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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(MARK ONE)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1999
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 0-28572
SUNDERLAND CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 52-2102142
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of Organization)
2901 El Camino Avenue, Las Vegas, Nevada 89102
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(Address of principal executive offices)
Issuer's telephone number, including area code: (702) 227-0965
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Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Common stock, $.0001 par value
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Title of class
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
YES NO X
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State issuer's revenues for its most recent fiscal year: $11,861,995.
As of March 15, 2000, there were 6,161,270 shares of the registrant's common
stock, $.0001 par value, issued and outstanding.
State the aggregate market value of the voting and non-voting common equity held
by nonaffiliates computed by reference to the price at which the common equity
was sold, or the average bid and ask price of such common equity, as of a
specified date within the past 60 days.
As of March 15, 2000: Approximately $18,529.000.
Transitional Small Business Disclosure Format Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE:
The information required in Part III, Items 9, 10, 11 and 12 is
incorporated by reference herein from Sunderland Corporation's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on or about May 18,
2000 which will be filed on or about April 15, 2000.
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PART I
Item 1. DESCRIPTION OF BUSINESS
Introduction
Sunderland Corporation (the "Company"), through its wholly-owned
subsidiary, Capsource, Inc., originates and arranges the purchase and sale of
loans secured by real property primarily for commercial and residential
developers.
The Company was formed in Delaware on June 2, 1998, as Sunderland
Acquisition Corporation (the "Company" or "Sunderland"). On August 13, 1998, the
Company filed a Registration Statement on Form 10-SB under the Securities
Exchange Act of 1934, as amended. On April 27, 1999, the Company acquired all
the outstanding capital stock of Capsource, Inc., a licensed Nevada mortgage
company, in exchange for 20,000 post-split shares of common stock of the
Company. Simultaneously with the Capsource Acquisition, the Company acquired
certain assets and assumed certain liabilities of Del Mar Mortgage, Inc. and Del
Mar Holdings, Inc. in exchange for 4,891,270 post-split shares of common stock
of the Company. Capsource, Del Mar Mortgage and Del Mar Holdings are related
entities by virtue of being under the common management and controlling
ownership of Michael Shustek, Chief Executive Officer and Chairman of the
Company.
Upon the completion of the three acquisitions the Company changed its
name from "Sunderland Acquisition Corporation" to "Sunderland Corporation," and
effected a 5-for-3 stock split of its issued and outstanding common stock. On
October 15, 1999, the Company filed a Registration Statement on Form SB-2
covering 1,926,270 shares of common stock held by various stockholders.
In the last quarter of 1999, the Company consummated an agreement to
acquire DM Financial Services, Inc., a broker-dealer, and DM Mortgage Advisors,
Inc., a mortgage business, in exchange for the Company"s common stock. Both
companies were wholly owned by Michael Shustek, who received 10,300 shares of
the Company's common stock for DM Financial Services, Inc., and 17,700 shares of
the Company's common stock for DM Mortgage Advisors, Inc. The acquisition of DM
Financial Services, Inc. is pending regulatory approval of both the National
Association of Securities Dealers and the Corporate Securities Division of the
State of Nevada. The acquisition of DM Mortgage Advisors, Inc. received
regulatory approval by the State of Arizona.
The Company has filed a registration statement with the Securities and
Exchange Commission for the establishment of DM Mortgage Investors, LLC (the
"Fund"), which will offer and sell up to $100,000,000 of limited liability
company units. Capsource, the Company's wholly owned subsidiary, is the Manager
and sole member of the Fund.
In January of 2000, the Company entered into a Letter of Intent to
acquire the assets of L.L. Bradford & Company, certified public accountants and
consultants for 800,000 shares of the
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Company's common stock. L.L. Bradford is majority owned by Leilani D. Bradford
and Laince Bradford, the Company's Chief Financial Officer and a Director.
Background
The Company originates loans, primarily for commercial and residential
developers, and obtains funds for these loans through private lenders. The
Company earns its principal revenues through (i) loan origination fees on the
loans it originates; and (ii) loan fees equal to the spread between the interest
rate collected from borrowers and the interest rate to be paid to investors.
Because of the speed of the Company's approval and funding of loans (typically
10-20 days). The Company earns a higher interest rate than that charged by
conventional lenders. This higher rate enables the Company to attract investors
willing to fund those loans.
