporation Act empowers a corporation
organized in Colorado to indemnify persons who serve as directors, officers,
employees or agents of the corporation or persons who serve at the request of
the corporation as directors, officers, employees or agents of another
corporation or other entity; and
WHEREAS, the Articles of Incorporation of the Company provide for
indemnification in accordance with and to the fullest extent permitted by the
Colorado Business Corporation Act or any other applicable laws as presently or
hereinafter in effect; and
WHEREAS, the Company has (a) reviewed the type of insurance available
to insure the directors and officers of the Company and of its affiliates
against costs, expenses (including attorneys' fees and disbursements),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with any action, suit or proceeding to
which they are, or are threatened to be made, a party by reason of their status
and/or decisions or actions in such positions, (b) studied the nature and extent
of the coverage provided by such insurance and the cost thereof to the Company
and (c) concluded, notwithstanding such insurance, that it would be in the best
interests of the Company and its shareholders for the
<PAGE> 2
Company to enter into agreements to indemnify certain of such persons in the
form of this Agreement; and
WHEREAS, the Company desires to have Indemnitee serve or continue to
serve as a director and/or officer of the Company, and/or as a director,
officer, employee, partner, trustee, agent or fiduciary of such other
corporations or other entity (herein individually called a "Company Affiliate"
and collectively called "Company Affiliates") of which he has been or is
serving, or will serve, at the request of or for the convenience of or to
represent the interests of the Company, free from undue concern for
unpredictable, inappropriate or unreasonable claims for damages by reason of his
being an officer or director of the Company or a director, officer, employee,
partner, trustee, agent or fiduciary of a Company Affiliate or by reason of his
decisions or actions on their behalf, and
WHEREAS, Indemnitee is willing to serve, or to continue to serve, or to
take on additional service for, the Company and/or the Company Affiliates in
such aforesaid capacities on the condition that he be indemnified as provided
for herein;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company, Company Affiliates and Indemnitee do hereby
covenant and agree as follows:
1. Services to the Company. Indemnitee will serve and/or continue
to serve as a director, officer, employee and/or agent, as the case may be, of
the Company and/or Company Affiliate in good faith so long as he is duly elected
and qualified in accordance with the provisions of the Company's Bylaws or other
applicable constitutive documents thereof; provided that Indemnitee may, subject
to any other contract between Indemnitee and the Company and/or Company
Affiliate, at any time and for any reason resign from such position.
2. Indemnification.
(a) Except as otherwise expressly provided in this
Agreement or prohibited by applicable law, the Company, within 30 days (or such
longer period, if any, as may be permitted by Section 4(a) hereof) after receipt
of a written statement from Indemnitee requesting indemnification and reasonably
evidencing the costs, expenses, judgments, penalties, fines and amounts in
settlement incurred by him, shall, in accordance with the applicable provisions
of this Agreement, fully indemnify Indemnitee if Indemnitee is or was made a
party or is threatened to be made a party to any Proceeding (as hereinafter
defined) by reason of the fact that he is or was a director, officer, employee
or agent of the Company or Company Affiliate, or by reason of anything done or
not done by him in any such capacity (all of the foregoing reasons being herein
collectively called "Qualifying Reasons"), against costs, expenses (including
attorneys' fees and disbursements), judgments, penalties, fines and amounts in
settlement incurred by him in connection with such Proceeding (including, but
not limited to, the investigation, defense, settlement or appeal thereof). If
both the foregoing sentence and Section 2(b) hereof would be applicable to the
indemnification being sought, the provisions of Section 2(b) shall govern. For
purposes of this Agreement, (i) a "Proceeding"
2
<PAGE> 3
shall mean any threatened, pending or completed investigation, action, suit,
arbitration, alternate dispute resolution mechanism or any other proceeding
(including any appeals therefrom), whether civil, criminal, administrative or
investigative in nature and whether in a court or arbitration, or before or
involving a governmental, administrative or private entity (including, but not
limited to, an investigation initiated by the Company, a Company Affiliate, or
the Board of Directors or fiduciaries of any thereof) and (ii) references to
"fines" shall include, without limitation, any excise taxes assessed on
Indemnitee with respect to any employee benefit or welfare plan.
(b) Notwithstanding any other provisions of this
Agreement (except as set forth in Section 2(c) hereof), and without a
requirement for any determination as described in Section 4(a) hereof, to the
extent Indemnitee (i) has prepared to serve or has served as a witness in any
Proceeding in any way relating to the Company, any Company Affiliate, any
affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended)
of the Company ("Securities Act Affiliate"), any associate (as defined in such
Rule 405) of the Company or of any Securities Act Affiliate or Company
Affiliate, or anything done or not done by Indemnitee as a director, officer,
employee, partner, trustee, agent or fiduciary of the Company or any Company
Affiliate or (ii) has been successful on the merits or otherwise (including,
without limitation, the dismissal of an action without prejudice) in defense of
any Proceeding arising out of a Qualifying Reason, or in the defense of any
claim, issue or matter involved therein, whether in the final adjudication,
arbitration or alternate dispute resolution mechanism or on appeal, the Company
shall fully indemnify him against all costs and expenses (including attorneys'
fees and disbursements) incurred by him in connection therewith (including, but
not limited to, the preparation or service as a witness or the investigation,
defense or appeal in connection with any such Proceeding) within 30 days after
receipt by the Company from Indemnitee of a statement requesting such
indemnification, reasonably evidencing the expenses and costs so incurred by him
and averring that they do not relate to matters of the type described in clauses
(i) or (ii) of Section 2(c) hereof.
(c) Notwithstanding anything to the contrary in the
foregoing provisions of this Section 2 (and except as provided in the proviso
clause of this sentence), Indemnitee shall not be entitled, as a matter of
right, to indemnification pursuant to this Section 2: (i) except as provided in
Section 4(e) or 5 hereof, against costs and expenses incurred in connection with
any Proceeding commenced by Indemnitee against the Company, any Company
Affiliate, any Securities Act Affiliate or any person who is or was a director
or officer, in his or her respective capacity as such, of the Company, any
Company Affiliate or any Securities Act Affiliate; or (ii) against costs and
expenses incurred by Indemnitee in connection with preparing to serve or
serving, prior to a Change in Control (as defined in Section 4(d)(i) hereof), as
a witness in cooperation with any party or entity, who or which has threatened
or commenced any Proceeding against the Company, any Company Affiliate or
Securities Act Affiliate, or any director, officer, employee, partner, trustee,
agent or fiduciary of any thereof in his or her respective capacity as such; or
(iii) to the extent that Indemnitee has theretofore received payment pursuant to
any directors' and officers' liability insurance policy maintained by the
Company; provided, however, that indemnification may be provided by the Company
in any
3
<PAGE> 4
specific case as contemplated by Section 6 hereof notwithstanding the
applicability of the foregoing clause (i) or (ii).
(d) Notwithstanding any other provision of this
Agreement, indemnification shall also be made to the extent that the State
Courts of the State of Colorado or the court in which a Proceeding was brought
shall determine that Indemnitee is fairly and reasonably entitled to
indemnification for such costs and expenses as such court shall deem proper.
(e) The rights of the Indemnitee under this Agreement
shall not be limited, diminished or reduced by the right of the Indemnitee to
seek or receive payments with respect to the matters covered by this Agreement
from any person other than the Company or under the insurance policies
maintained by the Company. In addition, the Indemnitee shall be under no
obligation to seek or accept any settlement offer and the failure to accept a
settlement offer shall not be a basis for refusing indemnification or any
diminution thereof.
3. Partial Indemnification. If Indemnitee is only partially
successful in the defense of any Proceeding arising out of a Qualifying Reason,
or in the defense of any claim, issue or matter involved therein, whether in the
initial adjudication, arbitration or alternate dispute resolution mechanism or
on appeal, the Company shall nevertheless indemnify Indemnitee, as a matter of
right pursuant to Section 2(b) hereof, to the extent Indemnitee has been
partially successful.
4. Determination of Entitlement to Indemnification Pursuant to
Section 2(a).
(a) Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 2(a) hereof, a
determination, if required by Colorado law, with respect to Indemnitee's
entitlement thereto shall be made not later than 30 days after the Company shall
have received such request (i) if a Change in Control (as hereinafter defined)
shall have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall make a request which is timely under the circumstances that
such determination be made by the Board of Directors or shareholders, in which
case pursuant to clause (ii)(A) or (ii)(D) of this Section 4(a) as requested by
Indemnitee) in a written opinion to the Board of Directors, a copy of which
(including each prior draft thereof) shall be simultaneously delivered to
Indemnitee, and (ii) in all other cases (A) by the Board of Directors of the
Company by a majority vote of a quorum consisting of Disinterested Directors (as
hereinafter defined), or (B) if a quorum is not obtainable, by a majority vote
of a quorum of a committee of Disinterested Directors, or (C) if such a quorum
is not obtainable or, even if obtainable, if the Board of Directors by the
majority vote of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be
simultaneously delivered to Indemnitee, or (D) by the shareholders of the
Company. Indemnitee shall cooperate with the person or entity making such
determination of Indemnitee's entitlement to indemnification, including
providing to such person or entity upon reasonable advance request any
documentation or information reason ably available to Indemnitee and necessary
to such determination but not including documents or information which are
within the scope of Indemnitee's attorney-client privilege. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee
in so
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<PAGE> 5
cooperating with the person or entity making such determination shall be bome by
the Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification pursuant to Section 2(a) hereof), and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(b) In making a determination of entitlement pursuant to
Section 4(a) or 4(e) hereof, the person or entity making such determination
shall presume that Indemnitee is entitled to indemnification pursuant to Section
2(a) hereof and that the Company has the burden of proof in the making of any
determination contrary to such presumption. If no determination pursuant to
Section 4(a) hereof is made within 30 days of the Company's receipt of the
request therefor, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled to
such indemnification, absent (i) a misstatement of a material fact necessary to
make the statements in such request not materially misleading with respect to
the information necessary for the determination of entitlement to
indemnification, (ii) a prohibition of such indemnification under applicable law
or the Company's Articles of Incorporation or Bylaws, or (iii) failure of the
Indemnitee to cooperate in a timely manner with the person or entity making the
determination of entitlement to indemnification.
(c) The termination of any Proceeding by judgment, order,
settlement or conviction, or upon a plea of a nolo contendere or its equivalent,
shall not, in and of itself, affect the rights of Indemnitee to indemnification
or the presumptions to which Indemnitee is otherwise entitled pursuant to the
provisions of this Agreement.
(d) For purposes of this Agreement:
(i) "Change in Control" shall mean a change in
control of the Company of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities
Exchange Act of 1934 ("Act"), whether or not the Company is
then subject to such reporting requirement; provided however,
that, without limitation, such a Change in Control shall be
deemed to have occurred (irrespective of the applicability of
the initial clause of this definition) if (A) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Act, but
excluding any employee benefit plan or employee stock plan of
the Company or any subsidiary of the Company, or any entity
organized, appointed, established or holding securities of the
Company with voting power for or pursuant to the terms of any
such plan) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding
securities without the prior approval of at least two-thirds
of the members of the Board of Directors of the Company in
office immediately prior to such persons attaining such
interest; (B) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the
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<PAGE> 6
Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the
Board of Directors thereafter; or (C) during any period of two
consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (including for this
purpose any new director whose election or nomination for
election by the Company's share holders was approved by a vote
of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of
Directors.
(ii) "Disinterested Director" with respect to
any request by Indemnitee for indemnification hereunder shall
mean (x) a director of the Company who neither is nor was a
party to the Proceeding in respect of which indemnification is
being sought by Indemnitee, and (x) is not an immediate
family member of the Indemnitee.
(iii) "Independent Counsel" shall mean a law firm
or a member of a law firm (A) that neither is nor in the past
five years has been retained to represent in any material
matter the Company, any Company Affiliate or any Securities
Act Affiliate, or Indemnitee or any other party to the
Proceeding giving rise to a claim for indemnification
hereunder and (B) which, under applicable standards of
professional conduct then prevailing, would not have a
conflict of interest in representing either the Company or
Indemnitee in an action to determine Indemnitee's right to
indemnification under this Agreement and (C) that is
reasonably acceptable to the Company and Indemnitee. If the
parties are unable to agree on the selection of Independent
Counsel, such counsel shall be selected by lot from among the
Colorado law firms generally reputed to be experienced in
corporate law and having more than 12 attorneys and which meet
the requirements of Section 4(d)(iii)(A) and (B) hereof. Such
selection shall be made in the presence of Indemnitee (or his
representative), and the parties shall contact, in the order
of their selection by lot, such law firms, requesting each
such firm to accept an engagement to make the determination
required hereunder until one of such firms accepts such
engagement. The fees and expenses of counsel in connection
with making any determination contemplated hereunder
(irrespective of the determination as to Indemnitee's
entitlement to indemnification) shall be paid by the Company
and, if requested by such counsel, the Company shall promptly
give such counsel an appropriate written agreement with
respect to the payment of its fees and expenses and such other
matters as may be reasonably requested by such counsel.
(e) If pursuant to Section 4(a) hereof a determination is
made that Indemnitee shall not be entitled to indemnification hereunder in
respect of all or any part of a claim made by Indemnitee therefor, Indemnitee
shall nevertheless be entitled, at his option, to seek court-ordered
indemnification pursuant to the Colorado Business Corporation Act.
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<PAGE> 7
(f) If the person or entity (including the Board of
Directors, a committee of the Board of Directors, Independent Counsel,
shareholders or court) making the determination as to the entitlement of
Indemnitee to indemnification hereunder shall determine that Indemnitee is not
entitled to indemnification in respect of all claims, issues or matters involved
in a Proceeding in respect of which indemnification is sought hereunder but is
entitled to indemnification for some of such claims, issues or matters, such
person or entity shall equitably allocate such costs, expenses (including
attorneys' fees and disbursements), judgments, penalties, fines and amounts in
settlement incurred in connection with such Proceeding among the claims, issues
or matters involved therein and determine those for which Indemnitee shall be
indemnified hereunder.
5. Advancement of Costs and Expenses.
(a) All costs and expenses (including attorneys' fees,
retainers and advances of disbursements required of Indemnitee) incurred by
Indemnitee in preparing to serve or serving as a witness in a Proceeding of the
type described in clause (i) of Section 2(b) hereof, or in investigating,
defending or appealing any Proceeding relating to a Qualifying Reason (and not
excluded by clause (i) or (ii) of Section 2(c), or relating to a Proceeding
described in or arising pursuant to Section 5 hereof, shall be paid by the
Company (in advance of the final disposition of such Proceeding) at the request
of Indemnitee within 30 days after the receipt from time to time by the Company
from Indemnitee of a statement or statements requesting such advance or
advances, affirming the Indemnitee's good faith belief that he has met the
standard of conduct required by the Colorado Business Corporation Act,
reasonably evidencing the expenses and costs incurred by him in connection
therewith and averring that they do not relate to matters described in the
aforesaid clause (i) or (ii) of Section 2(c), together with a written
undertaking by Indemnitee to repay such amount if it is ultimately determined
(in a final adjudication or conclusion of an arbitration pursuant to Section
4(e) hereof, if Indemnitee elects to seek such an adjudication, and otherwise in
a determination, if required hereunder, pursuant to Section 4(a) hereof) that
Indemnitee is not entitled to be indemnified against such costs and expenses by
the Company as provided by this Agreement (or, if Indemnitee has sought advances
pursuant to Section 4(e) or 5 hereof, if there is a specific judicial finding
that Indemnitee's suit was frivolous).
(b) If and to the extent it is finally determined
hereunder that Indemnitee is not entitled to indemnification, or is entitled
only to partial indemnification, Indemnitee shall reimburse the Company for all
costs and expenses advanced or prepaid pursuant to Indemnitee's prior request or
requests hereunder, or the proper proportion thereof, as the case may be, within
90 days after receipt of an itemized written statement therefor from the
Company, provided that Indemnitee shall have no obligation to reimburse the
Company for any of Indemnitee's costs and expenses relating to (i) cooperating
with the Company in making its determination, as provided in Section 4(a)
hereof, (ii) an adjudication of his entitlement to indemnification hereunder, as
provided in Section 4(e) hereof or (iii) a Proceeding described in or arising
under Section 5 hereof (unless, in the case of the foregoing clause (ii) or
(iii), there is a specific judicial finding that Indemnitee's suit was
frivolous).
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(c) Indemnitee shall have the right to employ counsel
during the pendency of any Proceeding which is the subject of this Agreement,
but the fees and expenses of such counsel shall be at Indemnitee's expense
unless (i) all Indemnitees who are made a party or threatened to be made a party
to any Proceeding within the scope of this Agreement agree to use the same legal
counsel; (ii) the employment of counsel by Indemnitee has been authorized by the
Company; (iii) the Company acknowledges that there is a conflict of interest
between the Company and Indemnitee in the conduct of the defense of such
Proceeding, in which case, counsel selected by Indemnitee must be reasonably
satisfactory to Company; and provided further that if other persons who are
potential targets of any Proceeding are being separately represented because of
the same or substantially same conflict of interest, Indemnitee shall, upon the
Company's demand, use the same counsel as engaged on behalf of the other persons
(unless a conflict also exists between Indemnitee and such other persons); (iv)
following ten (10) days written notice, the Company shall in fact not have
employed counsel to assume the defense of such Proceeding; or (v) counsel
selected by the Company moves to withdraw from representing Indemnitee, and the
Company does not, within ten (10) days of receiving notice of such motion employ
substitute counsel.
6. Other Rights to Indemnification. The indemnification and
advancement of costs and expenses (including attorneys' fees and disbursements)
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may now or in the future be entitled under any provision of
applicable law, the Articles of Incorporation or any Bylaw of the Company or any
other agreement or any vote of directors or shareholders or otherwise, whether
as to action in his official capacity or in another capacity while occupying any
of the positions or having any of the relationships referred to in Section 2 of
this Agreement.
7. Enforcement.
(a) The Company unconditionally and irrevocably agrees
that its execution of this Agreement shall also constitute a stipulation by
which it shall be irrevocably bound in any court or arbitration in which a
Proceeding by Indemnitee for enforcement of his rights shall have been
commenced, continued or appealed that its obligations set forth in this
Agreement are unique and special, and that failure of the Company to comply with
the provisions of this Agreement will cause irreparable and irremediable injury
to Indemnitee, for which a remedy at law will be inadequate. As a result, in
addition to any other right or remedy he may have at law or in equity with
respect to a violation of this Agreement, Indemnitee shall be entitled to
injunctive or mandatory relief directing specific performance by the Company of
its obligations under this Agreement. The Company further irrevocably stipulates
and agrees that (i) it shall not, except in good faith, raise any objections not
specifically relating to the merits of Indemnitee's claim, (ii) if a
determination was made or deemed to have been made pursuant to the provisions of
Section 4 hereof that Indemnitee is entitled to indemnification, the Company
shall be bound by such determination and shall be precluded from asserting that
such determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable, (iii) the Company
shall be bound, in any such Proceeding, by all provisions of this Agreement
(including, but not limited to, Sections 4(b) and 4(c) hereof)
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<PAGE> 9
and (iv) the Company shall not assert any rights of set-off against Indemnitee
except for money borrowed by Indemnitee from the Company.
(b) If Indemnitee is subject to or intervenes in any
legal action in which the validity or enforceability of this Agreement is at
issue or institutes any legal action, for specific performance or otherwise, to
enforce his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall, within 30 days after written request to the Company therefor
(and submission of reasonable evidence of the amount thereof), and unless there
is a specific judicial finding that Indemnitee's suit was frivolous, be
indemnified by the Company against all costs and expenses (including attorneys'
fees and disbursements) incurred by him in connection therewith.
8. Duration of Agreement.
(a) This Agreement shall continue until and terminate
upon the later of (i) the tenth anniversary after Indemnitee has ceased to
occupy any of the positions or have any of the relationships described in
Section 2(a) of this Agreement or (ii) (A) the final termination or resolution
of all Proceedings with respect to Indemnitee commenced during such 10 year
period and (B) either (x) receipt by Indemnitee of the indemnification to which
he is entitled hereunder with respect thereto or (y) a final adjudication or
binding arbitration that Indemnitee is not entitled to any further
indemnification with respect thereto, as the case may be.
(b) This Agreement shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Indemnitee and his
heirs, devisees, executors, administrators or other legal representatives.
9. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable under any particular
circumstances or for any reason whatsoever (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including, without
limitation, all other portions of any Section, paragraph or clause of this
Agreement that contains any provision that has been found to be invalid, illegal
or unenforceable, that are not themselves invalid, illegal or unenforceable), or
the validity, legality or enforceability under any other circumstances shall not
in any way be affected or impaired thereby and (b) to the fullest extent
possible consistent with applicable law, the provisions of this Agreement
(including, without limitation, all other portions of any Section, paragraph or
clause of this Agreement that contains any such provision that has been found to
be invalid, illegal or unenforceable, that are not themselves invalid, illegal
or unenforceable) shall be deemed revised, and shall be construed so as to give
effect to the intent manifested by this Agreement (including the provision held
invalid, illegal or unenforceable).
10. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original, but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
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11. Headings. The headings of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
12. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
13. Notification and Defense of Claim. Indemnitee agrees to
promptly notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may be subject to indemnification covered
hereunder, whether civil, criminal or investigative; provided, however, that the
failure of Indemnitee to give such notice to the Company shall not adversely
affect Indemnitee's rights under this Agreement except to the extent the Company
shall have been materially prejudiced as a direct result of such failure.
Nothing in this Agreement shall constitute a waiver of the Company's right to
seek participation at its own expense in any Proceeding which may give rise to
indemnification hereunder.
14. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, (ii) mailed by certified
or registered mail with postage prepaid, on the fourth business day after the
date on which it is so mailed, or (iii) sent by facsimile transmission with the
effective transmission confirmed by receipt, in all cases:
(a) if to Indemnitee, at the address indicated on the
signature page hereof, and
(b) if to the Company:
Factual Data Corp.
3665 JFK Parkway
Building 1, Suite 201
Fort Collins, Colorado 80525
Facsimile No.: (970) 229-0612
or to such other address as may have been furnished to either party by the other
party.
15. Governing law. The parties hereto agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Colorado.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FACTUAL DATA CORP.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
INDEMNITEE
By:
---------------------------
Print Name:
------------------
Address:
------------------------------
------------------------------
------------------------------
11
<PAGE> 1
EXHIBIT 10.6A
FRANCHISE AGREEMENT
This Agreement, made this _____ day of _____________, 19_____, by and
between FACTUAL DATA CORP a corporation formed and operating under the laws of
the State of COLORADO, having its principal place of business at 3665 J.F.K.
Parkway, Building 1, Suite 200, Fort Collins, Colorado, 80525 (hereinafter
referred to as "FRANCHISOR"), and: __________________________________________
in the City of _________________________, in the State of _______________,
(hereinafter referred to as "FRANCHISEE").
WITNESSETH:
WHEREAS as the result of the expenditure of time, effort and money,
FRANCHISOR has acquired unique experience, special skills, technique and
knowledge with reference to the development, opening and operating of FACTUAL
DATA. The FRANCHISEE acknowledges that he does not presently know the special
skills, techniques or business policies, nor does the FRANCHISEE have business
forms or access to the FRANCHISOR'S body of knowledge; and
WHEREAS FRANCHISOR has devised a standard, unique and uniform system
for the establishment, operation and development of such a business with
distinctive features in the product, services, production, distribution,
accounting, and comprehensive management assistance, which system is identified
by the mark, FACTUAL DATA; and
WHEREAS FRANCHISOR is the owner of the entire right, title and
interest, together with all the goodwill connected therewith, in and to the
service and trademarks, FACTUAL DATA services and the business operated under
such system and in its name; and
WHEREAS all of the foregoing having a distinctive and valuable
significance to the public, and FRANCHISEE, being cognizant thereof, desires to
make use of the name, "FACTUAL DATA", and to enjoy the commercial benefits of
the merchandising system and operating services related thereto;
WHEREAS the FRANCHISEE understands that information received from the
FRANCHISOR or from any of its officers, employees, agents or franchisees is
confidential and has been developed with a great deal of effort and expense.
FRANCHISEE acknowledges that the information is being made available to him so
that he may more effectively establish and operate a FACTUAL DATA franchise.
WHEREAS the FRANCHISOR has and will continue to license others to use
its servicemarks in connection with the operation of FACTUAL DATA offices at
FRANCHISOR approved locations;
WHEREAS the FRANCHISEE acknowledges that he received the FRANCHISOR'S
Franchise Offering Circular at or prior to the first personal meeting with a
FRANCHISOR representative and at least ten business days prior to the signing
of this agreement;
WHEREAS the FRANCHISEE acknowledges that he understands that the
success of the business to be operated by him under this agreement depends
primarily upon his efforts and that neither the FRANCHISOR or any of its agents
or representatives have made any oral, written or visual representations or
projections of actual or potential sales, earnings, net or gross profits.
NOW THEREFORE, the parties hereto intending to be legally bound in
consideration of the mutual agreements, covenants and promises contained
herein, do hereby agree as follows:
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I. APPOINTMENT AND FRANCHISE FEE
A. FRANCHISOR hereby grants unto FRANCHISEE the right to use the
mark, "FACTUAL DATA", and the right, franchise and privilege to use "FACTUAL
DATA CORP" procedures, methods and techniques in the operation of a "FACTUAL
DATA" office, under the specific conditions hereinafter set forth, at one
office only, to be located at a site approved by the FRANCHISOR and the
FRANCHISEE. This location shall be the FRANCHISEE'S primary area of
responsibility.
B. FRANCHISOR will not, so long as this Agreement is in force and
effect and FRANCHISEE is not in default under any of the terms hereof,
enfranchise or operate any other "FACTUAL DATA" Business for the same area as
that granted to FRANCHISEE.
C. FRANCHISEE shall pay to FRANCHISOR ( $.00), based on the
population of FRANCHISEE'S territory, in return for which FRANCHISEE shall
receive all the rights to do business in the counties of Broward, Dade,
Collier, Hendry, Lee and Monroe as a licensed "Factual Data" FRANCHISEE,
subject to compliance by the FRANCHISEE with the terms of this Agreement.
D. Every franchise is directly related to a specific place of
business for a designated city, town, or other defined area. Each franchise is
an exclusive grant of a license solely in relation to such place of business.
E. FRANCHISOR transfers to FRANCHISEE all items attached hereto
and made a part of this Agreement.
In order for the FRANCHISEE to operate a "FACTUAL DATA" franchise in
an additional location, a separate Franchise Agreement must be signed and an
additional franchise fee will be required.
II. LOCATION
A. FRANCHISOR agrees to analyze FRANCHISEE'S market area, to
determine site feasibility, and to designate the franchise location (subject to
FRANCHISEE'S approval of the same). When FRANCHISOR agrees to designate a
location, nothing contained herein shall be interpreted as an ultimate
guarantee of success for said location.
B. Following designation and approval of the location, FRANCHISOR
agrees that upon request of the FRANCHISEE, it will aid the FRANCHISEE in the
negotiation for the location, and in suggestions for layout and design of a
typical franchise place of business.
C. Nothing in the foregoing shall prevent the FRANCHISEE from
acquiring, leasing, or developing such a location independent of the
FRANCHISOR. The use of the FRANCHISOR'S suggestions and specifications is not
included in the price of this franchise, and the FRANCHISEE shall therefore not
be entitled to any reduction in the price of the franchise if he uses his own
design and services.
D. The FRANCHISEE's primary area of responsibility described by a
geographical area is outlined in Exhibit H attached hereto and made a part
hereof.
III. PROPRIETARY MARKS
A. FRANCHISEE acknowledges that the name, "FACTUAL DATA", is a
valid service and/or trademark owned by FRANCHISOR, and that only the
FRANCHISOR or its designated
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FRANCHISEES have the right to use such trademark and such other trademarks,
servicemarks and tradenames as may exist or be acquired by FRANCHISOR.
FRANCHISEE further acknowledges that valuable goodwill is attached to such
trademarks, servicemarks and tradenames, and that he will use same only in the
manner and to the extent specifically licensed by this Agreement.
1. FRANCHISEE understands and agrees that his license under said
Proprietary marks is non-exclusive, and that FRANCHISOR, in its sole
discretion, has the right itself to operate businesses under said marks, and to
grant other licenses in, to and under said marks, and to grant other licenses
in, to and under such Proprietary marks on any terms and conditions FRANCHISOR
deems fit; provided, however, that FRANCHISOR agrees to abide by the provisions
of Paragraph I.B. of this Agreement.
2. FRANCHISEE expressly covenants that during the term of this
Agreement, and after the expiration or termination thereof, FRANCHISEE shall
not directly or indirectly contest or aid in contesting the validity or
ownership of Proprietary marks and copyrights.
3. FRANCHISEE agrees to promptly notify FRANCHISOR of any claim,
demand, or suit based upon or arising from, or of any attempt by any other
person, firm, or corporation, to use the service and/or trademarks licensed
hereunder, or any trademark, service mark, symbol, trade name, copyright, or
colorable variation thereof, in which FRANCHISOR has a proprietary interest.
FRANCHISEE agrees also to promptly notify FRANCHISOR of any litigation
instituted by FRANCHISEE, or by any person, firm, corporation or governmental
agency against FRANCHISEE. In the event FRANCHISOR, pursuant to the terms of
Paragraph III, undertakes the defense or prosecution of any litigation,
FRANCHISEE agrees to execute any and all documents and do such acts and things
as may, in the opinion of counsel for FRANCHISOR, be necessary to carry out
such defense or prosecution, either in the name of FRANCHISOR or in the name of
FRANCHISEE, as FRANCHISOR shall elect.
4. In the event any of the FRANCHISOR'S servicemarks or
trademarks (registered or unregistered) are challenged by third parties
claiming infringement of alleged prior or superior rights in such marks,
FRANCHISOR shall have the option and right to modify or discontinue use of its
servicemarks or trademarks and adopt substitute servicemarks or trademarks in
the FRANCHISEE'S geographical business areas and in such other areas as the
FRANCHISOR chooses. The FRANCHISOR'S liability to the FRANCHISEE under such
circumstance shall be limited to the cost of replacement of the FRANCHISEE'S
signs and advertising materials in effecting such modifications,
discontinuance or adoption of substitute service marks or trademarks.
B. FRANCHISEE shall not use the word "FACTUAL DATA" as part of
its corporate or other business name. FRANCHISEE shall not license, register
or purchase vehicles, fixtures, products, supplies or equipment, or perform any
other activity or incur any obligation or indebtedness except in his
individual, corporate or other business name. FRANCHISEE may, however,
identify itself as a "FACTUAL DATA" Franchise as prescribed in the Operating
Manual.
C. FRANCHISEE understands and acknowledges that each and every
detail of the "FACTUAL DATA" Franchise is important to FRANCHISOR, to
FRANCHISEE, and to other licensed "FACTUAL DATA" franchisees in order to
develop and maintain uniformity of services, and therefore, to enhance the
reputation, trade demand and goodwill of "FACTUAL DATA", FRANCHISEE accordingly
covenants:
1. To operate, advertise and promote his franchise under the
name, "FACTUAL DATA" without prefix or suffix; and
2. To adopt and use the Proprietary Marks licensed hereunder
solely in the manner prescribed by FRANCHISOR; and
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3. To carry out his business under said Proprietary marks in
accordance with operational standards established by FRANCHISOR, and as set
forth in the Operating Manual and/or other documents, if such a Manual or other
documents are provided to the FRANCHISEE.
D. In order to preserve the validity and integrity of the
Proprietary Marks licensed herein, and to assure that FRANCHISEE is properly
employing the same in the operation of its franchise, FRANCHISOR or its agents
shall at all reasonable times have the right to entry and inspection of
FRANCHISEE'S premises, and, additionally, shall have the right to observe the
manner in which FRANCHISEE is rendering its services, to confer with
FRANCHISEE'S employees and clients, and to suggest products and services for
testing and evaluation in order to make certain that they are satisfactory with
the quality control provisions established by the FRANCHISOR.
IV. TRAINING AND ASSISTANCE
A. FRANCHISOR shall make available to FRANCHISEE or FRANCHISEE'S
designated manager, and FRANCHISEE or its manager shall attend and successfully
complete, prior to opening for business, a twenty (20) working day training and
familiarization course at such places and for such lengths of time as
FRANCHISOR shall designate. Said training program shall cover all aspects of
the operation of a "FACTUAL DATA" franchise. Room, board and travel expenses
during this period shall be borne by FRANCHISEE.
B. During the first month of operation of FRANCHISEE'S "FACTUAL
DATA" business, FRANCHISOR will furnish to FRANCHISEE , one of FRANCHISOR'S
representatives for the purpose of facilitating the opening of the FRANCHISEE'S
Factual Data office. Such representative will also assist FRANCHISEE in
establishing and standardizing procedures and techniques essential to the
operation of a distinctive "FACTUAL DATA" business, and, if necessary and
requested by the FRANCHISEE, shall assist in hiring and training FRANCHISEE'S
personnel at FRANCHISEE'S expense.
C. FRANCHISOR may, but shall not be required to, provide a
continuing advisory service which shall include, but not be limited to,
consultation on promotional, business, or operational problems with analysis of
FRANCHISEE'S sales, marketing, and financial data.
D. FRANCHISOR shall initially, and from time to time when
available, offer to FRANCHISEE materials and bulletins on sales, marketing
developments, products and techniques either without charge or according to the
then current price list.
E. FRANCHISOR will provide FRANCHISEE a marketing representative
for on-site consultation during 10 working days of the franchise.
V. ADVERTISING FEES AND CONTROLS
A. FRANCHISEE shall determine when business development expense
is necessary for advertising. FRANCHISOR is not bound to provide any
advertising to FRANCHISEE.
B. Recognizing the value of advertising and the importance of the
standardization of advertising and promotion to the furtherance of the goodwill
and public image of "FACTUAL DATA", FRANCHISEE agrees to submit to FRANCHISOR
or its designated agency, for its prior approval, all sales promotion materials
and advertising to be used by FRANCHISEE, including, but not limited to,
newspapers, radio and television advertising, specialty and novelty items. In
the event written or oral disapproval of said advertising and promotional
material is not received by FRANCHISEE from FRANCHISOR or its designated agency
within fifteen (15) days from the date such material is submitted to and
received by FRANCHISOR, said materials shall be deemed approved.
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Failure by FRANCHISEE to conform with the provisions herein and subsequent
non-action by FRANCHISOR to this failure and default shall not be deemed as a
waiver of further or additional failures and defaults. The submission of
advertising to FRANCHISOR for approval shall not affect FRANCHISEE'S right to
determine the prices at which FRANCHISEE sells its services.
C. FRANCHISEE shall not advertise or use in advertising or any
other form of promotion, the trademarks of FRANCHISOR without appropriate C, TM
or R copyright and registration marks.
D. FRANCHISOR may, but is not required to, advertise for Factual
Data and its business outlets.
VI. CONFIDENTIAL OPERATING MANUAL
A. In order to protect the reputation and goodwill associated
with the mark, "FACTUAL DATA", and to maintain the uniform standards of
operation thereunder, FRANCHISEE shall conduct its "FACTUAL DATA" franchise in
strict accordance with FRANCHISOR'S Operating Manual.
B. FRANCHISEE shall at all times treat as confidential, and shall
not at any time disclose, copy, duplicate, record or otherwise reproduce, in
whole or in part, or otherwise make available to any unauthorized person or
source, the contents of said Manual.
C. The Operating Manual shall at all times remain the sole
property of FRANCHISOR and shall promptly be returned upon the expiration or
other termination of this Agreement. Upon sale to a new FRANCHISEE, all
materials will be made available to the purchaser after all purchase and
Franchise contracts are completed.
D. FRANCHISOR may, from time to time, revise the contents of said
Manuals to convey to FRANCHISEE advancements and new developments in sales,
marketing, operational techniques and other items and procedures relevant to
the operation of a "FACTUAL DATA" franchised business.
VII. ACCOUNTING AND RECORDS
A. To enable FRANCHISEE and FRANCHISOR to best ascertain their
costs and maintain an economical method of operation, FRANCHISEE agrees to keep
and preserve, at its cost, during the term of the franchise granted hereunder,
full, complete, and accurate books and accounts in an accounting form and
manner as prescribed in the Operating Manual. At the request of FRANCHISEE,
FRANCHISOR will furnish a list of recommended accounting firms who meet the
standards and requirements of FRANCHISOR.
B. FRANCHISEE shall submit to FRANCHISOR such periodic reports,
forms and records, at its sole cost, as specified and in the manner and at the
time as specified in the Operations Manual.
C. FRANCHISOR'S representatives shall have the right at any time
to inspect FRANCHISEE'S books, records, and cash control devises or systems.
VIII. STANDARDS OF QUALITY
A. FRANCHISEE recognizes that it is essential to the proper
marketing of "FACTUAL DATA" and to the preservation and promotion of its
reputation and acceptance by the public at large, that uniform standards of
quality and of appearance be maintained; that uniform size, quality, texture,
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absorbency, strength, finish, and appearance, displaying FRANCHISOR'S various
Proprietary Marks, be used in distribution to the public. FRANCHISEE therefore
agrees, as part of the consideration for this Agreement, that FRANCHISEE will
at all times dispense, sell, or offer for sale to the public, only such
services as shall meet the reasonable specifications and standards from time to
time designated in writing by FRANCHISOR for sale and service from or at the
"FACTUAL DATA" business licensed herein; and FRANCHISEE shall sell, serve and
dispense all such services as shall meet all such specifications and standards
designated by FRANCHISOR.
B. FRANCHISEE shall purchase all printed material required for
the operation of the "FACTUAL DATA" franchise licensed herein from FRANCHISOR
through requisition procedures set forth in the Operations Manual.
IX. MODIFICATION OF THE SYSTEM
FRANCHISEE recognizes and agrees that from time to time hereafter
FRANCHISOR may change or modify the system presently identified by the mark
"FACTUAL DATA", including the adoption and use of new or modified trade names,
trademarks, service marks or copyrighted materials, new products, new equipment
or new techniques, and that FRANCHISEE may accept, use and display for the
purpose of this Agreement any such changes in system, including new or modified
trade names, trademarks, service marks or copyrighted materials, new products,
new equipment or new techniques, as if they were part of this Agreement at the
time of execution hereof. FRANCHISEE may make such expenditures as such
changes or modifications in the system may reasonably require, and do so within
a reasonable time.
X. CONTINUING SERVICES AND ROYALTY FEE
A. FRANCHISEE shall pay to FRANCHISOR, so long as this Agreement
shall be in effect, a Continuing Services and Royalty Fee (equal to a
percentage in accordance with the Table below) per mortgage credit report
("unit") made by FRANCHISEE'S gross sales derived from the "FACTUAL DATA"
Business franchised hereunder. Said royalty is to be paid monthly in the
manner specified below or as otherwise prescribed in the Operations Manual.
TABLE OF ROYALTY CHARGES
Number of Units Sold Per Month Percentage of Gross Sales
Number of Units Sold Per Month
5% of Gross sales sold per month
* ON ALL UNITS SOLD THAT MONTH
The FRANCHISEE acknowledges that the above table reflects a total rate for ALL
units sold that month, and that only one percentage rate is applied, that being
the greatest percentage rate attained each month.
The FRANCHISEE agrees to permit FRANCHISOR access to its computers to obtain
FRANCHISEE'S sales reports for the previous month of operations. This access
will be given not later than the 5th day of each month. The continuing
services and royalty fee payment based on the gross sales shown by FRANCHISEE'S
computer records must also be paid no later than the 10th day of each month.
FRANCHISOR will also utilize FRANCHISEE'S sales reports for the preparation of
FRANCHISEE'S monthly billing statements.
FRANCHISEE will make available for reasonable inspection at reasonable times by
FRANCHISOR, all original books and records that FRANCHISOR may deem necessary
to ascertain gross sales.
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B. FRANCHISEE will supply to FRANCHISOR on or before the
twentieth (20th) day of each month, in the form approved by FRANCHISOR, an
operating statement of receipts and disbursements for the last preceding
calendar month. In addition, within ninety (90) days after the close of
FRANCHISEE'S fiscal year, FRANCHISEE shall deliver to FRANCHISOR an unaudited
Profit and Loss Statement and Balance Sheet as of the end of FRANCHISEE'S last
fiscal year. The Operating Statement, Profit and Loss Statement and Balance
Sheet shall be provided at FRANCHISEE's cost and expense.
C. In the event FRANCHISEE fails to pay any Continuing Services
and Royalty Fee within fifteen (15) days after it is due, FRANCHISEE shall pay
interest on the amount due at the rate of one and one half percent (1.5%) per
month for each and every month that said amount is not paid, but in no event
shall FRANCHISEE be compelled to pay interest at a rate greater than the
maximum permitted by applicable law.
XI. INSURANCE
A. FRANCHISEE shall procure before the commencement of business,
and maintain in full force and effect during the entire term of this Agreement,
at FRANCHISEE'S sole expense, an insurance policy or policies protecting
FRANCHISEE and FRANCHISOR and their officers and employees against any loss,
liability or expense whatsoever from fire (including extended coverage),
personal injury, death, property damage, products liability or theft, arising
or occurring upon or in connection with such premises or by reason of
FRANCHISEE'S operation upon, from, or occupancy of, such premises. FRANCHISOR
shall be an additional named insured in such policy or policies (Workmen's
Compensation excepted.) Such policy or policies shall be written by a
responsible insurance company or companies satisfactory to FRANCHISOR, and
shall include the following:
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KIND OF INSURANCE MINIMUM LIMITS OF LIABILITY
Worker's Compensation Statutory
1. (A) $100,000. contents (all risk)
(B) Loss of Income, Extra Expense, Valuable Papers at $5,000.
(C) Accounts Receivable at $5,000.
(D) Property of Others at $1,000.
(E) Liability at $1,000,000.
(F) Medical Payments at $1,000. / $25,000.
(G) Personal Injury, Non-Owned Auto and Hired Auto, Employees as
Additional Insured, Products and Completed Operations, Broad
Form Property Damage, Money and Securities at $2,000.
2. Worker's Compensation as required by your state.
The insurance afforded by the policy or policies respecting liability shall not
be limited in any way by reason of any insurance which may be maintained by
FRANCHISOR. Within thirty (30) days of the signing of this Agreement, but in
no event later than the day before the date on which FRANCHISEE first opens its
establishment for business, the Certificates of Insurance showing compliance
with the foregoing requirements shall be furnished by FRANCHISEE to FRANCHISOR
for approval. Such certificate shall state that said policy or policies will
not be cancelled or altered without at least ten (10) days prior written notice
to FRANCHISOR. Maintenance of such insurance, and the performance by
FRANCHISEE of the obligations under the indemnity provision set forth in this
Agreement, shall be the responsibility of the FRANCHISEE. Minimum limits, as
required above, may be reasonably modified from time to time, as conditions
require, by written notice to FRANCHISEE. FRANCHISOR need not be included in
any fire policy if FRANCHISOR has no interest in said premises or the equipment
therein as owner, lessee, mortgagee or otherwise.
B. Should FRANCHISEE, for any reason, not procure and maintain
such insurance coverage as required by this Agreement, then FRANCHISOR shall
have the right and authority, as its option, to immediately procure such
insurance upon notice, and FRANCHISEE will pay and reimburse FRANCHISOR for all
costs of same.
XII. TERM
A. The term of this agreement shall be for ten (10) years from
the date of its execution, and shall be automatically extended for additional
ten (10) year periods by FRANCHISEE provided FRANCHISEE is not in default of
any provision herein.
The FRANCHISEE agrees to commence operations not later than 90 days after the
execution of this agreement. If FRANCHISEE fails to commence operations within
90 days, and to continually maintain such operation, FRANCHISEE shall be in
default.
B. In order to not extend this Agreement, FRANCHISEE must give
the FRANCHISOR written notice of his election not to renew or extend not less
than ninety (90) days prior to the expiration of each ten year term. No
renewal or extension fee will be required.
C. FRANCHISOR reserves the right to refuse to extend or renew
this Agreement if FRANCHISEE fails to satisfactorily comply with this
Agreement. If FRANCHISOR decides to not renew, it must give FRANCHISEE 60 days
notice prior to renewal date, and the reason therefore. FRANCHISEE has 30 days
to remedy the claimed defaults to the satisfaction of FRANCHISOR, and if
remedied, the notice shall be void.
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D. Any dispute arising under this Section XII shall be settled
through arbitration in accordance with the rules of the American Arbitration
Association at a hearing to be held in Ft. Collins, Colorado.
XIII. COVENANTS OF FRANCHISEE
A. During the term of this Franchise Agreement or any extension
thereof:
1. FRANCHISEE, or its designated manager, shall devote
all the time, energy and effort reasonably required for the management and
operation of the "FACTUAL DATA" business licensed hereunder.
2. FRANCHISEE shall not, either directly or indirectly,
for itself or on behalf of or in conjunction with any other person, persons,
partnership or corporation, own, maintain, engage in, participate or have any
interest in the operation of other directly competing business; provided,
however, that:
(a) The above provisions relating to interests in
other businesses shall not apply to ownership by FRANCHISEE in any business
which does not use any system of operation competitive with the "FACTUAL DATA"
method of operation.
B. FRANCHISEE further covenants that during the term of this
Agreement, and for a period of two (2) years thereafter, regardless of the
cause of termination, FRANCHISEE shall not:
1. Divert, or attempt to divert, any business of, or any
customers of, the "FACTUAL DATA" business licensed hereunder to any other
competitive establishment, by direct or indirect inducement or otherwise;
2. Employ, or seek to employ, any person employed by
FRANCHISOR, or any other person who is at the time operating or employed by or
at any other "FACTUAL DATA" business, or otherwise directly or indirectly
induce such persons to leave their employment therewith.
C. FRANCHISEE further covenants that for a period of two (2)
years after the termination of the franchise, regardless of the cause of
termination, he shall not, either directly or indirectly, for himself, or on
behalf of or in conjunction with any other person, persons, partnership or
corporation, own, maintain, engage in, or participate in the operation of any
"FACTUAL DATA"-type business covering a radius of one hundred (100) miles of
the location franchised hereunder. In the event of a breach of this provision,
the FRANCHISEE shall pay to the FRANCHISOR $150,000.00 for each office plus 11%
of the gross sales of each office he is associated with within the restricted
area for a two (2) year period.
D. FRANCHISEE shall not during the term of this Agreement or
after its termination communicate or divulge to any other person, persons,
partnership or corporation, any information or knowledge concerning the methods
of manufacture, preparation, promotion, sale or distribution used in a "FACTUAL
DATA" business, nor shall FRANCHISEE disclose or divulge in whole or in part
any trade secrets or private processes of FRANCHISOR or its affiliated
companies, nor shall FRANCHISEE engage in any other business identical or
similar to this franchise. If this provision is breached, FRANCHISEE shall pay
FRANCHISOR $150,000.00 for each office plus 11% of the gross sales of each
office operated or controlled by him.
E. Covenants contained in this paragraph shall be construed as
severable and independent and shall be interpreted and applied consistent with
the requirements of reasonableness and equity. Any judicial reformation of
these covenants consistent with this interpretation shall be enforceable as
though contained herein, and shall not affect any other provisions or terms of
this Agreement.
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XIV. TERMINATION AND DEFAULTS
A. In the event that FRANCHISEE shall become insolvent or make an
assignment for the benefit of creditors, or if a petition in bankruptcy is
filed by FRANCHISEE, or such a petition is filed against and consented to by
FRANCHISEE, or if FRANCHISEE is adjudicated a bankrupt, or if a bill in equity
or other proceeding for the appointment of a receiver of FRANCHISEE or other
custodian for FRANCHISEE'S business or assets is filed and/or is consented to
by FRANCHISEE, or a receiver or other custodian is appointed, or if proceedings
for composition with creditors under any state or federal law should be
instituted by or against FRANCHISEE or if FRANCHISEE shall be attached or
levied upon by any sheriff, marshal, or constable and shall not be seasonably
cured, then in any of said events, FRANCHISEE shall be deemed to be in default
under this Agreement, and all rights granted to FRANCHISEE hereunder shall
thereupon terminate upon the occurrence of the above event or events
immediately after a 30 day notice to FRANCHISEE from the FRANCHISOR.
B. Except as provided in XIV.A. and B.1. of this Agreement, if
FRANCHISEE shall be in default under the terms of this Agreement, and such
default shall not be cured within thirty (30) days after receipt of written
"Notice to Cure" thereof from FRANCHISOR, then in addition to all other
remedies at law or in equity, FRANCHISOR may immediately terminate this
Agreement. In the event FRANCHISEE is in default under the terms of the
Franchise Agreement within twelve (12) months after a prior default, and
FRANCHISOR has served FRANCHISEE with a "Notice to Cure" with respect to such
prior default, this Agreement may be terminated immediately after a 30 day
notice by FRANCHISOR upon such subsequent default. FRANCHISEE shall be in
default under this Agreement:
1. If FRANCHISEE fails, refuses, or neglects to promptly pay to
FRANCHISOR any monies owing to FRANCHISOR on date due, the FRANCHISOR may
terminate this Agreement upon ten (10) day notice to FRANCHISEE of the default.
FRANCHISEE has ten (10) days from the date of delivery of the notice to remedy
the default; or
2. If FRANCHISEE fails to submit reports or financial data with
FRANCHISOR required under this Agreement; or
3. If FRANCHISEE fails to comply with any of the requirements
imposed upon it by this Agreement and the Operating Manual, or other such
operational memoranda issued by FRANCHISOR, or uses bad faith in carrying out
the terms of the franchise.
4. If FRANCHISEE loses his location or fails to make rent
payments on time;
5. If FRANCHISEE under reports his gross sales by 2% for a year
or any part of a year or materially distorts any other material information.
6. If FRANCHISEE loses any permit or license he needs to operate
the business.
7. Fails to continuously and actively operate his Factual Data
franchise office.
8. Makes an unauthorized assignment of the Franchise Agreement.
9. Repeatedly fails to comply with the Franchise Agreement,
whether or not such failures are corrected, after notice thereof is delivered
to the Franchisee.
10. Has made any material misrepresentations or misstatements on
his application for the franchise or with respect to the ownership of the
franchise.
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C. Upon any breach, default or other material failure by
FRANCHISOR under the provisions of this instrument continued and uncured for
more than thirty (30) days after express written notice given to FRANCHISOR by
FRANCHISEE of such claimed failure or upon the bankruptcy or like insolvency of
the FRANCHISOR, FRANCHISEE shall have the right by an additional express notice
given to FRANCHISOR by FRANCHISEE to terminate the term of this agreement at
the date of such notice or at any date not more than sixty (60) days thereafter
so specified by such notice. FRANCHISOR has the right to cure or otherwise
remedy any failure within 30 days thereof; and any such cure will abrogate the
right to terminate and nullify any attempted termination of the term of this
agreement by reason of such default.