The Company is also an investor in selected real estate mortgage
assets.
The Mortgage Lending Business
Mortgage lending refers to the origination and funding of loans secured
by real property. Loan origination involves the processing of a loan
application, which includes various documents and research, the approval of the
loan and the funding of the loan.
The mortgage lending industry consists of large public and private
institutional lenders, such as banks, insurance companies, and savings and loan
associations, as well as numerous private and non-conventional lenders. To
obtain a loan borrowers need to establish (i) good character, as determined
through credit checks and references, (ii) capacity to repay the loan, as
determined by bank statements and sources of income, and (iii) adequate
collateral, as determined by property appraisal, environmental reports and other
documentation. A deficiency in any one area can result in rejection of the loan
application.
The Company seeks to address the needs of borrowers unable or unwilling
to meet the more restrictive requirements of traditional lenders, and who
require quicker responses. When evaluating prospective borrowers, these lenders
typically focus on the value of collateral, which reduces the paperwork and time
needed to evaluate other factors.
Key Markets
The Company's key market is borrowers who have an average of 35% to 40%
equity in real property but whose needs the Company believes are not being met
by traditional mortgage lenders. Commercial and residential real estate
developers are an important class of these borrowers.
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Typically, real estate developers depend upon, among other things, the
timely completion of a project to obtain a competitive advantage when selling
their properties. The Company has sought to attract real estate developers by
offering expedited loan processing, which generally provides quicker loan
approval and the funding of a loan between 3-4 months earlier than traditional
mortgage lenders. As a result, the Company has established a market niche as a
non-conventional mortgage lender. Currently, approximately 85% of the loans
originated by the Company service real estate developers. The remaining
approximately 15% of the Company's loans involve primarily (i) land loans (10%),
and (ii) bridge financing loans (5%).
Sources Of Revenue
The Company recognizes revenue primarily from loan origination fees,
loan servicing fees, and extension fees. Loan origination fees are recorded as
revenue at the close of escrow and reduced by direct loan origination costs.
Loan servicing fees are recorded as revenue when such services are rendered.
Servicing fees represent the interest spread between what is paid to the
investor and what the borrower pays for the use of the money. This can vary from
loan to loan. Extension fees are recorded as revenue at the extension grant
date.
Loan Fees
For each loan originated by the Company, the Company receives a loan
origination fee of up to 4% of the principal amount of the loan. A processing
fee of approximately $2,000 per loan is charged to document and package the
loan. Late charges are assessed for non-timely payments. The Company may also
receive additional fees for closing accounts upon termination of the loan (i.e.,
"EXIT FEES"). Lastly, the Company receives loan extension fees when extending
the term of any loan.
Loan Fees -- Interest Spread
Loan fees are amounts the Company retains that are the difference
between the interest rates charged to borrowers and the interest rates paid to
lenders. The Company typically receives interest rate spreads of 0.75% as loan
fees. For construction loans, which constitute the bulk of the Company's loans,
interest begins to accrue on the amounts contained in the initial draw schedule
as of the date of each draw, with the condition that interest will commence to
accrue on the entire principal of the loan committed in the fifth (5th) month
after the closing of the loan regardless of the draw schedule. If the actual
schedule of the borrower differs from the draw schedule, interest will still
begin to accrue on the dates and in the amounts contained in the draw schedule,
or sooner if the actual draw downs precede the scheduled dates. Therefore, if
the borrower experiences delays, the actual draw downs will occur later than the
initial draw schedule and the borrower will begin to pay interest on the draw
amounts even though actual disbursement has not been made.
Loans
The various stages in the development of land and the construction of
structures on it correspond to the different types of loans the Company
originates.
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Raw And Unimproved Land Loans
The Company offers loans for the purchase or development of raw,
unimproved land. Generally, the Company determines whether to make these loans
based upon the 90-day quick sale value of the property and the borrower's actual
capital investment in the property. The "90-day quick sale value" is the highest
price for which the land could actually be sold within the next 90 days, the
approximate time of a foreclosure, as determined by local real estate brokers
and others. The value is generally the same as the cost of the land to the
borrower. Typically, the Company will lend less than 60% of the "90-day quick
sale value," and the Company usually requires that the borrower have invested in
the property actual capital expenditures of at least 25% of the property's
value.