D. For purposes of this Section, receipt of notice is defined in
Paragraph XXIV.
E. In the event FRANCHISOR is required to purchase the equipment
and/or leasehold improvements of the FRANCHISEE upon termination of this
Agreement pursuant to the requirements of any Federal, State or local statute,
rule or regulation or any judicial determination, the purchase price shall be
computed at FRANCHISEE'S cost less depreciation and amortization based upon a
five (5) year life under the straight-line method.
XV. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION
A. Upon termination or expiration of this Agreement, FRANCHISEE
shall immediately cease to be a licensed "FACTUAL DATA" FRANCHISEE and:
1. FRANCHISEE shall promptly pay FRANCHISOR all sums owing from
FRANCHISEE to FRANCHISOR under the terms of this Agreement. Said sums shall
include all damages, costs and expenses, including reasonable attorney's fees,
incurred by FRANCHISOR by reason of default on the part of FRANCHISEE, whether
or not such occur prior to or subsequent to the termination or expiration of
the franchise, and said sums shall include all costs and expenses, including
reasonable attorney's fees, incurred by FRANCHISOR in obtaining injunctive or
other relief to enforce the provisions of this contract.
2. FRANCHISEE shall immediately thereafter cease to use, by
advertising or in any manner whatsoever, the name "FACTUAL DATA", or any forms,
manuals, slogans, signs, marks, symbols, or devices used in connection with the
operation of a "FACTUAL DATA" franchise. FRANCHISEE shall not represent or
advertise that FRANCHISOR or FRANCHISEE were formerly parties to this Franchise
Agreement, or that FRANCHISEE did business under the trademarks or name of
FRANCHISOR.
3. FRANCHISEE shall take such action as shall be necessary to
cancel any assumed name or equivalent registration on which contains the name
"FACTUAL DATA" or any other trademark of FRANCHISOR, and FRANCHISEE shall
furnish FRANCHISOR evidence satisfactory to FRANCHISOR of compliance with the
obligation within thirty (30) days after said termination.
4. FRANCHISEE shall assign to FRANCHISOR all his rights, title
and interest in and to FRANCHISEE'S telephone numbers.
5. FRANCHISEE shall immediately return to FRANCHISOR all
operating manuals, computer programs, and other memoranda reflecting operating
procedures of the franchise. FRANCHISEE acknowledges that the computer
programs shall always remain the property of FRANCHISOR.
6. FRANCHISEE shall be solely liable and hold FRANCHISOR harmless
for any contracts then in effect;
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7. FRANCHISEE shall transfer to FRANCHISOR, or any other person
designated by FRANCHISOR, by assignment of lease, by lease, or by any other
reasonable or suitable means, the exclusive occupation and use of the licenced
location, at the option of FRANCHISOR;
8. All fees paid by FRANCHISEE in connection with the purchase of
the franchise are non-refundable, and shall be deemed earned on the date of the
execution of this agreement.
9. FRANCHISEE retains the furniture, equipment and computer
hardware he obtained for the franchise. All other items must be returned to the
FRANCHISOR. FRANCHISOR has no obligation to purchase FRANCHISEE'S retained
furniture, equipment and computer hardware or to make any payment or adjustment
whatsoever to the FRANCHISEE for any goodwill the FRANCHISEE may have
established prior to or during operation of the Factual Data franchise.
B. No right or remedy herein conferred upon or reserved to
FRANCHISOR is exclusive of any other right or remedy herein or by law or equity
provided or permitted; but each shall be cumulative of every other right or
remedy given hereunder.
XVI. COMMENCEMENT AND CONTINUITY OF OPERATION
A. FRANCHISEE recognizes that continuous availability of the
"FACTUAL DATA" services to the public is essential to the adequate promotion of
"FACTUAL DATA" and that any failure to provide such availability affects the
FRANCHISOR both locally and nationally.
B. FRANCHISEE therefore recognizes an obligation to commence
operations not later than ninety (90) days after the approval of this Agreement
by the FRANCHISOR. If the FRANCHISEE fails to commence operation as herein
provided, and to continuously maintain such operation, such failure shall be
considered a default, and FRANCHISOR may terminate this Agreement as provided
herein.
XVII. TRANSFERABILITY OF INTEREST
A. This Agreement and all rights hereunder may be assigned and
transferred by FRANCHISOR and, if so, shall be binding upon and inure to the
benefit of FRANCHISOR'S successors and assigns.
B. This Agreement, and all rights hereunder, may be assigned and
transferred by FRANCHISEE and, if so, shall be binding upon and injure to the
benefit of FRANCHISEE'S successors and assigns, subject to the following
conditions and requirements.
1. No FRANCHISEE, partner (if FRANCHISEE is a partnership), or
shareholder (if FRANCHISEE is a corporation), without FRANCHISOR'S prior
written consent, shall, by operation of law or otherwise, sell, assign,
transfer, convey, give away, or encumber to any person, firm, or corporation,
his interest in this Agreement or his interest in the franchise granted hereby
or his interest in any proprietorship, partnership or corporation which owns
any interest in the franchise, nor offer, permit, or suffer the same. Any
purported assignment not having the aforesaid consent shall be null and void
and shall constitute a material default hereunder.
2. FRANCHISOR shall not unreasonably withhold its consent to any transfer
referenced in Paragraphs XVII.B.1. of this Agreement when requested; provided,
however, that the following conditions and requirements shall first be met to
the full satisfaction of FRANCHISOR.
(a) If FRANCHISEE is an individual or partnership and
desires to assign and transfer his rights to a corporation:
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(1) Said transferee corporation shall be newly
organized, and its charter shall provide that its activities are confined
exclusively to acting as a "FACTUAL DATA" franchise as licensed under this
Agreement;
(2) FRANCHISEE shall be, and shall remain, the
owner of the majority stock interest of the transferee corporation;
(3) The individual FRANCHISEE (or, if FRANCHISEE
is a partnership, one of the partners) shall be, and shall remain, the
principal executive officer of the corporation;
(4) The transferee corporation shall enter into a
written assignment with FRANCHISEE and FRANCHISOR, under seal, (in form
satisfactory to FRANCHISOR) assuming all of FRANCHISEE'S obligations hereunder;
(5) All shareholders of the transferee
corporation shall enter into a written agreement, in a form satisfactory to
FRANCHISOR, jointly and severally guaranteeing the full payment and performance
of the transferee corporation's obligations to FRANCHISOR;
(6) Each stock certificate of the transferee
corporation shall have conspicuously endorsed upon it a statement that it is
held subject to, and that further assignment or transfer thereof is subject to
all restrictions imposed upon assignments by this Agreement;
(7) No new shares of common or preferred voting
stock in the transferee corporation shall be issued to any person, partnership,
trust, foundation or corporation without obtaining FRANCHISOR'S prior written
consent; and
(8) All accrued money obligations of FRANCHISEE
to FRANCHISOR, its subsidiaries or assignees, shall be satisfied prior to
assignment or transfer.
(b) If the transfer, other than such transfer as is
authorized under Paragraph XVII.B.2a. of this Agreement, is consummated alone
or together with other related previous, simultaneous, or proposed transfers
and would have the effect of transferring control of the franchise licenses
herein to someone other than an original signatory of this Agreement:
(1) The transferee(s) shall be of good moral
character and reputation, and shall have a good credit rating and competent
business qualifications reasonably acceptable to FRANCHISOR. FRANCHISEE shall
provide FRANCHISOR with such information as FRANCHISOR may require to make such
determination concerning each such proposed transferee(s).
(2) The transferee(s), or such other
individual(s) as shall be the actual manager of the franchise, shall have
successfully completed and passed the training course then in effect for
FRANCHISEES, or otherwise demonstrated to FRANCHISOR'S satisfaction, sufficient
ability to operate the unit being transferred.
(3) The transferee(s), including all shareholders
and partners of the transferee(s), shall jointly and severally execute both or
either (as FRANCHISOR shall direct):
aa. A Franchise Agreement and other
standard ancillary agreements with FRANCHISOR, on the current standard forms
being used by FRANCHISOR, and/or
bb. A written assignment with FRANCHISEE
and FRANCHISOR, under seal, (in a form satisfactory to FRANCHISOR) assuming all
of FRANCHISEE'S obligations hereunder.
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<PAGE> 14
(4) In the event FRANCHISOR is reasonably
unsatisfied with the qualifications of the transferee(s) as required in the
foregoing provisions of Paragraph XVII.B.2.b.(1), FRANCHISEE shall, upon request
of FRANCHISOR, enter into a written agreement with FRANCHISOR, under seal, (in a
form satisfactory to FRANCHISOR) guaranteeing the full payment and performance
of the obligations assumed by or assigned to transferee(s).
(5) The term of said agreements required pursuant
to subparagraph XVII.B.2.b.(3) and (4) shall be for the unexpired term of this
Agreement as provided herein.
(6) If transferee is a corporation:
aa. Each stock certificate of the
transfer corporation shall have conspicuously endorsed upon it a statement that
is held subject to, and that further assignment or transfer thereof is subject
to, all restrictions imposed upon assignments by this Agreement; and,
bb. No new shares of common or preferred
voting stock in the transferee corporation shall be issued to any person,
partnership, trust, foundation, or corporation without obtaining FRANCHISOR'S
prior written consent.
(7) All accrued money obligations of FRANCHISEE
or FRANCHISOR, its subsidiaries, affiliates or assignees, shall be satisfied
prior to assignment or transfer, and FRANCHISEE shall not be in default under
the terms of this Agreement.
3. FRANCHISEE shall have fully paid and satisfied all of FRANCHISEE'S
obligations to FRANCHISOR, and the transferee or FRANCHISEE shall have fully
paid to FRANCHISOR a transfer fee of 35% of the then current Franchise fee to
cover FRANCHISOR'S expenses in connection with the transfer, which includes the
required training course, supervision, accounting and legal expense. This
transfer fee does not apply to an Assignment of Interest to a corporation under
Paragraph XVII.B.2.a. of this Agreement.
4. No sale, assignment, transfer, conveyance, encumbrance, or gift of any
interest in this Agreement, or in the franchise granted thereby, shall relieve
FRANCHISEE, and the shareholders or partners participating in any transfer, of
the obligations of the covenant not to compete contained in Paragraph XIII,
except where FRANCHISOR shall expressly authorize in writing.
XVIII. DEATH OF FRANCHISEE
A. In the event of the death of an individual FRANCHISEE, or any
partner or shareholder of a FRANCHISEE which is a partnership or corporation,
the heirs, beneficiaries, devisees, or legal representatives of said
individual, partner or shareholder, together with all surviving partners or
shareholders, shall, within ninety (90) days of such event :
1. Apply to FRANCHISOR for the right to continue to operate the
franchise (for the duration of the term of this Agreement), which right shall
be granted upon the fulfillment of all of the conditions set forth in
Paragraphs XVII.B.2.b. of this Agreement (except that no transfer fee shall be
required); or
2. Sell, assign, transfer, convey FRANCHISEE'S interest in
compliance with the provisions of Paragraphs XVII.B. of this Agreement;
provided, however, in the event a proper and timely application in the right to
continue to operate has been made and rejected, the ninety (90) days to sell,
assign, transfer or convey shall be computed from the date of said rejection.
B. Except as herein provided, if said representatives fail to
take the steps herein above noted, the franchise shall automatically terminate
ninety (90) days after the death of such
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<PAGE> 15
FRANCHISEE, partner or shareholder and the FRANCHISOR may repurchase the
Franchise for 50% of the preceding year's gross incomes.
XIX. RIGHT OF FIRST REFUSAL
If at any time during the term of ownership, FRANCHISEE shall receive
a bona fide offer to purchase the franchise and/or the equipment and chattels
incidental thereto, which offer FRANCHISEE is willing to accept, FRANCHISEE
shall communicate to FRANCHISOR in writing the full terms of said offer and the
name of the offeror. FRANCHISOR may elect to purchase said franchise and the
equipment and chattels incidental thereto on the terms as contained in the
offer, and if FRANCHISOR so elects, it shall give to FRANCHISEE a written
notice of such election within ten (10) days after receipt of FRANCHISEE'S
communication of offer to FRANCHISOR. If FRANCHISOR shall fail to give such
written notice of election within the ten (10) days, FRANCHISEE may sell to the
offeror on the terms offered, subject to the provisions relating to
transferability as heretofore set forth in Paragraph XVII. In the event
FRANCHISOR elects to purchase, said purchase must be completed within one
hundred twenty (120) days from the date of FRANCHISOR'S notice of election to
purchase. Earnest money (not refundable) of 20% of the purchase price must be
paid to the selling FRANCHISEE by the tenth day following the offer to
purchase.
XX. OPERATION IN EVENT OF ABSENCE, DISABILITY OR DEATH
In order to prevent any interruption of the franchised business which
would cause harm to said business and thereby depreciate the value thereof,
FRANCHISEE authorizes FRANCHISOR, in the event that FRANCHISEE is absent or
incapacitated by reason of illness or death and is not, therefore, in the sole
judgement of FRANCHISOR, able to operate the business licensed hereunder, to
operate said business for so long as FRANCHISOR deems necessary and practical,
and without waiver of any other rights or remedies FRANCHISOR may have under
this Agreement. All monies from the operation of the business during such
period of operation by FRANCHISOR shall be kept in a separate account, and the
expenses of the business, including reasonable compensation and expenses for
FRANCHISOR'S representative, shall be charged to said account. If, as herein
provided, FRANCHISOR temporarily operates for FRANCHISEE the business licensed
herein, FRANCHISEE agrees to hold harmless FRANCHISOR and any representative of
FRANCHISOR who may act hereunder.
XXI. TAXES AND PERMITS
A. FRANCHISEE shall promptly pay when due all taxes and
assessments against the premises or the equipment used in connection with
FRANCHISEE'S business, and all liens or enumerations of every kind or character
placed upon or against any of said property, and all accounts and other
indebtedness of every kind incurred by FRANCHISEE in the conduct of said
business.
B. FRANCHISEE shall comply with all federal, state, and local
laws and regulations, and shall obtain any and all permits, certificates, or
licenses necessary for the full and proper conduct of the "FACTUAL DATA"
franchised business in a timely manner.
XXII. INDEPENDENT CONTRACTOR
A. This Agreement does not constitute FRANCHISEE as an agent,
legal representative, joint venturer, partner, employee, or servant of
FRANCHISOR for any purpose whatsoever; and FRANCHISOR will have no judiciary or
other relationship with FRANCHISEE except for the contractual relationship
expressed by the provisions of this instrument; and it is understood between
the parties hereto that FRANCHISEE is an independent contractor and is in no
way authorized to make
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<PAGE> 16
any contract, agreement, warranty or representation on behalf of FRANCHISOR, or
to create any obligation, express or implied, on behalf of FRANCHISOR.
FRANCHISEE shall prominently display in its place of business a certificate
from FRANCHISOR stating that said business is operated by FRANCHISEE as a
FRANCHISEE of "FACTUAL DATA" and not as an agent thereof.
B. Under no circumstances shall FRANCHISOR be liable for any act,
omission debt or any other obligation of FRANCHISEE. FRANCHISEE shall
indemnify and save FRANCHISOR harmless against any such claim and the costs of
defending against such claims arising directly or indirectly from, or as a
result of, or in connection with, FRANCHISEE'S operation of the franchised
business.
XXIII. NON-WAIVER
No failure of FRANCHISOR to exercise any power reserved to it
hereunder, or to insist upon strict compliance by FRANCHISEE with any
obligation or condition hereunder, and no custom or practice of the parties in
variance with the terms hereof, shall constitute a waiver of FRANCHISOR'S right
to demand exact compliance with the terms hereof. Waiver by FRANCHISOR of any
particular default by FRANCHISEE shall not affect or impair FRANCHISOR'S right
in respect to any subsequent default of the same or of a different nature; nor
shall any delay, waiver, forbearance, or omission of FRANCHISOR to exercise any
power or rights arising out of any breach or default by FRANCHISEE of any of
the terms, provisions, or covenants hereof, affect or impair FRANCHISOR'S
rights, nor shall such constitute a waiver by FRANCHISOR of any right hereunder
or of the right to declare any subsequent breach or default. Subsequent
acceptance by FRANCHISOR of the payments due to it hereunder shall not be
deemed to be a waiver by FRANCHISOR of any preceding breach by FRANCHISEE of
any terms, covenants or conditions of this Agreement.
XXIV. NOTICE
Any notices required to be given hereunder shall be given in writing
by personal delivery, telegram, or by certified or registered mail directed to
FRANCHISOR or to FRANCHISEE at their respective last known addresses. Notice
by mail shall be deemed received on the third business day following the date
same was deposited in the mail.
XXV. LIABILITY FOR BREACH
In the event of any default on the part of either party hereto, in
addition to any other remedies of the aggrieved party, the party in default
shall pay to the aggrieved party all amounts due and all damages, costs and
expenses, including reasonable attorney's fees, incurred by the aggrieved party
as a result of any such default.
XXVI. ENTIRE AGREEMENT
This Agreement and the documents referred to herein shall be construed
together and constitute the entire, full and complete agreement between
FRANCHISOR and FRANCHISEE concerning the subject matter hereof, and supersedes
all prior agreements, no other representation having induced FRANCHISEE to
execute this AGREEMENT, and there are no representations, inducements,
promises, or agreements, oral or otherwise, between the parties not embodied
herein, which are of any force or effect with reference to this Agreement or
otherwise. No amendment, change or variance from this Agreement shall be
binding on either party unless executed in writing.
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<PAGE> 17
XXVII. SEVERABILITY
Each section, part, term and/or provision of this Agreement shall be
considered severable, and if, for any reason, any section, part, term and/or
provision herein is determined to be invalid and contrary to, or in conflict
with, any existing or future law or regulation, such shall not impair the
operation or affect the remaining portions, sections, parts, terms, and/or
provision of this Agreement, and the latter will continue to be given full
force and effect and bind the parties hereto; and said invalid sections, parts,
terms and/or provision shall be deemed not to be a part of this Agreement;
provided , however, that if FRANCHISOR determines that said finding of
illegality adversely affects the basic consideration of the Agreement,
FRANCHISOR, may at its option, terminate this Agreement.
XXVIII. APPLICABLE LAW
This Agreement was accepted in the State of Colorado, and shall be
interpreted and construed under the laws thereof, which laws shall prevail in
the event of any conflict of laws.
XXIX. ARBITRATION
Except as specifically otherwise provided in this Agreement, the
parties agree that any and all disputes between them, and any claim by either
party that cannot be amicably settled, shall be determined solely and
exclusively by arbitration in accordance with the rules of the American
Arbitration Association at its office nearest the home office of FRANCHISOR.
A. Each party shall select one arbitrator, and the two so
designated shall select a third arbitrator. If either party shall fail to
designate an arbitrator within seven (7) days after arbitration is requested,
or if the two arbitrators shall fail to select a third arbitrator within
fourteen (14) days after arbitration is requested, then an arbitrator shall be
selected by the American Arbitration Association upon application of either
party. Arbitration proceedings shall be conducted in accordance with the rules
then prevailing of the American Arbitration Association. Judgment upon an
award of the majority of the arbitrators shall be binding, and shall be entered
in a court of competent jurisdiction.
B. Nothing herein contained shall bar the right of either party
to obtain injunctive relief against threatened conduct that will cause loss or
damages under the usual equity rules, including the application rules for
obtaining preliminary injunction, provided an appropriate bond against damages
be provided.
XXX. FRANCHISEE
The term "FRANCHISEE" shall be deemed to include all persons who
succeed to the interest of the original FRANCHISEE by transfer or operation of
law in accordance with the provisions of this Agreement.
XXXI. CAVEAT
The success of the business venture contemplated to be undertaken by
FRANCHISEE by virtue of this Agreement is speculative and depends, to a large
extent, upon the ability of FRANCHISEE as an independent businessman, as well
as other factors. FRANCHISOR does not make any representation or warranty as
to the potential success of the business venture contemplated hereby.
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<PAGE> 18
FRANCHISEE acknowledges that it has entered into this Agreement after
making an independent investigation of FRANCHISOR'S operations, and not upon
any representation as to profits which FRANCHISEE in particular might be
expected to realize, nor has anyone made any other representation which is not
expressly set forth herein, to induce FRANCHISEE to accept this franchise and
execute this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, sealed and delivered this Agreement in triplicate
the day and year first above written.
/ /
- ------------------------------------------------ ----- ----- -----
FRANCHISEE Date
/ /
- ------------------------------------------------ ----- ----- -----
FRANCHISEE Date
Accepted and approved,
FACTUAL DATA CORP
/ /
- ------------------------------------------------ ----- ----- -----
J.H. Donnan, President, FRANCHISOR Date
ATTEST: / /
---------------------------------------- ----- ----- -----
Date
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<PAGE> 1
EXHIBIT 10.6B
FACTUAL EXPRESS/BUNDLED SERVICES
SOFTWARE SYSTEM CONTRACT
This agreement is made between the following parties
PROVIDER LENDERS RESOURCE, INC. ("PROVIDER" or "LRI")
P.O. BOX 270458 FORT COLLINS, CO 80527-0458
FACTUAL EXPRESS\BUNDLED SERVICES CLIENT ("CLIENT")
------------------------------
ADDRESS
-------------------------------------------------------------------------
CITY
STATE ZIP
-----------------------------------------------------------------------
RESPONSIBLE
PHONE PERSON
-------------------------------------- ------------------------------
800 PHONE FAX NUMBER
-------------------------------------------- ----------------
MODEM ACCESS
TELEPHONE OFFICE ID CODE
-------------------------------------------- ------------
TIME IN BUSINESS
----------------------------------------------------------------
MORTGAGE CREDIT REPORTS
COMPLETED EACH OF LAST 3 MONTHS , ,
-------------------------------------------------
CLIENT REFERENCE
NAME
---------------------------- -------------------------------
ADDRESS
CONTACT
PERSON PHONE ( ) -
--------------------------- -------------------------------
CLIENT REFERENCE
NAME
----------------------------- -------------------------------
ADDRESS
CONTACT
PERSON PHONE ( ) -
--------------------------- -------------------------------
CLIENT REFERENCE
NAME
----------------------------- -------------------------------
ADDRESS
CONTACT
PERSON PHONE ( ) -
--------------------------- -------------------------------
BANK REFERENCE
NAME
--------------------------- -------------------------------
ADDRESS
CONTACT
PERSON PHONE ( ) -
--------------------------- -------------------------------
DESCRIPTION OF EXCLUSIVE TERRITORY (attach map):
--------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
I. SERVICES TO BE FURNISHED BY PROVIDER:
(A) BASIC FACTUAL EXPRESS \ BUNDLED SERVICES SOFTWARE
(MORTGAGE CREDIT REPORTING SYSTEM)
(B) A MINIMUM OF FIVE (5) DAYS TRAINING AT FACTUAL DATA CORP HEADQUARTERS
PRIOR TO SOFTWARE INSTALLATION, PLUS INSTALLATION AND TRAINING FOR A
FIVE (5) DAY SESSION AT CLIENT'S LOCATION
(C) RIGHT TO PURCHASE FACTUAL DATA'S ADVERTISING BROCHURES AND FORMS
(D) PROVIDER SHALL EXERCISE ITS CUSTOMARY AND USUAL EFFORTS IN PROVIDING
ADEQUATE SOFTWARE AND SOFTWARE SUPPORT TO CLIENT DURING THE TERM OF
THIS AGREEMENT. NOTHING HEREIN MODIFIES, AMENDS, OR SUPERSEDES THE
PROVISIONS REGARDING WARRANTIES AND LIMITATION OF LIABILITY CONTAINED
IN PARAGRAPH VII., AND THE SUBPARAGRAPHS THERETO, OF THIS AGREEMENT.
(E) OPERATIONS MANUAL/UPDATES
(F) 800 HELP LINE
(G) AFFILIATION WITH NATIONAL CLIENTS - NATIONAL VENDOR PRICING DISCOUNTS
(H) USE OF ALL TRADE NAMES, SERVICE MARKS AND LOGOTYPES
(I) ACCOUNTS RECEIVABLE SOFTWARE
(J) DIRECT CONNECT
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<PAGE> 3
(K) RENTAL RELIANCE CREDIT REPORTING SOFTWARE
II. COMPENSATION: As consideration for the services described in Paragraph
1 hereinabove, CLIENT agrees to pay PROVIDER as follows:
<TABLE>
<S> <C>
(A) RENEWAL OF FACTUAL EXPRESS\BUNDLED SERVICES SOFTWARE $ .00
-------------------
INSTALLATION OF FACTUAL EXPRESS\BUNDLED SERVICES
SOFTWARE AND TRAINING FOR EACH ADDITIONAL LOCATION $ 5000.00 per week
-------------------
1/2 OF ENTIRE INSTALLATION AND TRAINING FEE DUE
AT TIME OF CONTRACT SIGNING $
-------------------
BALANCE OF INSTALLATION AND TRAINING FEE DUE
AT INITIATION OF INSTALLATION PROCESS $
-------------------
FEES FOR ADDITIONAL REQUESTS FROM CLIENT
$ .00
-------------------
(B) MONTHLY USER FEES
1. FACTUAL EXPRESS MONTHLY USER FEES ARE BASED ON A PERCENTAGE OF
ALL GROSS BILLED INCOME THAT IS DERIVED FROM THE USE OF
FACTUAL EXPRESS SOFTWARE. THE FEE IS THE GREATER OF $700.00 OR
FIVE PERCENT (5%) OF ALL GROSS BILLED INCOME.
2. FACTUAL DATA BUNDLED SERVICES SOFTWARE USER FEES ARE BASED ON
A PERCENTAGE OF ALL GROSS BILLED INCOME THAT IS DERIVED FROM
THE USE OF THE FACTUAL DATA BUNDLED SERVICES PROGRAM. THE FEE
IS 3% OF ALL GROSS BILLED INCOME.
3. A MONTHLY WIDE AREA NETWORK FEE WILL BE BILLED AT A RATE OF
$495.00 PER MONTH AND IS SUBJECT TO CHANGE AS NATIONAL CLIENTS
ARE ADDED TO THE NETWORK. ALL LONG DISTANCE PHONE CHARGES
DERIVED FROM USE OF THE WIDE AREA NETWORK WILL BE BILLED
DIRECTLY TO "CLIENT" BY THE LONG DISTANCE CARRIER.
</TABLE>
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<PAGE> 4
(C) All prices herein are subject to change by giving CLIENT at least 60 days
advance notice in writing.
(D) Fees provided herein do not include sales, use, excise, personal property or
any other taxes of any such nature. Any such taxes are to be paid by CLIENT in
addition to the fees provided hereinabove in paragraph II.(A) and II.(B). Any
such taxes shall be invoiced in accordance with paragraph 3 hereinafter.
III. BILLING AND TERMS FOR PAYMENT: PROVIDER shall prepare and mail invoices for
services rendered, at the close of each calendar month. Invoices shall be due
and payable within 10 days after presentation. Any invoices unpaid after ten
(10) days shall incur interest at the rate of twenty-one percent (21%) per
annum.
IV. FAILURE TO PAY WITHIN 30 DAYS: In the event payment IN FULL is not received
at FDC within thirty (30) days, in addition to PROVIDER'S remedies at law,
PROVIDER shall also have the right to discontinue any and all services and
FACTUAL EXPRESS\BUNDLED SERVICES software usage to CLIENT, without any further
notice or demand. CLIENT hereby waives any rights to continued usage of FACTUAL
EXPRESS\BUNDLED SERVICES software if these payment terms are not met. PROVIDER
shall be held harmless by CLIENT for any claim whatsoever arising out of
discontinuance of usage of Software due to nonpayment. Insofar as any laws may
afford CLIENT any additional or contrary rights, CLIENT hereby expressly waives
such rights.
V. TERM OF AGREEMENT: This agreement shall commence upon the date of PROVIDER's
acceptance and shall continue for a period of three (3) years unless earlier
terminated as hereinafter provided. This agreement shall automatically renew in
successive three (3) year terms unless and until terminated by either party
giving at least sixty (60) days advance notice in writing of such termination to
the other party. Immediately after termination, PROVIDER shall, at its sole
election, either destroy, use, rent, sell or otherwise utilize, any programs or
materials in its possession generated in conjunction with servicing CLIENT,
except that any data or material that contains confidential material concerning
CLIENT shall be destroyed.
(A) CLIENT is not allowed to utilize any other mortgage credit reporting
software during the term of this contract. Use of other mortgage reporting
software will cause immediate termination of the Factual Express Software System
Contract.
(B) CLIENT is not allowed to sell, market or provide any type of bundled service
without the use of FACTUAL EXPRESS\BUNDLED SERVICES software, without the
express written consent of PROVIDER.
VI. PROPERTY RIGHTS:
(A) PROVIDER owns property rights to any and all programs, or other materials
furnished by PROVIDER to CLIENT in performance of this agreement, and CLIENT is
permitted to use such programs or other materials under a license hereby
granted. Upon termination of this agreement, the license to use any such
programs or other materials shall also terminate and any further use shall be
prohibited.
(B) CLIENT owns all information entered by the CLIENT, which includes
confidential information. PROVIDER shall have the right to the production
figures generated by CLIENT during the term of this agreement. It is
acknowledged that such production figures are gathered monthly and disseminated
to all FDC offices. Except for such usage in the normal course of business,
PROVIDER shall have no right to use such information without the written consent
of CLIENT. Upon termination of this agreement, CLIENT shall retain any of the
confidential information which it has generated internally including, but not
limited to, CLIENT lists and information concerning CLIENT'S clientele.
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<PAGE> 5
(C) The source code relating to the licensed systems is the exclusive property
of FDC. Any modification or enhancement of the licensed system requiring use of
the source code may only be performed by FDC at CLIENT'S expense or at the
express written consent of FDC. Prior to the execution of this agreement FDC has
deposited a copy of the source code of the license system in escrow with MARCH &
MYATT, P.C., the Escrow Agent, pursuant to the terms of Escrow Instructions
dated August 1, 1990. CLIENT is hereby considered to be a "contract holder" as
defined and identified in such Escrow Instructions. A copy of which has been
provided to CLIENT upon the execution of the within agreement. CLIENT hereby
accepts the terms of said Escrow Instructions and agrees to be bound by the
terms contained therein.
VII. WARRANTIES AND LIMITATION OF LIABILITY:
(A) CLIENT agrees to indemnify and save PROVIDER completely harmless from any
and all costs, expenses, attorney's fees, suits, liabilities, damages or claims
for damages by CLIENT, including, but not limited to those arising out of any
injury or death to any person or persons or damage to any property of any kind
whatsoever and to whomsoever belonging, including CLIENT, in anyway relating to
the services under this agreement by PROVIDER or the performance or exercise of
any of the duties, obligations, powers, or authorities herein or hereafter
granted to PROVIDER.
(B) PROVIDER shall not be liable to CLIENT for any error of judgment or for any
mistake or fact or for anything it may do or refrain from doing, except in cases
of willful misconduct or gross negligence.
(C) CLIENT is notified that it is possible that CLIENT's data base for CLIENT
could be destroyed, and CLIENT understands that CLIENT is responsible for
maintaining adequate supporting material to enable reconstruction of CLIENT's
data base in the event of such destruction.
(D) CLIENT is notified that software processing services furnished by PROVIDER
are aids to CLIENT, and that CLIENT has been instructed to carefully inspect and
check all services furnished to CLIENT by PROVIDER for accuracy and content.
Accordingly, PROVIDER is not liable for any damages caused by any inaccurate or
incorrect material furnished to CLIENT by PROVIDER, and CLIENT hereby agrees to
indemnify and hold PROVIDER harmless from any claims resulting from any such
incorrect or inaccurate service.
(E) CLIENT is solely responsible for any programs or data owned by CLIENT that
are tendered hereunder to PROVIDER. PROVIDER shall not be liable to CLIENT in
the event that any such programs, data, reports or other media are lost.
(F) PROVIDER makes no warranty, express or implied, that the software supplied
CLIENT under this agreement is or will be free from errors and PROVIDER makes no
warranty, express or implied, with respect to any other services or materials
covered under this agreement.
(G) The obligations, rights and remedies of CLIENT and PROVIDER are set forth in
the foregoing subparagraphs and are exclusive and in substitution for all other
warranties, obligations and liabilities of CLIENT and PROVIDER. Any other
claims, rights, or remedies of either CLIENT or PROVIDER against the other,
whether express, implied, arising by law, or arising otherwise, with respect to
any services performed under this agreement, including but not limited to any
implied warranty or merchantability or fitness, or any implied warranty arising
from course of performance, course of dealing or usage of trade, or for any
other direct, incidental, or consequential damages are hereby expressly waived
by CLIENT and PROVIDER.
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<PAGE> 6
(H) Neither party shall be responsible for, or liable to the other on account of
delays or failures in performance resulting from acts beyond the control of such
party, including, but not limited to, acts of God, strikes, lockouts, riots,
acts of war, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, power failures, nonperformance by delivery
services, earthquakes, or other disasters, except that the provisions of this
subparagraph shall not be applicable to the requirements of paragraphs III. or
IV. hereinabove.
VIII. WAIVER OF BREACH NOT WAIVER OF CONDITION: Any consent by any party hereto,
or waiver of, a breach hereof by the other, whether express or implied, shall
not constitute a consent to, waiver of, or excuse for any other, different, or
subsequent breach.
IX. SURVIVAL BEYOND TERMINATION: The terms, provisions, representations and
warranties contained in paragraphs III., IV., V., VI., and VII. and (including
all subparts) of this agreement shall survive the termination of this agreement.
X. ENTIRE AGREEMENT:
(A) This agreement contains the full, final and exclusive statement of the
agreement between CLIENT and PROVIDER relating to the services provided for
herein, and cannot be amended, altered, or changed except by written instrument
signed by the parties hereto. This written agreement supersedes and takes
precedence over all prior agreements, proposals, representations or
negotiations, whether written or verbal.
(B) Any changes or amendments to this agreement either initially or upon an
extended term shall be made by a fully signed and dated addendum attached to
this agreement.
XI. NOTICES: All notices under this agreement shall be in writing and deemed to
have been duly given if actually received by the other party or if deposited in
the United States mail, postage prepaid and addressed to the other party as set
forth in page 1 of this agreement, or to the last known business address for the
other party hereto, if known to be different than the address herein above in
page 1.
XII. EXCLUSIVE AREA OF TERRITORY:
(A) During the term of this agreement, and so long as CLIENT is not in default
of any material provisions of this agreement, PROVIDER will grant CLIENT a
territory in which CLIENT will have the exclusive right to market services using
FACTUAL EXPRESS\BUNDLED SERVICES software. The extent of the territory bounded
by such a right is negotiable and dependent upon various factors such as size of
city, population dispersal, average income figures and the like. As noted above,
site selection within CLIENT's territory is made by the CLIENT, subject to
approval by the PROVIDER. In any event, the territory so bounded will be
described by a map contained in Exhibit A attached to the Agreement.
(B) PROVIDER may not grant another the right to establish a FACTUAL DATA office
competitive with that of CLIENT within the territory licensed to the CLIENT, nor
may PROVIDER engage in any FACTUAL DATA business competitive with that of the
CLIENT within the licensed territory, without the written consent of CLIENT. All
CLIENTS are prohibited from soliciting sales or accepting orders outside of
their defined territory unless approval of the Provider is obtained. Such
approval will not be granted if the business is within the territory of another
CLIENT. Only upon any breach, default or other material failure by CLIENT under
the provisions of the Agreement, may PROVIDER compete with CLIENT, and may
PROVIDER grant to others the right to compete with CLIENT, within the licensed
territory.
(C) Should either party breach the provisions of paragraph XII., the party not
in default will be entitled to recover damages arising from such breach, and
seek injunctive relief; both parties hereby acknowledge that damages alone would
not be sufficient relief.
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<PAGE> 7
XIII. TRADEMARKS, SERVICE MARKS, TRADE NAMES, LOGOTYPES, COPYRIGHTS AND
COMMERCIAL TYPES:
(A) FACTUAL DATA CORP has obtained a registered Service Mark with the United
States Trade Mark Office on June 14, 1988, Registration Number 1,492,582, for
the Service Mark "FACTUAL DATA". The registration is on the Principal Register.
FACTUAL DATA CORP licenses to the CLIENT for the term of the agreement, the
right to use at the premises, the name FACTUAL DATA, together with such other
insignia, symbols and service marks which may be approved and authorized from
time to time.
(B) FACTUAL DATA CORP computer system software is copyrighted with the United
States Copyright Office. Registration TXu 376 818.
(C) During the term of this agreement, CLIENT may use but is not obligated by
this agreement to use the tradename of FACTUAL DATA with the exception that all
reports issued using the FACTUAL EXPRESS\BUNDLED SERVICES Software must be
issued on FACTUAL DATA Data Secure paper. CLIENT may not use the name FACTUAL
DATA CORP or FACTUAL DATA INC as a part of its corporate name but may use the
words FACTUAL DATA as a part of a corporate name or together with other
modifying words, terms, designs, or symbols if it receives the prior written
consent of PROVIDER. In addition, CLIENT may not use any FACTUAL DATA name or
mark in connection with the sale of any unauthorized product or service or in
any other manner not expressly authorized in writing by FACTUAL DATA CORP. Upon
termination of this agreement, CLIENT may not make any further use of any
FACTUAL DATA name, mark, logo, copyright or trademark, protected by FACTUAL DATA
CORP.
(D) There are no agreements currently in effect which limit the use by PROVIDER
of the servicemark "FACTUAL DATA".
(E) PROVIDER is not obligated under the Agreement to protect CLIENT's use of any
servicemark, trademark, tradename, logo or other commercial symbol, but it is
the PROVIDER's intention to protect the goodwill related to PROVIDER's name and
servicemark, and safeguard its own proprietary interest therein.
(F) CLIENT recognizes that the FACTUAL EXPRESS\BUNDLED SERVICES Software Systems
are copyrighted. Client shall not modify any of the programs or data of
PROVIDER. CLIENT shall not, either during the term of this Agreement or upon or
after its termination, copy or cause to be duplicated PROVIDER'S FACTUAL
EXPRESS\BUNDLED SERVICES Software Systems. CLIENT shall not develop or cause to
be developed any software system which, either in appearance or usability is
identical or similar to that of PROVIDER'S FACTUAL EXPRESS\BUNDLED SERVICES
Software Systems. CLIENT shall be liable to PROVIDER for damages, both direct
and consequential, caused by any breach of CLIENT'S covenant hereunder. PROVIDER
shall also be entitled to injunctive relief, as both parties acknowledge that
damages alone would not be sufficient relief.
CLIENT will guard the confidentiality of the FACTUAL EXPRESS\BUNDLED
SERVICES software systems, the training methods and materials developed or
provided by PROVIDER. If CLIENT should notice, become aware of, or suspect any
compromise of the confidentiality of either Software System, CLIENT will notify
PROVIDER promptly. PROVIDER will promptly endeavor to seek out any such misuse
or compromise and may, at its discretion and through its attorneys, proceed to
take the necessary steps to correct any such infraction.
7
<PAGE> 8
XIV. CONFIDENTIAL OPERATIONS MANUAL:
(A) Under this agreement CLIENT is presented with PROVIDER's Operations Manual.
(B) CLIENT shall, at all times, treat as confidential, and shall not at any time
disclose, copy, duplicate, record or otherwise reproduce, in whole or in part,
or otherwise make available to any unauthorized person or source, the contents
of said Manual.
(C) The Operations Manual shall, at all times, remain the sole property of
PROVIDER and shall be returned promptly upon the expiration or other termination
of this Agreement. Upon sale to a new CLIENT, all materials will be made
available to the purchaser after all purchase and CLIENT contracts are
completed.
XV. ACCOUNTING AND RECORDS:
(A) To enable CLIENT and PROVIDER to best ascertain their costs and maintain an
economical method of operation, CLIENT agrees to keep and preserve, at it's
cost, during the term of this agreement granted hereunder, full, complete, and
accurate books and accounts in an accounting form and manner as prescribed in
the Operations Manual.
(B) CLIENT, within 3 business days of month end must communicate with PROVIDER
by computer modem for month end closing and billing through FACTUAL
EXPRESS\BUNDLED SERVICES system.
(C) PROVIDER's representatives shall have the right at any time to inspect
CLIENT's books, records, and cash control devices or systems in regard to
reports produced on FACTUAL EXPRESS\BUNDLED SERVICES system only and to access
network via modem to access billing information that pertains to the FACTUAL
EXPRESS\BUNDLED SERVICES system.
XVI. STANDARDS OF QUALITY: CLIENT recognizes that it is essential to the proper
marketing of "FACTUAL DATA" and to the preservation and promotion of its
reputation and acceptance by the public at large, that uniform standards of
quality and of appearance be maintained; that uniform size, quality, texture,
absorbency, strength, finish, and appearance, displaying PROVIDER's various
Proprietary Marks, be used in distribution to the public. CLIENT therefore
agrees, as part of the consideration for this Agreement, that CLIENT will at all
times dispense, sell or offer for sale to the public, only such services as
shall meet the reasonable specifications and standards from time to time
designated in writing by PROVIDER for sale and service from or at the "FACTUAL
DATA" business licensed herein; and CLIENT shall sell, serve and dispense all
such services as shall meet all such specifications and standards designated by
PROVIDER.
XVII. USE AND PURCHASE OF PRINTED MATERIALS: CLIENT is urged to but not
obligated to use FACTUAL DATA's printed marketing materials and forms. CLIENT is
obligated to use FACTUAL DATA Data Secure forms. CLIENT shall purchase all such
printed materials required from PROVIDER through requisition procedures and at
prices as set forth in the Operations Manual.
XVIII. COMPUTER HARDWARE COMPATIBILITY:
(A) CLIENT recognizes that the FACTUAL EXPRESS\BUNDLED SERVICES software system
requires specific computer hardware and Novell(TM) networking software to be
functional. These computer requirements are described in the FACTUAL EXPRESS
equipment guidelines.
(B) PROVIDER does not warrant, sell or provide computer hardware to CLIENT under
this agreement.
8
<PAGE> 9
XIX. PLACE OF CONTRACT (VENUE):
This agreement shall be deemed made and entered into in the State of
Colorado, and the parties agree that any action or proceeding related to this
agreement shall be brought only within a court of competent jurisdiction located
in the County of Larimer, State of Colorado, and no proceedings shall be
initiated in any forum outside of the state of Colorado. The provisions of this
paragraph are a material part of this agreement.
XX. COSTS AND EXPENSES:
In the event of any litigation or arbitration arising out of this
contract, the court shall award to the prevailing party all reasonable costs and
expenses, including attorneys' fees.
CLIENT ACCEPTS PROVIDER ACCEPTS
THIS AGREEMENT THIS AGREEMENT
LENDERS RESOURCE, INC.
- --------------------------- ---------------------------
x x
- --------------------------- ---------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
- --------------------------- ---------------------------
NAME (TYPED OR PRINTED) NAME (TYPED OR PRINTED)
- --------------------------- ---------------------------
TITLE DATE TITLE DATE
9
<PAGE> 1
EXHIBIT 10.6(C)
RESELLER
SERVICE AGREEMENT
This Agreement is made this 24 day of Sept, 1997, by and between
FACTUAL DATA CORP, (hereinafter referred to as "Reseller") and Trans Union
Corporation (hereinafter referred to as "Trans Union") to provide for credit
reporting services.
WHEREAS, Reseller is in the business of obtaining consumer reports
from third party sources and providing credit reporting services to its
consumers ("Reselling"; and
WHEREAS, Trans Union owns and maintains a national database of
consumer credit information; and
WHEREAS, Reseller desires to Resell Trans Union consumer credit
reports, or information therefrom, to users of reports who have a permissible
purpose.
NOW THEREFORE, in consideration of the premises and the mutual
benefits expressed herein, the parties agree as follows:
I. Reseller Responsibilities
A. Reseller shall provide Trans Union consumer reports or
information from Trans Union consumer reports only to users
who have a permissible purpose for obtaining consumer
reports, as defined by Section 604 of the Federal Fair Credit
Reporting Act (15 USC 1681b), hereinafter called "FCRA". Such
users shall be provided access to the Trans Union credit
reporting system or data therefrom may be transferred without
change, may be reformatted by Reseller, or may be merged with
those obtained from other consumer reporting agencies (Merged
Reports).
B. Reseller shall obtain Subscriber Agreements from such users,
wherein each user will state the nature of its business,
certify the specific purpose for which consumer reports will
be obtained, and agree that reports will be obtained for no
other purpose. The permissible purpose specified shall be one
or more of the following:
1. In connection with a credit transaction involving the consumer
on whom the information is to be furnished is to be furnished
and involving the extension of credit to, or review or
collection of an account of the consumer; or
2. For employment purposes, in which case the Subscriber must
execute an agreement in substantially the same format as
Exhibit A hereto; or
3. In connection with the underwriting of insurance involving the
consumer; or
4. For tenant screening purposes.
<PAGE> 2
A. Reseller may advertise its services on the Internet or another
proprietary computer system. However, reports may not be sold
and delivered over a public computer network. In the event
Reseller believes that adequate security has been established
to permit on line network or Internet access, with no risk of
any party other than the appropriate party obtaining an
individual's consumer report. Reseller shall apply to Trans
Union for approval of its security procedures. Approval must
then be obtained from Trans Union's computer access Security
Department, in writing, before any such deliveries of consumer
reports can occur. Failure to obtain such prior approval
shall result in termination of this Agreement.
B. Reseller shall not sell Trans Union consumer reports to
customers that are private investigative agencies, detective
agencies, or law firms. Reseller shall take the following
steps to verify the identity of its customers who will obtain
Trans Union credit reports or information therefrom to make
certain that none are such agencies:
1. Confirm that the stated purpose for obtaining consumer
reports is compatible with the type of business conducted
by the potential customer.
2. Conduct a physical inspection of the company's premises to
assure that it is a legitimate business facility (not a
residence) and that the furnishings, etc. are commensurate
with the size and purported type of business, and in order
to determine if it is a detective agency, private
investigative agency, security service, investigator, law
firm, or other unauthorized user. This is a material
requirement of this Agreement.
3. Confirm that advertisements or signs are compatible with
purported business.
4. Verify that the company has a business checking account
and that the account balance is compatible with the size
and nature of the company.
5. Verify business references to ensure that the potential
customer has clientele which would support the stated
business.
6. Verify business phone numbers by checking the phone
directory or other phone records.
7. Check the yellow page listings for the area where the
customer is located, under the following types of
businesses to see of the prospective customer is listed:
a) Detective Agencies
b) Private Investigators
c) Security Services
d) Investigators
e) Lawyers or Attorneys At Law
<PAGE> 3
1. The actions taken to verify the type of customer will
be notated on the Subscriber Agreement. Records
which document the investigation, and the Subscriber
Agreement, must be retained as long as the customer
continues to maintain access and for two years
thereafter. Those records (or copies thereof) must
be made available to appropriate Trans Union
personnel on request.
A. If, as the result of the verifications outlined above, the
prospective customer is found to be a detective agency,
private investigative agency, security service, investigator,
or law firm, or is found to have no permissible purpose to
obtain credit reports, no agreement will be signed and no
subscriber number will be issued.
B. No customer of Reseller shall be a government law enforcement
agency.
C. Reseller shall not sell consumer reports or information
therefrom to another reseller.
D. Trans Union reserves the right to terminate any customer of
Reseller at any time with or without notice.
I. Merged Report Guidelines
Reseller agrees to adhere to the following guidelines when it
sells Merged Consumer Reports:
1) Reseller shall comply with the requirements of FCRA
dealing with consumer disclosure, interviews and
reinvestigation procedures.
2) Reseller shall retain each Merged Report so that it can
provide a consumer disclosure as required by FCRA.
3) Reseller shall be able to easily identify the source(s) of
each element of data in the Merged Report. Consumer
disclosures must clearly show this data as it was
originally reported be each of the sources when providing
the consumer disclosure.
4) When a customer of the Reseller requests and reviews a
Merged Report and the consumer is denied credit based on
information in that Report, the consumer must be referred
to the Reseller for a complete disclosure.
5) In making a disclosure, the Reseller will provide the
names, addresses and telephone numbers of the consumer
reporting agency that was used to provide information for
the report.
6) In making a disclosure, the Reseller must advise the
consumer about her/his FCRA rights to dispute information
with the appropriate source credit bureau, to request
reinvestigation, and to have corrected reports reissued to
previous recipients.
<PAGE> 4
7) Reseller must obtain information from sources other than
the applicant. Separate inquires are necessary when the
co-borrowers have individually obtained credit.
8) The Merged Report must contain the date the report was
created, the name, address, and the phone number of the
consumer reporting agency which prepared the Merged
Report. The Merged Report must show the names of the
repository(ies) from which the information was obtained
and must identify the organization that ordered the Merged
Report.
9) Once the merge logic is applied, the Merged Report must
contain the following list of tradeline or credit grantor
information for each tradeline if it was furnished by one
or more of the credit reporting agencies.
a. Account Name
b. Account Number
c. Date Reported
d. Date Opened
e. Type of Account
f. Current Status
g. Current Balance
h. High Credit (Credit Limit)
i. Terms (Payment)
j. Historical Status
k. Inquiries
l. Account Association Code
I. Trans Union Responsibilities
A. Trans Union shall maintain credit information on individuals as
furnished by its subscribers or obtained from other available
sources.
B. Trans Union shall use good faith in obtaining and assembling such
information from sources deemed reliable, but does not guarantee
the accuracy of any information reported, and TRANS UNION MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, RESPECTING THE ACCURACY OF ANY TRANS UNION CREDIT
INFORMATION FURNISHED BY TRANS UNION TO RESELLER OR TO ANY
SUBSCRIBERS OF RESELLER. IN NO EVENT SHALL TRANS UNION BE LIABLE
TO RESELLER IN ANY MANNER WHATSOEVER FOR ANY LOSS OR INJURY TO
RESELLER RESULTING FROM THE OBTAINING OR FURNISHING OF CREDIT
REPORTS AND, FURTHER, RESELLER AGREES TO HOLF TRANS UNION HARMLESS
AND INDEMNIFY IT FROM ANY AND ALL CLAIMS, LOSSES AND DAMAGES
ARISING OUT OF THE ISSUANCE OF SUCH REPORTS OR THE FAILURE OF
RESELLER TO KEEP AND PERFORM ANY OF ITS OBLIGATIONS DESCRIBED
HEREIN.
<PAGE> 5
I. Identify End User
A. Reseller shall provide to Trans Union as tp each customer who will
obtain Trans Union credit reports or information therefrom as a
result of Reseller's solicitation, its identity by subscriber
number, name, address and telephone number, and the permissible
purpose for which each report is sought, so that such information
may be noted on the report for the consumer who is the subject of
the report accessed. Such end user identification shall be made
by either Option (1) or Option (2) below, as indicated by
Subscriber. Failure of Reseller to comply with the requirements
of this Section IV shall result in termination of this Agreement.
Option (1): Each customer signed up by Reseller may access
the Trans Union system after appropriate identification
procedures have been established, and a separate customer code
shall be issued for each customer. When such code is
established, Reseller shall provide Trans Union with the
customer's name, address, telephone number, and the
permissible purpose for which reports will be accessed. If
the customer intends to access reports for more than one
permissible purpose for each access to a consumer report; or
Option (2): The customer name and permissible purpose shall
be identified by inquiry on each consumer report accessed.
Reseller agrees to establish and provide Trans Union a toll
free number, which will be answered between the hours of 9
a.m. to 5 p.m. Monday through Friday, exclusive of federal
holidays, that Trans Union can call to obtain the customer's
address and telephone number.
B. If any current customers of Reseller have been assigned a Trans
Union access code, they shall be identified, and Reseller shall
determine that the certifications required herein and all other
obligations stated herein are complied with by such customers.
All detective or investigative agencies, government law
enforcement agencies, or law firms who have to access code for the
Trans Union system, shall be terminated and access to the Trans
Union by them shall be canceled.
I. Fees & Charges
A. Reseller shall pay to Trans Union for each access by it or one of its
customers the price then in effect for the type of credit report
ordered. Trans Union shall have no obligation to collect any account
owing from Reseller's customers.
B. Trans Union shall provide monthly invoices to Reseller for all access
by it or Reseller's customers, and such invoices shall be paid by
Reseller within thirty (30) days of receipt. Past due amounts shall
accrue interest at the rate of 1.5% per month. If collection efforts
are required, Reseller shall be liable for all cost of collection,
including reasonable attorney's fees.
<PAGE> 6
I. Miscellaneous
A. This Agreement shall remain in force and effect for one (1) year
from the date hereof, and hereafter, from year to year, on the
same basis as set forth herein except that either party may cancel
this Agreement at any time upon at least sixty (60) days notice,
and Trans Union may cancel this Agreement or any customer
solicited by Reseller immediately if it determines that the
requirements of this Agreement or any law have not been met.
Trans Union may also terminate this Agreement immediately without
notice if invoices hereunder are not paid as of the due date.
B. The parties hereto agree that this instrument is the full and
complete Agreement between them regarding the furnishing of credit
information, supersedes all prior agreements or discussions, and
is not to be altered, varied, or enlarged upon by any verbal
promises, statements, or representations not expressed herein.
C. The parties acknowledge the special and unique purposes of this
Agreement and, therefore, agree that, notwithstanding any other
provisions to the contrary contained in this Agreement, neither
this Agreement nor any of the rights or obligations hereunder
shall be assignable by Reseller without prior written consent of
Trans Union.
D. Each of the parties to this Agreement are independent contractors
and nothing contained in this Agreement shall be construed as
creating a joint venture, partnership, licensor-licensee,
principal-agent or mutual agency relationship between or among the
parties hereto and no party shall, by virtue of this Agreement,
have any right or power to create any obligation, express or
implied, on behalf of any other party. No party, nor any employee
of a party, shall be deemed to be an employee of the other party
by virtue of this Agreement.
Agreed to on this date first above written.
Tans Union Corporation Reseller Name: FACTUAL DATA CORP
---------------------
By: /s/ R.D. LITTLEJOHN By: /s/ J.H. DONNAN
----------------------------- --------------------------------
Print Name: R.D. Littlejohn Print Name: J.H. Donnan
--------------------- ------------------------
Title: VP/AS Title: President
-------------------------- -----------------------------
Reseller Address:
------------------
-----------------------------------
<PAGE> 7
(Exhibit A to Reseller Agreement)
RESELLER
AGREEMENT FOR CONSUMER REPORTS
FOR EMPLOYMENT PURPOSES
(PEER)
The undersigned Subscriber and RESELLER NAME ("Reseller"), hereby make
the following agreement:
1. Reseller has access to consumer reports from one or more consumer
credit reporting agencies pertaining to consumer's credit
experiences and histories throughout the United States.
2. Subscriber is a CRA and has a need for consumer credit information
in connection with the evaluation of individuals for employment,
promotion, reassignment or retention as an employee ("Consumer
Report for Employment Purposes").
3. Subscriber shall request Consumer Report for Employment purposes
pursuant to procedures prescribed by Reseller from time to time
only when it is considering the individual inquired upon for
employment, promotion, reassignment or retention as an employee,
and for no other purpose.
4. Subscriber certifies that it will not request a Consumer Report
for Employment Purposes unless:
A. A clear and conspicuous disclosure is first made in writing to
the consumer before the report is obtained, in a document that
consists solely of the disclosure, that a consumer report may
be obtained for employment purposes.
B. The consumer has authorized in writing the procurement of the
report; and
C. Information from the Consumer Report for Employment Purposes
will not be used in violation of any applicable federal or
state equal employment opportunity law or regulation.
5. Subscriber further certifies that before taking adverse action in
whole or in part based on the Consumer Report for Employment
Purposes, it will provide the consumer:
A. A copy of the Consumer Report for Employment Purposes; and
B. A copy of the consumer's rights, in the format approved by the
FTC, which notice shall be supplied to Subscriber by Reseller.
<PAGE> 8
6. Subscriber agrees that it shall use Consumer Report for Employment
Purposes only for a one-time use, and to hold the report in strict
confidence, and not to disclose it to any third parties not
involved in the current employment decision.
7. Subscriber agrees to pay to Reseller an initial annual membership
fee of $ 0 and such membership fee as may be accessed in subsequent
years if this Agreement is continued.
8. Subscriber, in addition to the membership fee, shall pay for each
Consumer Report for Employment Purposes, the then current
published price therefor.
9. All payments shall be due thirty (30) days after receipt of the
invoice. Past due amounts shall accrue interest at the rate of
1.5% per month. If collection efforts are required, Subscriber
shall pay all costs of collection, including attorney fees.
10. Reseller reserves the right to change the charges from time to
time, but no change in such charges shall become effective as to
the Subscriber earlier than thirty (30) days after written notice
thereof shall have been given by Reseller to the Subscriber.
11. Reseller shall use good faith in attempting to obtain information
from sources deemed reliable, but does not guarantee the accuracy
of information requested, and in no event shall Reseller be liable
in any manner whatsoever for any loss or injury to Subscriber
resulting from the obtaining or furnishing of such information;
and further Subscriber Agrees to hold Reseller harmless and
indemnify it from any and all claims, losses, and damages arising
out of alleged liability or failure of the Subscriber to keep and
perform any of its obligations described herein.
12. There shall be no refunds or rebates of the annual Subscriber fee
under this Agreement. All Subscriber fees are compensation for
supplying service and carrying this account.
13. This Agreement shall remain in force and effect for one (1) year
from date hereof, and thereafter, from year to year, on the same
basis as set forth herein except that either party may cancel t
his Agreement at any time upon notice at least ten (10) days prior
to the end of the current monthly payment period.
14. It is further agreed, however, that with just cause, such as
delinquency or violation of the terms of the contract or a legal
requirement. Reseller may, upon its election, discontinue serving
the Subscriber and cancel this Agreement immediately.
15. The parties hereto agree that this instrument is the full and
complete Agreement between them regarding the furnishing of
Consumer Report for Employment Purposes, and is not to be altered,
varied, or enlarged upon by any verbal promises, statements, or
representations not expressed herein. This Agreement shall not be
binding on either party until accepted by Reseller.
Reseller Name Firm Name of Subscriber: FACTUAL DATA CORP
------------------
By: /s/ R.D. LITTLEJOHN By: /s/ J.H. DONNAN
-------------------------- ---------------------------------------
Print Name: R.D. Littlejohn Print Name: J.H. Donnan
------------------ -------------------------------
Title: VP/AS Title: President
----------------------- ------------------------------------
Address:
---------------------------------
Date: 10-2-97
------------------------ -----------------------------------------
<PAGE> 1
EXHIBIT 10.6(D)
SUPPLEMENT AGREEMENT
AGREEMENT FOR SERVICE
(MEMBER AGREEMENT)
THE CREDIT BUREAU, INCORPORATED OF GEORGIA
GENTLEMEN:
The undersigned, desiring to use your services at the regular prices
established by you from time to time, agrees to furnish information concerning
its customers, with the exception of information it has received from others,
upon your request and further agrees that all information, whether oral or
written, whether by report, bulletin or otherwise, will be submitted and
received subject to the following conditions:
Information will be requested only for our exclusive use. All information
received from you will be held in strict confidence, except to the extent t hat
disclosure to others is required by law. Reports on employees will be required
only by our designated representatives and employees will be forbidden to
attempt to obtain reports on themselves, associates, or any other persons
except in the exercise of their official duties.
We agree to hold The Credit Bureau, Incorporated of Georgia, and all its agents
on account of any expense or damage arising or resulting from the publishing or
other disclosure contrary to these conditions, by use, our employees or agents,
of report or other information.
Recognizing that information is secured by and through fallible human sources
and that for the fee charged you can not be an insurer of the accuracy of the
information, we understand and agree that the accuracy of any information
furnished is not guaranteed by you and we release The Credit Bureau,
Incorporated of Georgia and its agents, employees, and independent contractors
from liability for any negligence in connection with the preparation of such
reports and from any loss or expense suffered by us resulting directly or
indirectly from your reports or those of your affiliated companies.
All reports and bulletins will be charged to the undersigned at the regular
rates of The Credit Bureau, Incorporated of Georgia, in the city in which
the service is rendered, such charges to be applied against the contract price,
and charges, in addition to the contract price, shall be paid for by the
undersigned upon rendition of monthly or yearly statement.
Written notice by either party will terminate this agreement, but the
obligations and agreements of the undersigned set forth in the second, third
and fourth paragraphs above will remain in force.
We certify that consumer reports, as defined by the Fair Credit Reporting Act,
will be ordered only when intended to be used as a factor in establishing a
consumer's eligibility for new or continued credit, collection of an account,
insurance, licensing, employment purposes, or otherwise in connection with a
legitimate business transaction involving the consumer and such reports will be
used for no other purpose. Each request for a report which we intend to use
for employment purposes will be specifically identified to you at the time the
request is ordered.
We understand and agree that this letter constitutes all agreements and
conditions of reporting, present and future, and applies to all types of
reports, including all types of checking services and bulletins, made by you
and your affiliated companies. Reports from affiliated companies shall be paid
for at their prices established from time to time. No changes in this
agreement may be made except by consent in writing of an officer of The Credit
Bureau, Incorporated of Georgia.
Company Credit Information Systems
--------------------------
By J H DONNAN
--------------------------
Title President
--------------------------
Dated 2/15/85 at
--------- ----------------------------------------------------------------
Service Other Total Per
------------------ --------------- --------------- ------------
Beginning Type of Business
-------------------------- -----------------------------
Mailing Address P.O. Box 436 Ft. Collins CO 80522
-----------------------------------------------------------------
<PAGE> 2
CBI
- ----------
EQUIFAX
AGREEMENT FOR SERVICE
(INTER-BUREAU CONTRACT)
THE CREDIT BUREAU, INCORPORATED OF GEORGIA
GENTLEMEN:
The undersigned does hereby certify that we are in fact a Credit Bureau or
Consumer Reporting Agency desiring to use your services from time to time.
We certify that consumer reports, as defined by the Fair Credit Reporting Act,
will be ordered only when intended to be used as a factor in establishing a
consumer's eligibility for new or continued credit, collection of an account,
insurance, licensing, employment purposes, or otherwise in connection with a
legitimate business transaction involving the consumer and such reports will be
used for no other purpose. Each request for a report which is intended to be
used for employment purposes will be specifically identified to you at the time
the request is ordered.
We agree that reports on employees will be requested only by our designated
representative. Our employees will be forbidden to attempt to obtain reports
on themselves or associates, or on any other person except in the exercise of
their official duties.
We agree that in relaying any and all information or reports received from you
to our customers or users, we shall in all instances faithfully transmit such
information or reports in their entirety, including but not limited to
transmitting the date the information was last checked or revised by you and
your full name and mailing address.
We further agree that, in case the disclosure of any information or reports by
us or by our subscribers leads to any claims or litigation, we agree to
indemnify you, your agents, employees, and independent contractors, for any
liability, damages or expenses resulting therefrom. We further recognize that
the accuracy of any information furnished is not guaranteed by you, and we
release you and your agents, employees, and independent contractors from
liability for any negligence in connection with the preparation of such reports
and from any loss or expense suffered by us or our subscribers or users
resulting directly or indirectly from your reports.
We agree to pay promptly for all reports or information requested, according to
the rate schedule of cash prices now or subsequently established by you, plus
the charges for any special telephone or telegraph services or any special
services rendered by you.
We further agree that this contract shall remain in force and effect until
written notice of cancellation shall be given by either party at least 10 days
prior to the cancellation date. It is agreed further, however, that if we are
delinquent in the payment of charges or are guilty of violating the terms of
this contract, that you may, at your election, discontinue providing services
to us and cancel this contract immediately by written notice to us. In the
event of termination of this contract for any reason, the provisions of the
foregoing paragraphs will remain in full force and effect as to any reports or
services which we have requested or received from you prior to the date of
cancellation.
No changes in this agreement may be made except by consent in writing of an
officer of The Credit Bureau, Inc. of Georgia
Company FACTUAL DATA CORP
----------------------------------------
By /s/ B. McINTIRE
----------------------------------------
Title Administrative Assistant
----------------------------------------
Mailing Address P.O. BOX 436
----------------------------------------
FORT COLLINS, CO 80522-0436
----------------------------------------
(City) (State) (Zip Code)
Account Number
----------------------------------------
Dated at 17451 MASTANCHURY RD, SUITE 701, YORBA LINDA, CA 92680
------------------------------------------------------------------------
This 9th Day of FEBRUARY 1989
---------------- ------------------- ---------------------------------
<PAGE> 3
SUPPLEMENT AGREEMENT
TO
AGREEMENT FOR SERVICE
THE CREDIT BUREAU, INCORPORATED OF GEORGIA
ATLANTA, GEORGIA
GENTLEMEN:
This Agreement shall not supersede the Agreement for Service executed by the
undersigned organization on _________________________________________________,
but shall be considered as supplementary thereto.
We own or lease ___________ remote terminal(s) suitable for integration into
your computer system to permit us to access information available to us under
said Agreement for Service. We understand that, on acceptance by you of this
agreement, access to your computer system will be made available. We will bear
the expense of and make all technical arrangements necessary at our place of
business to conduct our terminal(s) to your computer system.
We agree that the terminal(s) will be operated only by certain of our employees
who shall have been trained by members of the staff of CBI. At least two of
our employees shall have been so trained by CBI prior to connection of our
terminal(s) to your computer system; At least two trained operators will be
available to operate the terminal(s) during the time of this agreement.
We agree to take all necessary measures to prevent unauthorized use of the
terminal(s) by any person other than designated operators and will establish
and enforce policies whereby our employees are forbidden to obtain information
on themselves or associates. "We further agree that if the terminal(s) are
utilized to order or obtain reports for employment purposes, that such reports
will be ordered and obtained only pursuant to the CBI Employment Report Request
Procedures which, as amended from time to time, are incorporated into and made
a part of this Agreement."
We agree that, with regard to the operation of the terminal(s), CBI shall not
be liable for transmission distortion, interruptions or failure of for any
resulting consequential or special damages whatsoever.
This agreement is not assignable. It shall be effective on the date it is
accepted by CBI and shall remain in force a minimum of 30 days, and thereafter
until written notice of termination shall be given by either party, at least 30
days prior to the termination date.
Company FACTUAL DATA CORP
-----------------------------------
By /s/ B. MCINTIRE
-----------------------------------
Title ADMINISTRATIVE ASSISTANT
-----------------------------------
Dated 2-9-89
-----------------------------------
ACCEPTED
CREDIT BUREAU INCORPORATED OF GEORGIA
By /s/ NEIL K. DUDICE
-----------------------------------
Dated 2-9-89
--------------------------------
<PAGE> 1
EXHIBIT 10.6(E)
CREDIT REPORTING SERVICE AGREEMENT ATTACHMENT C
(RESELLER) TRW
This Credit Reporting Services Agreement (this "Agreement") is dated as of,
April 1992, and is between Mortgage Processor ("Subscriber / Reseller"), a
Factual Data and TRW INC ("TRW"), an Ohio corporation acting through TRW
Information Services.
ARTICLE 1 - TERM
The term of this Agreement ("Term") will be the period beginning as of the
date first written above and ending the fifteenth (15th) day after either party
provides written notice to the other of its intention to terminate this
Agreement.
ARTICLE 2 - CREDIT REPORTING SERVICES
2.1 GENERALLY; Upon request by Subscriber / Reseller during the Term, TRW
will provide Subscriber / Reseller with the services ("Services") offered from
time to time by TRW. Certain of the Services consist of credit reports on
individuals ("Consumers") to be resold by Subscriber / Reseller to third
parties in connection with credit, employment or insurance underwriting
transactions between said third parties and the individual consumers to whom
such credit reports relate.
2.2 METHOD OF PERFORMANCE: TRW will perform the Services in response to
written or electronic requests provided by Subscriber / Reseller during the
Term. Each such request will contain sufficient identifying information
concerning the consumer about whom information is requested to enable TRW to
perform the Services and will identify in the manner specified by TRW, the fact
that the request is being made by Subscriber / Reseller. If so requested by
Subscriber / Reseller, TRW will provide the Services by means of automated
processing ("CPU to CPU").
2.3 TIME OF PERFORMANCE: TRW will use its best efforts to provide Services
as expeditiously as possible and in a timely manner; provided, however, TRW
will have no liability Subscriber / Reseller for delays in providing Services.
2.4 WARRANTY: TRW hereby warrants to Subscriber / Reseller that TRW will
use its best efforts to confirm that information delivered to Subscriber /
Reseller hereunder will be accurate and reliable credit information, but TRW
does not guarantee the accuracy of reliability of such data. SUCH WARRANTY IS
THE ONLY WARRANTY TRW HAS GIVEN SUBSCRIBER WITH RESPECT TO SUCH INFORMATION AND
SUCH WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, TRW MIGHT
HAVE GIVEN SUBSCRIBER WITH RESPECT THERETO, INCLUDING, FOR EXAMPLE. WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 3 - FEES
3.1 GENERALLY: With respect to each response (including "no record"
responses) to a request for Services made by Subscriber / Reseller, Subscriber
/ Reseller will pay TRW a fee (collectively, the "Fees") equal to TRW's
standard charge as published by TRW from time to time in effect during the
Term. TRW reserves the right to change its standard charges at any time during
the Term by giving Subscriber / Reseller thirty (30) days written notice.
3.2 TAXES: Subscriber / Reseller will be solely responsible for all
Federal, state and local taxes levied or accessed in connection with TRW's
performance of Service other than income taxes accessed with respect to TRW's
net income.
3.3 METHOD OF PAYMENT: Periodically during the Term, TRW will deliver to
Subscriber / Reseller invoices reflecting fees due hereunder, together with any
taxes for which Subscriber / Reseller is responsible hereunder. Subscriber /
Reseller will pay TRW the amounts indicated on such invoices within ten (10)
days after it receives such invoices. If Subscriber / Reseller does not pay
invoiced Fees within the thirty (30) day period described above, it will also
pay interest on the unpaid amount at the rate of one and one-half percent
(1.5%) per month.
ARTICLE 4 - CONSUMER PRIVACY
4.1 GENERALLY: Subscriber / Reseller hereby acknowledges that the
information contained in credit reports it receives from TRW under this
Agreement includes personal financial information about individual Consumers
and, as such, sound business practice requires that Subscriber / Reseller treat
such information responsibly and take responsible steps to assure that such
information is not misused by the parties or any other person. Accordingly,
the parties will abide by the provisions of this Article 4 throughout the Term.
4.2 COMPLIANCE WITH LAW: In performing this Agreement and in using
information provided hereunder, both parties will comply with all Federal,
state and local statutes, regulations, and rules applicable to consumer credit
information from time to time in effect during the Term, including, without
limitation, the Fair Credit Reporting Act, 15, USC 1681 et seq. ("FCRA").
4.3 USE OF CREDIT INFORMATION: Subscriber / Reseller hereby certifies that
it will request and resell credit information received from TRW to third
parties solely for said third parties' use in connection with credit,
employment or insurance underwriting transactions between the third party and
the Consumer to whom the credit information relates, or for other "permissible
purposes" as defined by the FCRA, and will neither request nor use any such
information for any other purpose.
4.4 COMPLIANCE WITH TRW PROCEDURES: Subscriber / Reseller acknowledges
receipt of TRW's Permissible Purpose Guidelines for Resellers, Reseller Client
Investigation Requirements and Subscriber / Reseller agrees to conduct a
reasonably diligent investigation of its customers to satisfy itself that each
has a "permissible purpose" as defined by FCRA. At a minimum, Subscriber
agrees to comply with TRW's Permissible Purpose Guidelines for Resellers and
Permissible Purpose Type Codes and to follow the procedures described in TRW's
Reseller Client Investigation Requirements.
4.5 CONFIDENTIAL TREATMENT: Subscriber / Reseller will take reasonable
precautions to assure that Consumer credit information will be held in strict
confidence and disclosed only to those of its employees whose duties reasonably
relate to the legitimate business purposes for which the information is
requested or used and to no other person.
<PAGE> 2
ARTICLE 5 - INTELLECTUAL PROPERTY
5.1 NO LICENSE: Subscriber / Reseller will not acquire any patent rights,
copyright interest or other right, claim or interest in the computer programs,
forms,. Schedules, manuals or other proprietary items utilized or provided by
TRW in connection with Services.
5.2 RESTRICTIONS ON USE: Neither party will use, or permit their respective
employees, agents and subcontractors to use, the trademarks, service marks,
logos, names or any other proprietary of the other party affiliates, whether
registered or unregistered, without such other party's prior written consent.
5.3 OWNERSHIP OF CREDIT DATA: Subscriber/ Reseller acknowledges that TRW has
expended substantial time, effort, and funds to compile TRW's Consumer credit
information database and that all information contained in such database is and
will continue to be the exclusive property of TRW. Nothing contained in this
Agreement shall be deemed to convey to Subscriber / Reseller any right, title,
or interest in or to TRW's Consumer credit information database or any part
thereof.
ARTICLE 6 - INDEMNIFICATIONS AND LIMITATIONS
Subscriber / Reseller will indemnify, defend, and hold TRW harmless from
and against any and all liabilities, damages, losses, claims, costs, and
expenses (including attorney's fees) arising out of the result from any breach
of Subscriber / Reseller's obligation under this agreement.
ARTICLE 7 - AMENDMENTS, TERMINATIONS, AND WAIVER
7.1 AMENDMENTS: This Agreement may be amended at any time, but only by
written instrument signed by both parties.
7.2 UNILATERAL TERMINATION: This Agreement may be terminated unilaterally
and immediately by TRW without notice if TRW receives information which, in
TRW's sole judgement, reveals that Subscriber / Reseller has breached any of
its obligations under Article 4.
ARTICLE 8 - MISCELLANEOUS
8.1 STATUS: The parties will perform their obligations hereunder as
independent contractors. Nothing contained in this Agreement shall be deemed
to create any association, partnership, joint venture, or relationship of
principal and agent or master and servant between the parties.
8.2 EXCUSABLE DELAYS: Neither party will be liable to the other for any
delay or failure in its performance of any of the acts required by this
Agreement when such delay or failure arises beyond the responsible control of
such party, including, without limitation, acts of God or public enemies,
labor disputes, material or component shortages, supplier failures, embargoes,
earthquakes, rationing, acts of local, state or national governments or public
agencies, utility or communication failures or delays, fire, flood, epidemics,
riots and strikes.
8.3 GOVERNING LAW: This Agreement will be governed by and construed in
accordance with the internal substantive laws of the State of Ohio.
8.4 SERVER ABILITY: If any provision of this Agreement shall be determined
to be unlawful by a court of competent jurisdiction, then such provision shall
be deemed to be served from this Agreement and every other provision of this
Agreement shall remain in full force and effect.
8.5 ASSIGNMENT: This Agreement shall be binding upon and inure to the
benefit of the successors of each of the parties hereto, but shall not be
assignable to either party without the prior written consent of the other.
8.6 NO THIRD PARTIES: Neither this Agreement nor any provisions set forth
herein is intended to, or shall, create any rights in or confer any benefits
upon any person other than the parties hereto.
8.7 COMPLETE AGREEMENT: This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter hereof and supersedes
all prior letters of intent, agreements, covenants, arrangements,
communications, representations, or warranties, whether oral or written by any
officer, employee, or representative of either party relating thereto.
IN WITNESS WHEREOF, SUBSCRIBER and TRW INC. have each caused this Credit
Reporting Services Agreement to be executed by their respective duly authorized
representatives as of the date first above written.
Factual Data - Ft. Collins/0600 TRW INC.
- -------------------------------------
Subscriber
By: /s/ JERRY DONNAN By: /s/ KEITH NORRIS
---------------------------------- --------------------------------
Signature Signature
Jerry Donnan Keith Norris, Area Director
- ------------------------------------- -----------------------------------
Print or Type Name Print or Type Name
<PAGE> 1
EXHIBIT 10.6F
ASSETS PURCHASE AGREEMENT
THIS AGREEMENT is made this 1st day of December 1997, by and among
MIROCON, INC. a Colorado corporation ("Seller"), Ronald R. Rudzinski
("Shareholder"), and FDC GROUP, INC., a Colorado corporation ("Buyer").
EXPLANATORY STATEMENT
A. Seller engages in the business of supplying credit reports
(mortgage or rental) and employment screening reports ("Products");
B. Shareholder owns of record all of the outstanding shares of
the capital stock of Seller, and constitutes the sole director of Seller;
C. Seller, as a franchisee, and Buyer, as a franchisor, are bound
by a Franchise Agreement dated July 17, 1987 (the "Franchise Agreement")
pursuant to an Assignment of Franchise dated November 1, 1989.
D. Seller desires to sell, transfer and assign to Buyer, and
Buyer desires to purchase from Seller, substantially all of the assets of
Seller, as described in Section 1 below, on the terms and subject to the
conditions hereinafter contained.
AGREEMENT
In consideration of the mutual covenants, promises, agreements,
representations warranties contained in this Agreement, the parties agree as
follows:
1. Purchase and Sale of Assets.
1.1. Purchase and Sale. On the terms and subject to the
conditions set forth in this Agreement, at Closing on the Closing Date (as set
forth in Section 10 below), Seller shall sell, transfer and assign to Buyer,
and Buyer shall purchase from Seller, all of the right, title and interest of
Seller in and to the following property and assets of Seller (the "Assets"),
which constitute substantially all of Seller's property and assets (except for
the Excluded Assets as set forth in Section 1.2 below), free and clear of any
liens, encumbrances and adverse claims except as otherwise specifically
provided herein. The following tangible and intangible assets, interests and
rights shall be sold, assigned, transferred, by Seller to Buyer, and the Buyer
shall assume the lease described in Exhibit 3, in consideration of the Purchase
Price (as defined below) and other consideration, as set forth below:
1.1.1. All of Seller's equipment, computers,
printers, furniture, fixtures, materials, supplies, customer deposits, deposits
and prepayments to Seller's suppliers or vendors, and other assets including,
but not limited to, all such assets, interests and rights as described in
Exhibit 1A attached hereto and made part hereof (the "Operating Assets").
<PAGE> 2
1.1.2. Except with respect to any representations or
warranties which survive termination, the following agreements shall terminate
as of the Closing Date: (i) the Franchise Agreement, and (ii) the EMPfacts
Rental Software System License with Buyer's affiliate, Lenders Resource,
Incorporated.
1.1.3. Except for such items as are identified in
Section 1.2.3 below, all of Seller's agreements and unfilled or partially
filled orders with Seller's customers for sales and all claims, whether or not
presently identified or existing, against past or present customers of Seller,
including but not limited to the agreements, orders and claims described in
Exhibit 1B attached hereto and made part hereof (the "Customer Agreements").
1.1.4. All of Seller's customer lists and Seller's
customer sales files.
1.1.5. The Noncompetition Agreement among Seller,
Shareholder and Buyer as provided in Section 1.4 below.
1.1.6. All of Seller's goodwill (the "Goodwill").
1.1.7. All of Seller's business records which are or
may be related to the Assets, including, but not limited to, employment and
personnel records, books and records relating or pertaining to Seller's
business of supplying Products, including all sales records and similar data,
records of purchases or leases of services or goods from third parties,
agreements or contracts relating to Seller's business and financial data
(hereinafter collectively referred to as the "Records").
1.1.8. Any and all rights Seller has (if any) in and
to the tradename "Factual Data".
1.2 Excluded Assets. The following shall be excluded
from the Assets being sold or leased and transferred or assigned to Buyer
hereunder; all other assets and property of Seller of any kind or nature shall
be included in the Assets:
1.2.1. Seller's cash on hand and bank deposits at
the time of Closing.
1.2.2. All billed accounts receivable or other
receivables from Seller's customers with respect to completed sales of Products
or as to which services were performed or Products were delivered to Seller's
customers, as may be applicable, and Seller, in the regular and ordinary course
of business consistent with Seller's usual practices, generated and sent
invoices or statements to such customers before the Effective Date (as defined
in Section 1.6).
1.2.3. Refundable income taxes, prepaid interest,
prepaid insurance, investments in securities and negotiable instruments, loans
receivable and claims except for the items set forth in Section 1.1.3 above.
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<PAGE> 3
1.3. Purchase Price for the Assets; Allocations. The
purchase price for the Assets identified in Section 1.1 above shall be $520,500
(the "Purchase Price"), subject to adjustment as provided hereafter. The
parties agree that the Purchase Price for the Assets described in Section 1.1
shall be allocated as follows:
Operating Assets $ 24,000
Customer Lists/Agreements $440,000
Noncompetition Agreement $ 50,000
Goodwill $ 6,500
The parties agree to negotiate in good faith to adjust the foregoing
allocations and to complete and file IRS Form 8594.
1.4. Noncompetition Agreement. As of Closing, Seller,
Ronald R. Rudzinski and Buyer shall enter into the Noncompetition Agreement, in
the form attached as Exhibit 2 and made part of this Agreement, under which
Seller and Ronald R. Rudzinski shall agree not to compete with the business of
Buyer for a period of five years as set forth therein within the State of
Colorado.
1.5. Payment of Purchase Price. The Purchase Price shall
be paid as provided in Section 10.4 below in connection with Closing.
1.6 Effective Date. The effective date of this Agreement
shall be December 1, 1997 (the "Effective Date"), notwithstanding that the
Closing Date, as defined in Section 10.1 may be at a later date. All fees and
revenues for work and services performed by Seller on and after the Effective
Date shall be payable to, and the property of, Buyer. Buyer shall be
responsible for, and shall pay, all ordinary and reincurring operating costs on
and after the Effective Date unless such expenses were appropriately payable
prior to the Effective Date in accordance with generally accepted accounting
principles (e.g., the expense relates to revenue earned and invoiced prior to
the Effective Date). Such expenses shall include, but not be limited to,
office rent, ordinary monthly employee expenses (but shall not include any
Christmas or annual bonuses), and utilities. Buyer shall not be responsible
for any extraordinary or nonrecurring expenses or expenditures incurred by
Seller prior to the Closing Date.
1.7 Prepayments. Buyer may deduct from the Purchase
Price the portion of any prepayment paid for services received by Seller prior
to the Effective Date which have not been earned by Seller as of the Effective
Date in accordance with generally accepted accounting principles.
2. Transition Assistance. Shareholder, for a period of 120 days
after the Closing, agrees to reasonably assist and support Buyer as necessary
in connection with the assumption of Seller's business. Such assistance, which
shall include availability by telephone, may
3
<PAGE> 4
include, among other things, and with adequate notice meeting with the Seller's
customers and accounts and assisting with the transfer of such customers and
accounts in order to ensure an orderly transition. During such 120 day period,
Shareholder shall not be considered an employee of Buyer, and he shall not be
entitled to any compensation or employee benefits.
3. Liabilities of Seller. Unless specifically listed on Exhibit
3, Seller shall be and remain solely liable and responsible for all debts,
obligations, duties, and liabilities of Seller and Seller's business and with
respect to the Assets. Prior to the Effective Date, Buyer does not and shall
not assume, agree to pay or pay any debts, obligations, duties or liabilities
of any nature of Seller, or related to Seller's business, including, but not
limited to, any debts, obligations, duties or liabilities relating to Seller's
employees or employee benefit plans, regardless of whether any such debt,
obligation, duty or liability arises under any contract, agreement, practice,
arrangement, law or otherwise. Nothing in this Agreement or otherwise is
intended or shall be construed to the contrary. The parties further agree that
Buyer shall not be obligated to employ any of Seller's employees. Shareholder
acknowledges that he has no personal liabilities which relate to, or encumber,
the Seller's business or the Assets.
4. Present and Reasonably Equivalent Value. The transactions
contemplated by this Agreement are intended by the parties to be a
contemporaneous exchange between Seller and Buyer. The transactions
contemplated by this Agreement represent a regularly conducted, non-collusive
sale and have been negotiated by the parties and their respective professional
advisors in an arm's-length manner with due regard for the respective
obligations of the parties and value of the Assets.
5. Phone, Mail, Deliveries and Name of Seller.
5.1 Phone. For a period of 30 days following the Closing
Date and until the end of the calender month thereafter, Seller grants to Buyer
the exclusive use of the present telephone with Seller's present telephone
number.
5.2. Mail and Deliveries. The parties agree that Buyer
may accept all mail and deliveries addressed to the name of Seller to any of
Seller's present business addresses, and Buyer shall promptly deliver to Seller
all such mail and deliveries. Buyer may open such items as Buyer reasonably
concludes may include customer payments; provided however, that all checks and
customer payments of Seller's receivables prior to the Effective Date shall be
promptly delivered to Seller. Promptly after Closing, Buyer shall provide
notice to Seller's customers as warranted of the assignment of the Customer
Agreements. Seller shall promptly deliver to Buyer all mail and deliveries,
which Seller receives, belonging to Buyer, including any payments or monies
belonging to Buyer.
6. Customer Lists and Records. Promptly following the execution
of this Agreement, Seller shall furnish Buyer with a list of all of Seller's
customers, which shall include a complete and correct list of all of Seller's
past and present customers and their addresses (insofar as Seller possesses
records of past customers) which shall be attached as Exhibit 4 and made part
of this Agreement. Seller shall further provide such other and further
information
4
<PAGE> 5
as Buyer may from time to time reasonably request in respect of the business of
Seller, including customer sales files and applicable portions of the Records.
7. Approvals, Consents, Permits, Licenses and Authorizations.
The parties shall use their best efforts to obtain such approvals, consents,
permits, licenses and authorizations, if any, required under any laws or
regulations, by any governmental authority, or by any third parties, pursuant
to any existing agreements, leases, loans or otherwise, as may be required to
lawfully complete the transactions set forth in this Agreement. Seller agrees
to cooperate fully, execute, acknowledge and deliver such instruments and
documents and take all such other and further actions as may be necessary or
desirable in order to obtain such approvals, consents, permits, licenses and
authorizations.
8. Representations and Warranties.
8.1. Representations and Warranties of Seller and
Shareholder. Seller, and when specified, Shareholder, represent and warrant to
Buyer as of the Closing Date that:
8.1.1. Ownership of Seller's Stock. Shareholder and
Michaeline K. Rudzinski are the sole and exclusive record and beneficial owners
of all of the outstanding shares of the capital stock of Seller, and constitute
all of the directors and officers of Seller. All of the foregoing issued and
outstanding shares are fully paid and non-assessable, and none of the
outstanding shares are subject to any liens, encumbrances, restrictions,
adverse claims, voting trusts or voting agreements, nor have any such shares
been pledged. Shareholder has the absolute and unconditional right, power and
authority to cause Seller to sell, assign, transfer and deliver the Assets to
Buyer in accordance with the terms of this Agreement and to consummate the
transactions set forth in this Agreement. There are no existing subscriptions,
options, warrants or agreements for Seller to issue any additional shares of
stock or for Shareholder to sell or otherwise dispose of his shares of stock.
8.1.2. Due Organization; Name and Address; Good
Standing, Authority of Seller. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado. Seller
has full right, power and authority to own, lease and operate its properties
and assets, and to carry on its business. Seller is duly licensed, qualified
and authorized to do business in each jurisdiction in which the properties and
assets owned by it or the nature of the business conducted by it make such
licensing, qualification and authorization legally necessary. Seller is not in
breach or violation of, and the execution, delivery and performance of this
Agreement will not result in a breach or violation of, any of the provisions of
Seller's articles of incorporation (the "Articles") or bylaws (the "Bylaws").
8.1.3. Authorization and Validity of Agreements.
Seller has the legal capacity, right, power, and authority to enter into this
Agreement and the agreements made part of this Agreement. The execution and
delivery of this Agreement by Seller and the performance by Seller of the
transactions as set forth in this Agreement has been duly and validly
authorized by all necessary corporate and Shareholder actions. This Agreement
has been duly executed and delivered by Seller and Shareholder and is the
legal, valid and binding
5
<PAGE> 6
obligation of Seller and Shareholder, enforceable against Seller and
Shareholder in accordance with its terms. The agreements and documents made
part of this Agreement, when duly executed and delivered by Seller and
Shareholder, will be the legal, valid and binding obligations of Seller and
Shareholder, respectively, enforceable against Seller and Shareholder in
accordance with the respective obligations of the parties herein, except as
such enforceability may be limited by general principles of equity, bankruptcy,
insolvency, moratorium and similar laws relating to creditors' rights
generally.
8.1.4. Agreement Not in Conflict with Other
Instruments; Required Approvals Obtained. The execution, delivery and
performance of this Agreement and the agreements and documents made part of
this Agreement and the consummation of the transactions contemplated by this
Agreement and such agreements and documents will not (a) violate or require
after Closing any consent, approval, or filing under, (i) any law, statute,
rule, regulation of any government or governmental authority, or (ii) any
judgment, injunction, order, writ or decree of any court, arbitrator, or
governmental authority by which Seller, Shareholder or any of the Assets are
bound; (b) conflict with or after Closing require any consent, approval, or
filing under, result in the breach, default or termination of any provision of,
or result in the creation of any claim, security interest, lien, charge, or
encumbrance upon any of the Assets pursuant to, (i) Seller's Articles or
Bylaws, (ii) any indenture, mortgage, deed of trust, license, permit, approval,
consent, franchise, lease, contract, or other instrument, document or agreement
to which Seller or Shareholder is a party or by which Seller, Shareholder or
any of the Assets is bound, or (iii) any judgment, injunction, order, writ or
decree of any court, arbitrator, governmental authority by which Seller,
Shareholder or any of the Assets is bound. All permits, licenses, consents,
approvals and authorizations required by any laws or regulations, governmental
authorities or third parties to be obtained prior to Closing, shall have been
obtained and shall be in full force and effect as of the Closing Date.
8.1.5. Conduct of Business in Compliance with
Regulatory and Contractual Requirements. To its knowledge, Seller has
conducted and is conducting its business in compliance with all applicable laws
and governmental regulations and all contracts and agreements to which Seller
may be a party. The Operating Assets, the use, operation and maintenance
thereof; (i) are in compliance with all applicable laws and regulations, and
(ii) are in compliance with all restrictions, covenants, agreements, contracts,
commitments, understandings and arrangements applicable with respect thereto.
8.1.6. Legal Proceedings. (a) There is no action,
suit, proceeding, claim or arbitration, or any investigation by any person or
entity, including, but not limited to, any governmental authority, (i) pending
(or to the knowledge of Seller or Shareholder, threatened), to which Seller or
Shareholder is or may become a party, against or relating to Seller, Seller's
business or any of the Assets, or (ii) challenging Seller's or Shareholder's
right to execute, deliver, perform or complete the transactions set forth in
this Agreement or the agreements and documents made part of this Agreement, or
(iii) asserting any right with respect to any of the Assets. (b) Reference is
made to a letter dated November 26, 1997, and a letter in response thereto, all
of which is attached as Exhibit 8.1.6.
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<PAGE> 7
8.1.7. Financial Information. Attached hereto and
made part hereof as Exhibit 5 are copies of the unaudited Balance Sheets of
Seller as of October 31, 1997 and the Operating Statements of Seller for the
period ended October 31, 1997, and provided by Seller to Buyer (the "Financial
Statements"); and as provided in Section 9.1.2 below, a balance sheet of Seller
as of November 30, 1997 and operating statement of Seller for the 11 months
ended November 30, 1997, will be added to the Financial Statements and will be
attached to and made part of Exhibit 5. The Financial Statements are in
accordance with the books and records of Seller, are true, correct and complete
and accurately present Seller's financial position as of the dates set forth
therein and the results of Seller's operations for the periods then ended; all
such Financial Statements are in conformity with the accounting principles
historically utilized by Seller and applied on a consistent basis during each
period and on a basis consistent with that of prior periods.
8.1.8. Tax Matters. Attached hereto as Exhibit 6
are complete and correct copies of the income tax returns of Seller for
Seller's two calendar years ended December 31, 1996, 1995, (collectively, the
"Returns"), as filed by Seller with the Internal Revenue Service (the "IRS").
All information reported on the Returns is true, accurate, and complete. Seller
is not a party to, and is not aware of, any pending or threatened action, suit,
proceeding, or assessment against it for the collection of taxes by any
government or governmental authority or agency, and has duly and timely filed
with all appropriate governmental authorities or agencies all tax returns,
information returns, and reports required to be filed by Seller. Except for
accruals for taxes payable (the "Accrued Taxes") as set forth in Seller's
Balance Sheet as of November 30, 1997 (the "Balance Sheet") and accruals for
the period of time thereafter until Closing, which are not presently due and
payable, Seller has paid in full all taxes, interest, penalties, assessments
and deficiencies owed by Seller to all taxing authorities. All taxes and other
assessments and levies which Seller is required by applicable Law to withhold
or to collect have been duly withheld and collected and have been paid over to
the proper governmental authorities or agencies or are properly held by Seller
for such payment. All claims by the IRS or any state or local taxing
authorities for taxes due and payable by Seller have been paid by Seller. The
provisions for the Accrued Taxes are adequate for the payment of all of
Seller's liabilities for unpaid taxes (whether or not disputed). For all
federal income tax returns examined by the IRS, such examinations have been
completed and any deficiencies or assessments claimed or made have been paid or
settled. There are no pending examinations by the IRS for any periods of time
up to the date of this Agreement of which Seller is aware or which Seller has
reason to anticipate will be conducted by the IRS. Seller is not a party to or
aware of any suit, proceeding, or assessment against Seller for the collection
of taxes by any taxing authority.
8.1.9. Title to the Assets; All Assets of Seller.
Seller has sole and exclusive, good and marketable title to all of the Assets
free and clear of any and all pledges, claims, threats, liens, restrictions,
agreements, leases, security interests, charges and encumbrances. All of the
Operating Assets are in good, working and operating condition and repair,
reasonable wear and tear excepted, fit for their intended purposes, and free
from any defects known to Seller. Seller is selling, assigning and
transferring to Buyer all of Seller's material assets, except for the Excluded
Assets as provided in Section 1.2 above, and all of the
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<PAGE> 8
Assets (as defined in Section 1.1 above) have been and will by Closing be
identified to Seller and sold, assigned and transferred to Buyer as provided by
this Agreement.
8.1.10. Records. The Customer List and Records,
including, but not limited to, the lists of Seller's customers and sales files,
and all other due diligence materials that have been delivered by Seller to
Buyer or access to which has been made available to Buyer; or that shall be
delivered by Seller to Buyer or made accessible to Buyer, are true, complete
and correct.
8.1.11. Employment Matters. None of Seller's
employees are covered by a collective bargaining agreement or are represented
by a labor organization, and Seller is not aware of any union organizational
activity. To Seller's knowledge, Seller has complied with all laws and
regulations concerning its employees, and there are no pending or threatened
proceedings or lawsuits by or on behalf of any former or current employee
before any court or government agency. Seller has not entered into any
employment agreements with any of its employees, and all employees may be
terminated at will. Seller has paid all wages, bonuses, commissions and other
benefits and sums due (and all required taxes, insurance, social security and
withholding thereon), including all accrued vacation, accrued sick leave,
accrued benefits and accrued payments (and pro rata accruals for a portion of a
year) to its employees up to the Effective Date. Seller has maintained in
effect all insurance policies and other employee benefits covering any employee
claims incurred through the Closing Date. Buyer is under no obligation or
duty, whether under any contract or otherwise, relating to compensation or
benefits for Seller's employees, arising out of or in connection with the
transactions contemplated by this Agreement, and Seller has made no commitment
and is under no obligation to cause Buyer to assume or to be responsible for
any such obligation, duty or liability to any of Seller's employees except as
specified in Section 1.6.
8.1.12. Absence of Certain Changes or Events. Since
October 31, 1997, Seller has not:
8.1.12.1. Incurred any indebtedness,
obligation, duty or liability (contingent or otherwise) or acted as a guarantor
or surety of any debt, except normal trade or business obligations incurred in
the ordinary course of Seller's business, as such business has been operated
historically.
8.1.12.2. Subjected to pledge, lien,
charge, claim, security interest, agreement, deed of trust or encumbrance any
of the Assets.
8.1.12.3. Sold, assigned, transferred,
leased, disposed of, or agreed to sell, assign, transfer, lease, or dispose of,
any of the Assets, except for Assets sold or used in the ordinary course of
Seller's business, as such business has been operated historically, at the full
prices and rates currently in effect, without discount or rebate.
8.1.12.4. Suffered any material adverse
change in Seller's operations, earnings, assets, liabilities, or business
(financial or otherwise).
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<PAGE> 9
8.1.12.5. Other than in the ordinary
course of Seller's business, as such business has been operated historically,
made any payment or entered into any transaction, contract, agreement, lease,
arrangement, understanding or commitment.
8.1.12.6. Failed to pay any indebtedness
or other obligation, including any taxes and other charges, when due.
8.1.12.7. Dissolved, liquidated, or made
any change to the corporate structure of organization or the capital stock or
formed or acquired any interest in any subsidiary, person or entity.
8.1.13. Adverse Conditions. Seller does not have any
knowledge of any past, present or future condition, state of facts or
circumstances which has affected or which might affect adversely the business
of Seller or prevent Buyer from carrying on Seller's business with respect to
the Assets. Neither Seller nor Shareholder is a party to any contract or
agreement which might or could adversely affect their performance under this
Agreement or which could adversely affect Buyer's interests with respect to
this Agreement and the Assets. Seller maintains adequate policies of
insurance, consistent with good commercial practices, to protect the business,
property and assets of Seller, and said policies are sufficient to replace the
Operating Assets in the event of casualty or loss.
8.1.14. Full Disclosure. This Agreement (including
the Exhibits hereto) does not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements contained
herein not misleading. There is no fact known to Seller which is not disclosed
in this Agreement which materially adversely affects the accuracy of the
representations and warranties contained in this Agreement or Seller's
financial condition, operations, business, earnings, assets, or liabilities.
All material contracts of Seller have been disclosed to Buyer and copies of
such contracts provided to Buyer. All material contracts of Shareholder
relating to or which could affect the business or affairs of Seller, this
Agreement, or the Assets have been disclosed to Buyer and copies of such
contracts provided to Buyer. Seller and Shareholder have complied with all
such contracts and are not in default or breach of any of them.
8.1.15. Customers. Seller is not are aware that any
customer of Seller intends to cease doing business with Seller or intends to
alter adversely the amount of business such customer has done with Seller.
8.1.16. Operation of Business. Since October 31,
1997, Seller has used its best efforts to preserve the business of Seller and
the Assets. Since October 31, 1997, Seller has maintained and preserved its
business and the Assets at or above the levels at which the business was
previously operated and at or above the amounts and values previously
represented to Buyer, and the relationship of Seller with its suppliers and
customers.
8.1.17. Disclaimer of Fraudulent Intent. Seller and
Shareholder, with respect to each of their respective obligations hereunder,
represent and warrant that the
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transactions described in this Agreement have been undertaken by them in good
faith, considering their obligations to any person or entity to whom Seller and
Shareholder owe a right to payment, whether or not the right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured (collectively such
persons with such claims are called "Creditors" under this paragraph), and have
undertaken these transactions without any intent to hinder, delay or defraud
any such Creditors, and have not and will not conceal this transaction or the
proceeds of this transaction from any such Creditors. Seller and Shareholder
further represent and warrant that: (1) they will not retain possession or
control of any of the property transferred under this Agreement following
Closing, except as expressly provided in this Agreement and thereafter to be
managed at Seller's discretion; (2) Seller and Shareholder, to their knowledge,
have not been sued or threatened with suit by any Creditor prior to the
execution of this Agreement, except as fully disclosed in an exhibit to this
Agreement; (3) Seller and Shareholder have not removed or concealed any assets
from any Creditors; (4) Seller and Shareholder have not incurred any individual
or aggregate substantial debt in connection with the Assets or business of
Seller that is significantly greater than the normal and customary debts of
Seller and Shareholder in the ordinary course of business; (5) Seller and
Shareholder do not contemplate and have no reason to contemplate that they will
seek protection under the bankruptcy laws; and (6) Seller believes in good
faith that it will receive consideration reasonably equivalent to the value of
the Assets transferred under this Agreement.
8.1.18. Representations as to Solvency. Seller
represent and warrant that:
8.1.18.1. Prior to Closing, Seller has
not incurred, does not intend to incur and has no reasonable basis to believe
that it will incur any debts beyond its respective ability to pay as they
become due;
8.1.18.2. Seller has assets greater than
Seller's debts, based upon a fair valuation;
8.2. Representations and Warranties of Buyer. Buyer
represents and warrants to Seller, as of the date of this Agreement and as of
Closing that:
8.2.1. Due Organization; Name and Address; Good
Standing, Authority of Seller. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado. Buyer
has full right, power and authority to own, lease and operate its properties
and assets, and to carry on its business. Buyer is duly licensed, qualified
and authorized to do business in each jurisdiction in which the properties and
assets owned by it or the nature of the business conducted by it make such
licensing, qualification and authorization legally necessary. Buyer is not in
breach or violation of, and the execution, delivery and performance of this
Agreement will not result in a breach or violation of, any of the provisions of
Seller's articles of incorporation (the "Articles") or bylaws (the "Bylaws").
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8.2.2. Authorization and Validity of Agreements.
Buyer has the legal capacity, right, power, and authority to enter into this
Agreement and the agreements made part of this Agreement. The execution and
delivery of this Agreement by Buyer and the performance by Buyer of the
transactions as set forth in this Agreement has been duly and validly
authorized by all necessary corporate and shareholder actions. This Agreement
has been duly executed and delivered by Buyer and is the legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms. The agreements and documents made part of this Agreement, when duly
executed and delivered by Buyer, will be the legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with the
obligations of the parties, respectively, herein, except as such enforceability
may be limited by general principles of equity, bankruptcy, insolvency,
moratorium and similar laws relating to creditors' rights generally.
8.2.3. Agreement Not in Conflict with Other
Instruments; Required Approvals Obtained. The execution, delivery and
performance of this Agreement and the agreements and documents made part of
this Agreement and the consummation of the transactions contemplated by this
Agreement and such agreements and documents will not violate or require after
Closing any consent, approval, or filing under, (i) any law, statute, rule,
regulation of any government or governmental authority, or (ii) any judgment,
injunction, order, writ or decree of any court, arbitrator, or governmental
authority by which Buyer is bound. All permits, licenses, consents, approvals
and authorizations required by any laws or regulations, governmental
authorities or third parties to be obtained prior to Closing, shall have been
obtained and shall be in full force and effect as of the Closing Date.
9. Particular Covenants.
9.1. Affirmative Covenants. Seller and Shareholder,
respectively, covenant, promise and agree that from the date hereof and
afterwards until this Agreement is fully performed Seller and Shareholder
shall:
9.1.1. Exert their best efforts to prevent the
occurrence of any event which could result in their respective representations
and warranties contained in this Agreement not being true and correct as of the
date of this Agreement or thereafter as may affect the Assets, the performance
of any portion of this Agreement or any of Buyer's rights under this Agreement,
and Seller or Shareholder, as the case may be, shall promptly notify Buyer of
the occurrence of any event or the discovery of any fact which would cause any
of their respective covenants, promises and agreements to be breached or
violated or any of their representations and warranties to become not true and
correct or which could interfere with or prevent the completion of the
transactions or other performance contemplated by this Agreement.
9.1.2. By December 31, 1997, Seller shall provide to
Buyer a balance sheet of Seller as of November 30, 1997 and an operating
statement of Seller for the 11 months ended November 30, 1997.
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9.2. Risk of Loss. All risk of loss or damage to or
destruction of the Assets, in whole or in part, shall be and remain with Seller
until Closing. In the event of such loss, damage, or destruction, Seller, to
the extent reasonable, shall replace the lost property or repair or cause the
repair of the damaged property to its condition prior to the damage. If
replacements, repairs, or restorations are not completed prior to Closing and
will not be covered by Seller's insurance, then the Purchase Price shall be
adjusted by an amount agreed upon by Buyer and Seller that will be required to
complete the replacement, repair, or restoration within 30 days following
Closing. If Buyer and Seller are unable to agree, then Buyer, at its sole
option and notwithstanding any other provision of this Agreement, upon notice
to Seller, may rescind this Agreement.
9.3. Negotiations with Other Persons. Seller has not
initiated, encouraged the initiation by others, or participated in any
discussion or negotiations with any other person or entity relating to the sale
of any or all of the Assets, the business of Seller or any securities issued by
Seller within the four months prior to the Effective Date of this Agreement.
10. Closing.
10.1. Place. The closing of the purchase and sale of the
Assets and other transactions contemplated by this Agreement (referred to
throughout this Agreement as the "Closing") shall take place at Buyer's
offices, on or before December 31, 1997, unless extended by written agreement
of Buyer and Seller. The date of Closing shall be the date this Agreement is
executed by the parties hereto ("Closing Date").
10.2. Seller's and Shareholder's Conditions to Close.
Seller's obligations to close the transactions contemplated hereby at Closing
shall be subject to the complete satisfaction and fulfillment of all of the
following conditions precedent, any or all of which may be waived in whole or
in part by the party entitled to the benefit thereof:
10.2.1. All representations and warranties made by
Buyer in this Agreement shall be complete and accurate at and as of Closing.
10.2.2. All covenants, promises and agreements made
by Buyer in this Agreement and all other actions required to be performed or
complied with by Buyer under this Agreement prior to or at Closing shall have
been fully performed or complied with by Buyer.
10.2.3 Buyer shall deliver and execute all documents
and funds as are required in this Agreement.
10.3. Buyer's Conditions to Close. Buyer's obligation to
close the transactions contemplated hereby at Closing shall be subject to the
complete satisfaction and fulfillment of all of the following conditions
precedent, any or all of which may be waived in whole or in part by Buyer (but
no such waiver of any such condition precedent shall be or constitute a waiver
of any covenant, promise, agreement, representation or warranty made by Seller
or Shareholder in this Agreement):
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10.3.1. All representations and warranties made by
Seller and Shareholder in this Agreement shall be complete and accurate at and
as of Closing.
10.3.2. All covenants, promises and agreements made
by Seller and Shareholder, respectively, in this Agreement and all other
actions required to be performed or complied with by Seller and Shareholder
under this Agreement prior to or at Closing shall have been fully performed or
complied with by Seller and Shareholder.
10.3.3. Seller and Shareholder shall not have
concealed this transaction from any creditor of Seller or Shareholder who
contractually or legally has a right to notice of the sale of the Assets;
Seller and Shareholder shall not have been sued or threatened with suit, except
as otherwise fully disclosed to Buyer in an exhibit to this Agreement and
waived by Buyer as a condition precedent to Closing; Seller shall have assets
greater than Seller's debts, using a fair valuation;
10.3.4. There shall not have occurred any material
adverse change in the business of Seller or in the Assets since October 31,
1997.
10.3.5. Buyer shall have received all things required
to be delivered or furnished to Buyer by Seller and Shareholder hereunder prior
to or at Closing.
10.4. Actions to Be Taken at Closing. At Closing, the
following actions, among others, shall occur:
10.4.1. Seller shall deliver to Buyer at or before
Closing all updated information and listings as set forth herein.
10.4.2. Seller shall execute and deliver to Buyer a
Warranty Bill of Sale, in the form attached as Exhibit 7 and made part of this
Agreement, pursuant to which Seller shall sell, assign, and transfer to Buyer
the Operating Assets.
10.4.3. Seller shall execute and deliver to Buyer a
Warranty Assignment, in the form attached as Exhibit 8 and made part of this
Agreement, and any additional assignments and documents, pursuant to which
Seller shall sell, assign and transfer to Buyer the Customer Agreements and any
other rights and interests provided herein as may be applicable.
10.4.4. Seller, Shareholder and Buyer shall execute
and deliver the Non-Competition Agreement in the form attached hereto as
Exhibit 2.
10.4.5. Buyer shall have delivered by cashiers's
check or wire transfer into Seller's account, as Seller shall designate, the
amount of $50,000 towards the Purchase Price. Buyer shall execute and deliver
to Seller a Promissory Note in the amount of $470,500. The Promissory Note
shall be in the form attached hereto as Exhibit 9.
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10.5. Operation of Business. From and after the close of
business on the day immediately preceding the Closing Date, Seller shall cease
to operate its business in connection with the Assets and as provided in the
Non- competition Agreement and shall thereafter not take any action with
respect to any of the Assets, except as expressly provided herein or otherwise
by agreement.
11. Indemnification; Remedies.
11.1. Indemnification and Payment of Damages. Each party,
respectively, will indemnify and hold harmless the other party and its
shareholders, affiliates, officers, directors, employees, representatives and
agents (collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons, the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and attorneys' fees) or diminution of value, whether
or not involving a third-party claim (collectively, "Damages"), arising
directly or indirectly, from or in connection with:
11.1.1. Any breach ("Breach," defined as including
but not limited to any material misrepresentation or omission of material
information or that any representations or warranties are untrue as provided
herein) of any representations or warranties made by a party to this Agreement
or any other agreement, document or certificate delivered pursuant to this
Agreement, including any Breach as if any such representations or warranties
were made on and as of the Closing Date or afterwards, if applicable, unless
otherwise disclosed to the Indemnified Person and to which the Indemnified
Person agrees in writing before Closing;
11.1.2. Any Breach by a party to this Agreement of
any covenant or obligation of such party in this Agreement or any agreement
made part of this Agreement;
11.1.3. Any services provided by Seller prior to the
Closing Date;
11.1.4. Any claim by any person for brokerage or
finder's fees or commissions in connection with this Agreement or the
transactions provided in this Agreement as a result of any agreement,
arrangement or understanding as to which Seller was a party.
The remedies provided in this Section 11.1 will not be exclusive of or limit
any other remedies that may be available to the Indemnified Persons.
11.2. Defense of Third Party Claims.
11.2.1. In the event of any claim made or threatened
or the commencement of any proceeding or lawsuit by any third party for which
an Indemnified Person may seek indemnity under Section 11.1 above, the
Indemnified Person shall promptly notify the indemnifying party of such claim,
but the failure to provide such notice will not relieve the indemnifying party
of any liability that they may have under this Section 11, except to the extent
that they demonstrate that the defense of such claim, proceeding or lawsuit is
prejudiced by the failure to give such notice. If the Indemnified Person, in
its sole discretion, consents,
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and upon such terms as the Indemnified Person may impose, the indemnifying
party may elect to assume the defense of such claim, proceeding or lawsuit, at
the indemnifying party's expense.
11.2.2. In the event the indemnifying party assumes
the defense of any such claim, proceeding or lawsuit, (i) it will be
conclusively established for purposes of this Agreement that such claim,
proceeding or lawsuit is within the scope of and subject to indemnification
hereunder; and (ii) no compromise or settlement which may or could in any
respect adversely affect an Indemnified Person may be effected without such
person's written consent, and the Indemnified Person shall have no liability
for any compromise or settlement effected without such person's written
consent.
11.3.3. The parties hereby consent to the
jurisdiction of the courts in the State of Colorado upon a claim for
indemnification under this Section 11. Furthermore, the parties agree that the
laws of Colorado shall apply.
12. Taxes. All use taxes incurred in connection herewith shall be
the obligation of the Buyer.
13. Miscellaneous.
13.1. Fair Meaning. The parties acknowledge that this
Agreement is the product of arms-length negotiations among persons with
substantially equal bargaining power and shall not be construed against the
party which accepts primary responsibility for drafting this Agreement. The
language in this Agreement shall in all cases be construed as a whole according
to its fair meaning, and not strictly for or against any party.
13.2. Survival of Representations, Warranties and
Agreements. All of the representations, warranties, covenants, promises and
agreements of the parties contained in this Agreement (or in any agreement or
document delivered or to be delivered pursuant to this Agreement or at or in
connection with Closing) shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
13.3. Notices. All notices, requests, demands, consents,
and other communications which are required or may be given under this
Agreement (collectively, the "Notices") shall be in writing and shall be given
either (a) by personal delivery against a receipted copy or other reasonable
verification of delivery, or (b) by certified or registered United States mail,
return receipt requested, postage prepaid, to the following addresses:
(i) If to Seller or Shareholder, to:
Ronald R. Rudzinski
8311 Bruns Drive
Fort Collins, Colorado 80525
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with a copy to:
Peter M. Nemkov, Esq., P.C.
950 South Cherry Street, Suite 1502
Denver, Colorado 80222
(ii) If to Buyer:
Jerald H. Donnan, President
FDC Group, Inc.
3665 JFK Parkway, Building 1
Fort Collins, Colorado 80525
with a copy to:
Samuel E. Wing, Esquire
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
or to such other address of which written notice in accordance with this
Section 13.3 shall have been provided by such party. Notices may be given only
in the manner hereinabove described in this Section 13.3 and shall be deemed
received upon delivery or three business days following the deposit of the
notice in the United States mail as provided above.
13.4. Entire Agreement. This Agreement (including the
exhibits hereto) constitutes the full, entire and integrated agreement between
the parties hereto with respect to the subject matter hereof, and supersedes
all prior negotiations, correspondence, understandings and agreements among the
parties hereto respecting the subject matter hereof.
13.5. Assignability. This Agreement shall not be
assignable by any party hereto without the prior written consent of the other
parties hereto.
13.6. Binding Effect; Benefit. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
heirs, personal and legal representatives, successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights, remedies, obligations, or liabilities.
13.7. Severability. Any provision of this Agreement which
is held by a court of competent jurisdiction to be prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability,
without invalidating or rendering unenforceable the remaining provisions of
this Agreement.
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13.8. Amendment; Waiver. No provision of this Agreement
may be amended, waived or otherwise modified without the prior written consent
of all of the parties hereto. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant or agreement herein contained. The waiver by
any party hereto of a breach of any provision or condition contained in this
Agreement shall not operate or be construed as a waiver of any subsequent
breach or of any other conditions hereof.
13.9. Section Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
13.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which, together including the signature of each party hereto, shall be
deemed to be one and the same instrument.
13.11. Applicable Law; Jurisdiction and Venue; Service of
Process. This Agreement shall be deemed to have been made in the State of
Colorado; the parties agree that Colorado has the most significant relationship
to this Agreement; and this Agreement shall be governed by, construed,
interpreted and enforced in accordance with the laws of the State of Colorado.
All suits, proceedings and other actions relating to, arising out of or in
connection with this Agreement shall be submitted to the in personam
jurisdiction of the courts of the State of Colorado or the Federal Courts in
the District of Colorado, and venue for all such suits, proceedings and other
actions shall be in Fort Collins, Colorado. The parties hereby waive any claim
against or objection to in personam jurisdiction and venue in the Federal or
state courts in Fort Collins, Colorado.
13.12. Remedies. The parties hereto acknowledge that in the
event of a breach of this Agreement, any claim for monetary damages hereunder
may not constitute an adequate remedy, and that it may therefore be necessary
for the protection of the parties and to carry out the terms of this Agreement
to apply for the specific performance of the provisions hereof. It is
accordingly hereby agreed by all parties that no objection to the form of the
action or the relief prayed for in any proceeding for specific performance of
this Agreement shall be raised by any party, in order that such relief may be
expeditiously obtained by an aggrieved party. All parties may proceed to
protect and enforce their rights hereunder by a suit in equity, at law or other
appropriate proceeding, whether for specific performance or for an injunction
against a violation of the terms hereof or in aid of the exercise of any right,
power or remedy granted hereunder or by law, equity or statute or otherwise. No
course of dealing and no delay on the part of any party hereto in exercising
any right, power or remedy shall operate as a waiver thereof or otherwise
prejudice its rights, powers or remedies, and no right, power or remedy
conferred hereby shall be exclusive of any other right, power or remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.
13.13 Further Assurances. The parties hereto agree to
execute, acknowledge, and deliver, after the date hereof, without additional
consideration, such further reasonable assurances, instruments and documents,
and to take such further actions, as the other party
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may reasonably request in order to fulfill the intent of this Agreement and the
transactions contemplated hereby.
13.14 Confidential. This Agreement and all terms and
conditions of this Agreement are confidential and of a personal nature, and
neither party shall disclose or make known to any third person any of the terms
or conditions herein except for disclosure to each parties legal counsel and
accounting professional.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the date first above written.
SELLER: BUYER:
MIROCON, INC. FDC GROUP, INC.
By: /s/ Ronald R. Rudzinski By: /s/ Jerald H. Donnan
----------------------------------- -------------------------------
Ronald R. Rudzinski, President Jerald H. Donnan, President and
Chief Executive Officer
SHAREHOLDER:
/s/ Ronald R. Rudzinski
- --------------------------------------
Ronald R. Rudzinski, individually
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EXHIBIT LIST
Exhibit - Listed and Described Assets
1A Operating Assets
1B Customer Agreements
Exhibit 2 Noncompetition Agreement
Exhibit 3 Assumed Liabilities
Exhibit 4 Customer List
Exhibit 5 Financial Statements
Exhibit 6 Tax Returns
Exhibit 7 Warranty Bill of Sale
Exhibit 8 Warranty Assignment
Exhibit 9 Promissory Note
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<TABLE>
<CAPTION>
Furniture List Equipment List
-------------- --------------
<S> <C> <C> <C>
1. 13 Secretarial desks 1. 1 File Server 486 D2-66/Novell 3.12
2. 4 Desks with left return 2. 1 Ascend Pipeline
3. 1 small secretarial desk 3. 1 Pitney-Bowes postage machine
4. 1 Computer workstation 4. 4 Fax machines
5. 1 Computer desk 5. 1 Omega phone system
6. 4 Manager chairs 6. 1 Carpet sweeper
7. 23 Secretarial chairs 7. 1 Phone system CD player
8. 8 Side chairs 8. 1 IBM elec. typewriter
9. 1 Round lunch table 9. 1 Toshiba copier
10. 4 Computer tables 10. 1 Calculator
11. 1 Oak planter 11. 1 H.P. 3Si printer
12. 3 Wall clocks 12. 1 H.P. 4Si printer
13. 21 Wastebaskets 13. 1 H.P. lll printer
14. 1 Refrigerator on cart 14. 1 H.P. ll printer
15. 2 Bookcases 15. 3 Coffee pots
16. 12 Almond file cabinets 16. 21 Phones
17. 2 Chocolate file cabinets 17. Surge protectors
18. 1 Black file cabinet 18. 1 External modem-Zoom 14,400
19. 1 Oak credenza 19. 2 Laser font cartridges
20. 1 Almond lateral file 20. 1 APS power backup
21. 8 Wall dividers 21. 1 HP Surestore 6000 DAT tape backup
22. 14 Framed pictures 22. 22 Computer workstations
23. 5 Rolling file cabinets
24. 2 Silk plants
25. 5 Plants
</TABLE>
EXHIBIT 1A
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EXHIBIT 1B
CUSTOMER AGREEMENTS
These Agreements will be made available by Seller
or Purchaser after Closing
21
<PAGE> 22
EXHIBIT 2
NONCOMPETITION AGREEMENT
THIS AGREEMENT is made this 1st day of December, 1997, by and among
MIROCON, INC., a Colorado ("Mirocon"), Ronald R. Rudzinski
("Rudzinski")(Mirocon and Rudzinski are hereafter together referred to as
"Covenantors"), and FACTUAL DATA CORP., a Colorado corporation ("FDC").
Explanatory Statement
Covenantors and FDC are parties to that certain Assets Purchase
Agreement dated as of December 1st, 1997 (the "Purchase Agreement"), for sale
of substantially all of the assets of Mirocon, and Rudzinski is the sole
shareholder of Mirocon.
FDC desires to preserve the goodwill of Mirocon free from potential
harm by Covenantors.
Agreement
NOW, THEREFORE, in respect of the cash consideration paid to and for
the benefit of Covenantors as provided in the Purchase Agreement and the mutual
covenants, promises and agreements herein contained, the parties hereto do
hereby covenant, promise and agree as follows:
1. Covenant Against Competition.
1.1. The parties hereto acknowledge and agree that
Rudzinski provided services in respect of the business of Mirocon and has
knowledge, expertise and relationships with said business and customers of
Mirocon which was and is of a special and unusual character and which was and
is of a unique value to FDC, and if such knowledge, expertise and relationships
were used by Rudzinski, individually, through Mirocon, through another
organization, or in any other respect, in competition with FDC, could cause
serious harm to the goodwill of Mirocon acquired by FDC pursuant to the
Purchase Agreement and the business of FDC which could not be adequately
compensated in an action at law. Accordingly, Covenantors agree that, during
the five years following the Closing Date (as defined in the Purchase
Agreement), Covenantors shall not do any of the following in the State of
Colorado with respect to any person or entity located, residing or conducting
business in said location:
(a) Offer to sell or lease, or solicit an offer
to buy or lease, any Products (as defined in the Purchase Agreement) to any
customers or any persons or
22
<PAGE> 23
entities that are or were customers or accounts of Mirocon or FDC at any time
("Customers") or for the benefit or account of any person or entity other than
FDC.
(b) Sell or lease or attempt to sell or lease any
Products to any Customer to or for the benefit or account of any person other
than FDC.
(c) Solicit for employment or employ for the
benefit or account of any person or entity other than FDC any employee of FDC;
nor shall Covenantors urge, directly or indirectly, any Customers or potential
customers to discontinue or not use, in whole or in part, the services and
Products of FDC.
(d) Engage, either as a consultant, independent
contractor, proprietor, shareholder, partner, member, manager, officer,
director, employee, or otherwise in any business which sells, leases or
distributes Products or which otherwise competes with FDC within the
geographical described in this section 1.1.
1.2. The parties hereto agree that to the extent that any
provision or portion of Section 1.1 of this Agreement shall be held, found or
deemed to be unreasonable, unlawful or unenforceable by a court of competent
jurisdiction, then any such provision or portion thereof shall be deemed to be
modified to the extent necessary in order that any such provision or portion
thereof shall be legally enforceable to the fullest extent permitted by
applicable law; and the parties hereto do further agree that any court of
competent jurisdiction shall, and the parties hereto do hereby expressly
authorize, request and empower any court of competent jurisdiction to, enforce
any such provision or portion thereof or to modify any such provision or
portion thereof in order that any such provision or portion thereof shall be
enforced by such court to the fullest extent permitted by applicable law.
1.3. As used in this Section 1, "Customers" shall include
any person or entity that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
any such "Customers."
2. Remedies.
2.1. Because the violation by Covenantors of any of the
provisions of Section 1 of this Agreement would cause irreparable injury to
FDC, and there is no adequate remedy at law for such violation, FDC shall have
the right, in addition to any other remedies available at law or in equity, to
enjoin either or both of Covenantors in a court of equity from violating such
provisions, and no objection as to the form of relief prayed will be raised by
either or both of Covenantors, or if raised, shall not be effective, in
connection with any such action.
2.2. The provisions of Section 2.1 of this Agreement are
cumulative. Nothing in this Agreement shall be construed as prohibiting FDC
from pursuing any other remedies available to it for a breach or threatened
breach of Section 1 of this Agreement,
23
<PAGE> 24
and FDC shall in addition have any remedies provided in the Purchase Agreement,
including the right to execute against any security interests granted to FDC
therein. Covenantors shall be jointly and severally obligated under this
Agreement, and a breach of this Agreement by either of Covenantors shall be
deemed to be a breach by both of Covenantors.
3. Miscellaneous.
3.1. Notices. All notices, requests, demands, consents,
and other communications which are required or may be given under this
Agreement (collectively, the "Notices") shall be as provided in the Purchase
Agreement.
3.2. Entire Agreement. This Agreement constitutes the
full, entire and integrated agreement between the parties hereto with respect
to the subject matter hereof, and supersedes all prior negotiations,
correspondence, understandings and agreements among the parties hereto
respecting the subject matter hereof.
3.3. Severability. Any provision of this Agreement which
is held by a court of competent jurisdiction to be prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability,
without invalidating or rendering unenforceable the remaining provisions of
this Agreement.
3.4. Amendment; Waiver. No provision of this Agreement
may be amended, waived, or otherwise modified without the prior written consent
of all of the parties hereto. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver, by the party taking such action, of compliance with any
provision herein contained. The waiver by any party hereto of a breach of any
provision or condition contained in this Agreement shall not operate or be
construed as a waiver of any subsequent breach or of any other conditions or
terms hereof.
3.5. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
3.6. Applicable Law; Jurisdiction and Venue; Service of
Process. This Agreement shall be deemed to have been made in the State of
Colorado; the parties agree that Colorado has the most significant relationship
to this Agreement; and this Agreement shall be governed by, construed,
interpreted and enforced in accordance with the laws of the State of Colorado.
All suits, proceedings and other actions relating to, arising out of or in
connection with this Agreement shall be submitted to the in personam
jurisdiction of the courts of the State of Colorado or the Federal Courts in
the District of Colorado, and venue for all such suits, proceedings and other
actions shall be in Fort Collins, Colorado.
24
<PAGE> 25
3.7. Attorneys' Fees. The prevailing party shall be
entitled to an award of attorneys' fees and expenses against the losing party
in connection with any litigation arising in connection with the provisions of
this Agreement.
3.8. Assignment. This Agreement may not be assigned by
either of Covenantors in whole or in part.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the date first above written.
MIROCON, INC.
By: /s/ Ronald R. Rudzinski
----------------------------------
Ronald R. Rudzinski, President
/s/ Ronald R. Rudzinski
- --------------------------------------
Ronald R. Rudzinski, individually
FDC GROUP, INC.
By: /s/ Jerald H. Donnan
----------------------------------
Jerald H. Donnan, President and
Chief Executive Officer
25
<PAGE> 26
EXHIBIT 3
ASSUMED LIABILITIES
In connection with the Assets Purchase Agreement, dated as of December
1st, 1997 (the "Purchase Agreement"), among MIROCON, INC. a Colorado
corporation ("Seller"), RONALD R. RUDZINSKI ("Shareholder"), and FDC GROUP,
INC., a Colorado corporation ("Buyer"), Buyer hereby assumes the following
lease upon execution of the attached Assignment and Consent to the Assignment
of Lease:
Office Lease dated August 14, 1990 between Confederation Life Insurance Company
(the predecessor landlord) and Mirocon, Inc., a Colorado corporation, as
amended on March 30, 1993 and September 30, 1997 (the "Lease").
Buyer:
/s/ Jerald H. Donnan
- ---------------------------------
Jerald H. Donnan, President
Seller:
/s/ Ronald R. Rudzinski
- ---------------------------------
Ronald R. Rudzinski, President
26
<PAGE> 27
EXHIBIT 4
CUSTOMER LISTS
The parties acknowledge that this list has been delivered
through computer access from Seller to Buyer
27
<PAGE> 28
EXHIBIT 7
WARRANTY BILL OF SALE
In consideration of the allocable portion of the Purchase Price given
by FDC Group, Inc. ("Buyer") to Mirocon, Inc. ("Seller"), as set forth and
described in that certain Assets Purchase Agreement, dated as of December 1st,
1997 (the "Purchase Agreement"), and in consideration of the covenants,
promises, representations and warranties set forth in the Purchase Agreement,
the receipt of which consideration is hereby acknowledged by Seller identified
in the Purchase Agreement, Seller does hereby grant, sell, transfer, convey,
and deliver to Buyer this date, all of its rights, title, and interest in the
assets (consisting of the Operating Assets as provided in the Purchase
Agreement) listed and described in Schedule A which is attached to and made
part of this Exhibit.
Seller and Shareholder warrants and agrees to defend against all
persons the title of all such property for the benefit of Buyer and its legal
representatives, successors and assigns.
In witness whereof, Seller and Shareholder have signed and delivered
this warranty bill of sale this 1st day of December 1997.
MIROCON, INC.
By: /s/ Ronald R. Rudzinski
---------------------------------
Ronald R. Rudzinski, President
SHAREHOLDER:
/s/ Ronald R. Rudzinski
- --------------------------------------
Ronald R. Rudzinski
28
<PAGE> 29
SCHEDULE A TO WARRANTY BILL OF SALE
LISTING AND DESCRIPTION OF ASSETS
See Exhibit 1A to Asset Purchase Agreement
29
<PAGE> 30
EXHIBIT 8
WARRANTY ASSIGNMENT
In consideration of the allocable portion of the Purchase Price given
by FDC Group, Inc. ("Buyer") to Mirocon, Inc. ("Seller"), as set forth and
described in that certain Assets Purchase Agreement, dated as of December 1st,
1997 (the "Purchase Agreement"), and in consideration of the covenants,
promises, representations and warranties set forth in the Purchase Agreement,
the receipt of which consideration is hereby acknowledged by Seller identified
in the Purchase Agreement, Seller does hereby sell, assign and transfer to
Buyer as of this date, all of its rights, title, and interest in the Customer
Agreements (as defined in the Purchase Agreement) and other rights and
agreements, if any, as listed and described in Schedule A which is attached to
and made part of this Exhibit.
Seller and Shareholder warrants and agrees to defend against all
persons the title of and rights in all such Customer Agreements and other
rights agreements for the benefit of Buyer and its legal representatives,
successors and assigns.
In witness whereof, Seller and Shareholder have signed and delivered
this warranty assignment this 1st day of December 1997.
MIROCON, INC.
By: /s/ Ronald R. Rudzinski
--------------------------------
Ronald R. Rudzinski, President
SHAREHOLDER:
/s/ Ronald R. Rudzinski
- -------------------------------------
Ronald R. Rudzinski
30
<PAGE> 31
SCHEDULE A TO WARRANTY ASSIGNMENT
LISTING AND DESCRIPTION OF CUSTOMER
AGREEMENTS, ORDERS AND CLAIMS
<TABLE>
<CAPTION>
Invoice, Or-
der, Contract
or Other
Number Date Title and/or Type of Document(s) Description
- ------------- ------------- -------------------------------- -----------------------------
<S> <C> <C> <C>
</TABLE>
See Exhibit 1B to Asset Purchase Agreement
31
<PAGE> 32
PROMISSORY NOTE
$470,500.00 DENVER, CO
DECEMBER 19, 1997
FOR VALUE RECEIVED, the undersigned (hereinafter "Maker") promises to
pay to the order of Mirocon, Inc. (hereinafter "Holder"), or order, the
principal sum of Four Hundred Seventy Thousand Five Hundred Dollars
($470,500.00), in lawful money of the United States, on the following terms and
conditions:
1. PAYMENTS. Payments due hereunder shall be due as follows:
a. $50,000 in principal due on January 15, 1998, with no
interest being charged or accrued during this period;
b. As to the remaining principal balance of $420,500,
there shall be payments of principal only payments of
$7,000 per month for a period of five (5) months with
payments due on the 1st day of each month with the
first payment due on February 1, 1998, and the last
payment due on June 1, 1998; with no interest being
charged or accrued during this period;
c. As to the remaining principal balance of $385,500,
there shall be payments of principal and interest at
the rate of eight percent (8%) per annum accruing as
of June 1, 1998, amortized over a fifty-five (55)
month term, payable in monthly installments of
$8,395.52, due on the 1st day of each month with the
first payment due on July 1, 1998, and the last
payment due on January 1, 2003; and
d. Notwithstanding (b) and (c), hereof, if Maker closes
an initial public offering ("IPO") of its securities,
Maker shall pay Holder the lesser of (i) $160,250, or
(ii) any unpaid amount of principal and accrued
interest, if any, due on this Note at the time of the
closing of the IPO. If, after payment of the amount
specified in (i) or (ii), hereof, any principal of
this Note remains outstanding, such amount shall be
paid in equal monthly installments without interest
over a period of twenty four (24) months, with each
monthly payment due by the 1st day of each month
following the month in which the IPO closes.
2. PLACE OF PAYMENT. Principal and interest on this Note shall
be payable at 8311 Bruns Drive, Fort Collins, CO 80525 or at such other place
as the Holder of this Note may designate in writing.
EXHIBIT 9
32
<PAGE> 33
3. LATE CHARGE. Maker shall pay to Holder a late charge of five
percent (5%) of any payment not received by Holder within ten (10) days after
the payment is due.
4. APPLICATION OF PAYMENTS. Each payment received regarding this
Note shall be applied first to the payment of late charges, if any; second to
the payment of accrued default interest; third to the payment of accrued
interest; and the balance to the reduction of principal, as applicable.
5. PREPAYMENT. Advance payments or other additional payments may
be made on this Note at any time without notice or penalty. Such prepayments
shall be applied to reduce the amounts of the principal balance next due and
owing. Any such payments shall not postpone any succeeding monthly installment
due hereunder.
6. DEFAULT AND ACCELERATION. If any payment required by thus
Note is not paid within ten (10) days after the payment is due, this Note shall
be in default. Upon default, the entire principal amount outstanding and
accrued interest thereon may be accelerated, at the option of the Holder and,
upon acceleration, shall at once become due and payable. To exercise this
option, Holder shall give Maker a Notice of Default and Acceleration specifying
the amount of the nonpayment and the date for payment of such nonpayment, which
date shall not be less than ten (10) days from the date such Notice is mailed
or otherwise delivered to Maker. Maker may reinstate the terms of this Note,
as such was immediately before the Notice, by timely payment of the amount of
nonpayment as specified in the Notice of Default and Acceleration. Unless so
reinstated, the indebtedness shall bear interest at the increased rate of
twelve percent (12%) per annum from the date of the default. Holder shall be
entitled to collect all reasonable costs and expenses of collection and/or
suit, including, but not limited to, reasonable attorneys' fees.
7. WAIVER OF DEMAND, PRESENTMENT, PROTEST AND NOTICE. Subject to
paragraph 6 hereof, Maker hereby waives demand, presentment, protest, notice of
protest and notice of nonpayment or notice of dishonor of this Note.
8. NO WAIVER. (a) Failure to accelerate the indebtedness
evidenced hereby by reason of a Default hereunder, acceptance of a past due
installment, or consents granted from time to time shall not be construed:
(i) as a novation of this Note or as a waiver of such
right of acceleration or the right of Holder
thereafter to insist upon strict compliance with the
terms of this Note; and
(ii) to prevent the exercise of such right of acceleration
or any other right granted hereunder by the laws of
the State of Colorado.
(b) No extension of the time for the payment of this Note, nor any
amendment or modification of any term or provision of this Note, shall operate
to release, discharge, modify, change or affect the obligations of the Maker
herein, either in whole or in part, unless Holder agrees otherwise in writing.
This Note may not be changed orally, bu only by an agreement
33
<PAGE> 34
in writing signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought.
9. GOVERNING LAW. This Note shall be governed as to validity,
interpretation, construction, effect and in all other respects by the laws and
decisions of the State of Colorado.
10. STATUS OF NOTE. It is hereby acknowledged that this Note is
being utilized solely for commercial purposes and not for personal, family, or
household purposes.
11. NOTICE. Any notice required to be given hereunder shall be
deemed to have been given on the fifth (5th) day following the date on which
such notice is deposited in the United States mail, certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to Maker:
FDC Group, Inc.
3665 JFK Parkway, Bldg. 1
Fort Collins, CO 80525
Attn: Jerald H. Donnan, President
If to Holder:
Mirocon, Inc.
8311 Bruns Drive
Fort Collins, CO 80525
or to such other address as may be designated by the parties from time to time.
12. GENDER. Words in this Note in one gender shall be deemed to
include other genders, and the singular, where appropriate.
13. TIME. Time is of the essence regarding this Note.
MAKER:
FDC GROUP, INC.
By: /s/ Jerald H. Donnan
-------------------------------------
Jerald H. Donnan, President
34
<PAGE> 1
EXHIBIT 10.6G
FLOOD ZONE DETERMINATION AGREEMENT
This Agreement is made and entered into this ____ day of ______________ 1996 by
and between Factual Data Corp, 3665 JFK Parkway, Building 1, Fort Collins,
Colorado 80527 ("FD"), and GE Capital Corporation, 7125 W. Jefferson, Suite 460,
Lakewood, Colorado 80235 ("GECC").
WHEREAS, GECC is engaged in the business of providing flood zone determination
information (herein sometimes called "determinations") to lenders and others,
based on flood hazard boundary maps as published by the Federal Emergency
Management Agency from time to time.
WHEREAS, FD wishes to purchase flood zone determination information for its
designated customers (herein sometimes individually referred to as a "FD
Customer" and collectively as the "FD Customers") and to provide, as an agent of
GECC, flood zone determinations generated by GECC;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, GECC and FD agree:
1. SERVICES
1.1 GECC will provide upon request and receipt of an accurate
address or other sufficient description from FD or a FD
Customer a determination (sometimes herein called a "Basic
Determination") of the flood zone, community name, number
and status, panel-suffix, and map date, if applicable, with
respect to a property as designated by FD or a FD Customer
in accordance with the Flood Disaster Protection Act of 1973
and the Flood Insurance Reform Act of 1994. Such
determinations will be delivered by GECC in the same manner
submitted, either via facsimile or electronic transmission
(in a format agreed to by both parties at individual account
inception) unless other arrangements have been made. FD
shall be responsible for causing all FD Customers (who
utilize the flood zone determination services herein
described) to execute a GECC Flood Zone Determination
Agreement, in the form approved by GECC. A copy of the FD
Customer's executed GECC Flood Zone Determination Agreement
shall be provided by FD to GECC.
1.2 GECC shall be responsible for the validity and accuracy of
all data transferred electronically by GECC to FD or a FD
Customer only at the time of such transfer. Any subsequent
manipulation of such data, or errors in storage or any other
change in such data shall be the sole responsibility and
liability of FD and the FD Customers.
1.3 GECC shall use reasonable efforts not to disclose to any
third party any information it is provided by FD and the FD
Customers, without the written consent of FD. GECC shall
undertake reasonable precautions to preserve the
confidentiality of such information.
1.4 GECC will act as processing center, including providing
system interfaces, issuance of flood determination
certificates and performing procedures related to life of
loan tracking responsibilities. As to the system interfaces,
GECC will provide data transmission, will receive
determination requests, and will generate a wholesale total
monthly account billing statement by FD Customer reflecting
the wholesale pricing for GECC services outlined in Addendum
A. FD will generate monthly billing for FD Customers based
on retail pricing determined by FD, and FD will be
responsible for management and collection of FD's accounts
receivables.
1.5 FD shall be responsible for all marketing of the flood zone
determination services to be provided hereunder, customer
service and for contract negotiations with FD Customers or
<PAGE> 2
prospective customers. As indicated above, FD shall be
responsible for causing all FD Customers utilizing the
services herein described to execute a GECC Flood Zone
Determination Agreement in the form approved by GECC. FD
shall be responsible for program implementation and training
of FD Customer personnel. FD shall not use any advertising
materials related to the flood zone determination services
(including both Basic Determination services and Life of
Loan services) not reviewed and approved by GECC. Any
advertising and promotional materials shall properly
identify GECC as the provider of the flood zone
determination services and shall be subject to review and
approval by GECC and herein provided.
1.6 FD, in marketing or providing services to FD Customers or
prospective customers hereunder, agrees not to refer to GECC
or any affiliate of GECC (including specifically but without
limitation the General Electric Company) or use GECC's or
any affiliate's trademarks, tradenames, service marks or any
other identifying characteristics, without GECC's express
prior written consent which consent may be granted or
withheld by GECC in its sole discretion, except as follows:
FD shall be permitted to identify GECC to FD Customers as
the party providing Basic Determination or Life of Loan
Service, provided that in making such identification FD only
states the fact that GECC is providing the service. In the
event that GECC is identified as the party providing the
service, or if GECC shall otherwise grant consent to any
reference to GECC or an affiliate, the use shall be strictly
limited to identification of GECC as the provider of the
Basic Determination or Life of Loan Service, unless
otherwise agreed in writing by GECC. In the event of any use
by FD of GECC's or its affiliates' names, trademarks,
tradenames, service marks or any other identifying
characteristics, including any use for which prior written
consent is sought and obtained as herein provided, FD agrees
to indemnify, defend and hold harmless GECC from and against
any and all liability, loss, cost or expense arising out of
the use or reference to such name, trademark, tradename,
service mark or other identifying characteristic.
2. WARRANTIES AND INDEMNIFICATION
2.1 A flood zone determination made by GECC pursuant to the
terms of this Agreement is exclusively for the benefit of
the identified third party FD Customer.
2.2 FD acknowledges (and FD shall cause each of the FD Customers
to acknowledge) that a flood zone determination is based
upon (and limited to) an examination of the current Flood
Insurance Rate Maps and Flood Hazard Boundary Maps as
published by the Federal Emergency Management Agency as well
as other sources of information as required by federal law.
Any further or additional services to be performed must be
the subject of a separate agreement between FD and GECC.
2.3 FD shall indemnify, defend and hold GECC harmless from any
errors in any information provided by FD to GECC. Said
indemnification is conditional upon the Lender/Client
providing accurate address/sufficient description
information to make an accurate determination.
2.4 For purposes of this Agreement and notwithstanding anything
herein to the contrary (and subject to any other limitation
on liability herein contained, including the limitation on
liability provided in section 2.7 below), the maximum
liability of GECC hereunder shall be limited as follows: On
an uninsured flood loss, if the property and its
improvements were in a Special Flood Hazard Area at the time
of certification and GECC incorrectly certified to FD or a
FD Customer that the property was not in a Special Flood
Hazard Area, GECC's maximum liability is the lesser of the
maximum available insurance coverage under the National
Flood Insurance Program (NFIP) for the property
<PAGE> 3
improvements, or the amount that would have been paid for
flood damage to the property under the claim payable
pursuant to the Standard Flood Insurance Policy had a
Standard Flood Insurance Policy been in force at the time of
the flood damage covering the damaged or destroyed
building(s) and its contents.
2.5 If any property was not in a Special Flood Hazard Area at
the time a flood zone determination is made by GECC (and
provided by GECC to FD or a FD Customer) which incorrectly
certifies that said property was in a Special Flood Zone
Hazard, FD and/or the FD Customer agrees to notify GECC of
the error within thirty (30) days following the date of
determination by the FD Customer that the error exists and
FD and/or FD Customer shall immediately request cancellation
of any flood insurance coverage with respect to the
property. Assuming that GECC has been properly notified and
such policy has been canceled within the time period herein
provided, GECC shall reimburse the FD Customer for an amount
equivalent to NFIP premiums actually paid during the period
following such incorrect certification, to the extent that
such premiums are not refunded by the flood insurance
carrier as a result of the cancellation of the flood
insurance coverage.
2.6 The flood search information is intended solely for the
purpose of compliance with the Flood Disaster Protection Act
of 1973, and does not constitute an opinion by GECC as to
the advisability of securing flood insurance for the
property.
2.7 Should GECC incorrectly identify a property as not being in
a Special Flood Hazard Area and later, for whatever reason,
correct its certification identifying the property as being
in a Special Flood Hazard Area, and the applicable flood
hazard boundary maps as published by the Federal Emergency
Management Agency has not been revised in the interim,
GECC's liability shall be limited to the payment of the
first year's National Flood Insurance Program premium to the
FD Customer for coverage in the amount of the original loan
amount.
2.8 The parties acknowledge that GECC's timeliness, accuracy,
service, quality, and level of expertise are important
elements of GECC's business practices (sometimes called
"Quality Improvement Process"). FD acknowledges and agrees
that it has also committed itself to the GECC "Quality
Improvement Process" and that FD will take such actions as
may from time to time be requested by GECC to conform to
those service standards as may be established by GECC.
3. LIFE OF LOAN SERVICE
3.1 When a FD Customer orders a Life of Loan Service, GECC
agrees to provide both an initial determination of the
property flood status and to monitor for any map changes
that change the flood status of the property. GECC agrees to
provide direct to the FD Customer written notice of any map
changes that change the property's flood status from the
previous determination within 60 days after the effective
date that the new or revised map is provided to GECC. GECC
shall not notify the FD Customer if a new or revised map is
issued which does not change the property's flood status,
but the FD Customer shall have the right to order updated
certifications, at a cost of per updated certification as
indicated in Addendum A, for properties which do not
experience a change in status, which updates will indicate
the date of the most recently issued map. Life of Loan
Service may be transferred at no additional cost if the FD
Customer provides GECC with proper notification of the
properties to be transferred and the address of the entity
to whom future notices should be sent, and the transferee
agrees to be bound be section 3.2. hereof.
<PAGE> 4
3.2 FD and/or the FD Customer agree to notify GECC in writing,
or in mutually acceptable electronic form, of all loans that
pay of which were covered by Life of Loan Service within one
year of the payoff date. If the FD Customer pays for the
Life of Loan Service and the loan does not fund, the FD
Customer shall be entitled to a refund of the difference
between the fee for Life of Loan Service and the fee for a
Basic Determination for up to 120 days after the
determination was made.
4. PORTFOLIO TRACKING AND OTHER SERVICES
4.1 When a FD Customer orders Ongoing Tracking, GECC shall
undertake to track the identified portfolio of loans for map
changes (herein called "Change Tracking") for a fee as set
forth on Addendum A. The tracking would commence with ninety
days following receipt by GECC of an electronic record of
the loans involved in a format acceptable to GECC. The loans
shall be tracked for future map changes by community number
and panel number. The obligation of GECC to continue to
track any loan for changes in the Change Tracking service
shall terminate as of the date of termination of this
Agreement.
4.2 In the event a remapping and Life of Loan Service of a
property is ordered by a FD Customer for properties being
tracked under the Change Tracking service, the fee shall be
the amount indicated on Addendum A for a Remapped Property.
5. FEES AND TERMS OF PAYMENT
5.1 The amount to be paid to GECC for each Life of Loan
Determination, Basic Determination, and other services
completed by GECC shall be the amounts indicated on Addendum
A. GECC shall issue invoices monthly for all work completed
during the previous month and FD agrees to pay invoices
within 30 days of receipt.
5.2 Balances not paid when due shall be accessed interest at
the rate of 1% per month from the date due until the date
paid, and GECC may exclude the FD Customer from additional
services under this agreement until paid. Any interest
accessed shall be retained by GECC and no part thereof shall
be due or owing to FD. Any sales or other taxes required by
law shall be additional to the above fees.
5.3 If a Basic Determination or Life of Loan Service is being
obtained with respect to a loan, and HMDA census tract
information is requested by the FD Customer with respect to
that loan, the amount indicated on Addendum A shall be paid
to GECC for a one-time specification of HMDA census tract
information for the property. The census tract information
shall be provided by GECC to the FD Customer in the same
format as the flood zone determination.
6. TERM
6.1 The initial term of this Agreement shall be for one (1)
year from the effective date and shall automatically renew
for successive one year period(s) unless written notice of
nonrenewel is given to either party at least 30 days prior
to any anniversary date.
6.2 Either party may terminate this agreement immediately upon
written notice, if the other party is adjudicated a
bankrupt, files a voluntary petition in bankruptcy, is
declared
<PAGE> 5
insolvent by a regulatory authority, or makes an assignment
for benefit of creditors and becomes unable to meet its
obligations in the normal course of business as they fall
due.
6.3 The Life of Loan tracking obligations of GECC contained in
Sections 2 and 3 shall survive cancellation of this
Agreement, provided the FD Customer has paid the agreed
fees. Any service, including Life of Loan tracking service,
may be terminated by GECC without further liability to FD or
any FD Customer in the event of the failure of the FD
Customer to pay fees due to GECC under the terms hereof.
6.4 This Agreement may be terminated immediately by any party
if the other party defaults in the performance of a material
provision of this Agreement and such default continues for a
period of thirty (30) days after written notice to the
defaulting party stating the specific default.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado. In the event any portion of this
Agreement shall be unenforceable under the laws of the State of
Colorado, the remaining portion of this Agreement shall remain in
effect.
8. NOTICES
Any notices or communications required to be given hereunder shall be
in writing and sent postage prepaid, certified mail, return receipt
requested, or its equivalent to:
Factual Data Corp General Electric
3665 JFK Parkway, Building 1 Capital Corporation
Fort Collins, CO 80527 7125 W. Jefferson, #460
Lakewood, CO 80235
ATTN: ATTN: Operations Manager
With a copy to:
General Electric
Capital Corporation
3001 Summer Street
Stamford, CT 06927
ATTN: General Counsel
Any party may change its address for purposes of notices hereunder by
written notice given to any party as herein provided.
9. SUCCESSORS AND ASSIGNS
9.1 This Agreement shall be binding upon and inure to the
benefit of the parties hereto. GECC shall be entitled to
subcontract all or any part of the services to be performed
by GECC under the terms hereof.
<PAGE> 6
9.2 Any time after the initial term of the agreement GECC shall
have the right to assign its rights and obligations to any
third party. GECC shall provide FD with 90 days prior
written notice of such assignment. Any time during such 90
day notice period FD shall have the right to terminate this
Agreement in which event, notwithstanding any other
provisions of this Agreement, neither party shall have any
further obligation to the other party under this Agreement.
10. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties
relating to the matters contained herein and supersedes all previous
communications, representations or agreements, either oral or written,
with respect to the subject matter hereof.
11. ATTORNEYS FEES
In the event of any litigation involving this contract of the parties
hereto with regard to the subject matter hereof, the prevailing party
shall be entitled to reasonable costs and attorney's fees, including
any cost of appeal.
IN WITNESS WHEREOF, the parties below have executed this Agreement as the date
indicated.
GENERAL ELECTRIC FACTUAL DATA CORP
CAPITAL CORPORATION
By: /s/ Fred Teifke By: /s/ Jerald H. Donnan
Name: Fred Teifke Name: Jerald H. Donnan
Title: National Marketing Manager Title: President
<PAGE> 7
ADDENDUM A
Pricing
Life of Loan Services per determination $16.00
Basic Determination per determination 10.00
HMDA Census tract data per loan 1.00*
Ongoing Tracking per loan .05
Ongoing Tracking with
Probability Scan per loan .15
Life of Loan Service for a
Remapped Property per determination 10.00**
* If provided in context of also providing Life of Loan or Basic Determination
** Applies to loans for which Change Tracking has indicated a change in map
status. See section 4.2.
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
The following is a list of the Registrant's subsidiaries.
<TABLE>
<CAPTION>
Percentage of Consolidated
Name Ownership with Registrant
---- --------- ---------------
<S> <C> <C>
FDC Group, Inc. 100% Yes
(a Colorado corporation)
Lenders Resources, Inc. 100% Yes
(a Colorado corporation)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation in the Registration Statement of Factual Data
Corp. on Form SB-2, (333- ) of our report dated January 22, 1998 and to
the reference to us under the heading "Experts" in the Prospectus, which is
part of the Registration Statement.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
February 27, 1998
Denver, Colorado
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REGISTRATION STATEMENT ON FORM SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 396,752
<SECURITIES> 0
<RECEIVABLES> 637,017
<ALLOWANCES> 4,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,218,944
<PP&E> 2,142,496
<DEPRECIATION> 1,146,589
<TOTAL-ASSETS> 2,864,085
<CURRENT-LIABILITIES> 1,102,670
<BONDS> 0
0
0
<COMMON> 2,500
<OTHER-SE> 644,573
<TOTAL-LIABILITY-AND-EQUITY> 2,864,085
<SALES> 3,519,671
<TOTAL-REVENUES> 3,519,671
<CGS> 0
<TOTAL-COSTS> 1,807,186
<OTHER-EXPENSES> 916,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,497
<INCOME-PRETAX> 747,273
<INCOME-TAX> 244,339
<INCOME-CONTINUING> 502,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502,934
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