Raw Land Inventory Loan
Raw land inventory loans represent property that is outside of current
urbanization, but is in the next area to be developed. This land contains no
improvements or infrastructure (i.e. roads, sewer hook-ups, power lines), but
infrastructure is within the municipal plans for expansion. For raw land
inventory, the Company also typically does a " 90-day quick sale valuation,"
upon which it will generally lend up to 60% of that value. Additionally, the
Company usually requires that the borrower have invested in the property actual
capital expenditures of at least 20% of the property's value.
Development Property Loans
A development property loan is a loan to complete the basic development
of the property, such as utility installation and curbing, just before
construction. Upon completion of development, the property can readily be sold.
Generally, the Company conducts an appraisal of the value of the property and
will make a loan of up to 60% of the approved value.
Construction Loans
A construction loan provides funds for the construction of one or more
structures on developed land. Typically, the Company conducts an appraisal of
the value of the property and proposed improvements and will lend up to 75% of
the appraised value. If the construction loan is for the construction of
multiple structures, such as a subdivision of homes, the Company will make its
loan based solely upon the construction of the model homes, which are used to
attract homebuyers. Upon satisfactory completion of the model homes, the Company
will provide an additional loan for the construction of the remainder of the
subdivision. The additional loan amount will depend upon the pre-sales activity
for the homes to be built. If the developer has signed a contract for the sale
of a home, then the Company will generally lend up to 100% of the cost of
construction to build that home. The loan amount for unsold houses varies and
can exceed the 75% loan to value ratio of the model homes.
Bridge Loans
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A bridge loan provides funds for commercial borrowers to make
improvements to the property needed to increase the net operating income of the
property so that it can qualify for institutional refinancing. The Company will
value the existing property and generally loan up to 75% of that value.
Brokered Loans; Home Mortgage Loans
In addition to originating loans, the Company acts as a broker for
permanent residential loans. After completing a construction loan for a
residential development, the Company typically offers the homebuyers an
opportunity to obtain a home mortgage loan through the Company. In that case,
because of the low interest rate involved in individual home mortgages, the
Company will usually arrange the loan with the borrower and place the loan with
another lender. Loans brokered by the Company typically meet the specific
underwriting standards of the Government National Mortgage Association (Ginnie
Mae), Federal National Mortgage Association (Fannie Mae), and other such
entities, which make these loans readily resaleable in the secondary market.
During 1999 the Company did not broker any of these types of loans.
Operations
Loan Processing
Upon receipt of a loan request, the Company commences the loan
application and approval process. The Company reviews the borrower's financial
condition, the purpose of the loan and the real property involved. This
information may include, among other things, credit reports, environmental
reports and property appraisals. All loans originated by the Company are first
reviewed and approved by the loan committee to confirm that all requirements
have been satisfied, although the loan committee may waive certain loan
requirements based upon its overall review of the loan. The loan committee
consists of three or more officers or loan managers of the Company authorized to
approve loans. The loan committee members have substantial experience in the
real estate and mortgage lending industries.
Loan Funding
Currently, the Company obtains funds for its loans primarily through investors
providing funds by investing in all or portions of the promissory notes secured
by deeds of trust of the borrowers. Investors are comprised primarily of
individuals. The investors receive monthly interest payments from the promissory
notes. The deeds of trust grant a security interest in the real property that
serves as collateral for the loan. Because of the low loan-to-value ratio
required by the Company and the borrower's equity in the properties, the secured
notes offer substantial protection for the investment while yielding a
significant return.
The Company filed a registration statement with the Securities and
Exchange Commission for the establishment of DM Mortgage Investors, LLC (the
"Fund"), which will offer and sell up to $100,000,000 of limited liability
company units. Capsource, the Company's wholly owned subsidiary is the manager
and sole member of the Fund.
Competition
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Competition in the mortgage lending industry is intense. Many
institutional and other financial lenders are engaged in originating mortgage
loans. The Company considers its direct competitors to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for slightly higher fees and rates than
those charged by conventional lenders. To a lesser extent, the Company also
competes with conventional mortgage lenders, such as banks and other financial
institutions that offer conventional mortgage loans. Competition in the
Company's market niche depends upon a number of factors, including price and
interest rates of the loan, speed of loan processing, cost of capital,
reliability, quality of service and support services.
The Company's principal competitors in its market niche as a
non-conventional mortgage lender in the Nevada area include: Consolidated
Mortgage Corp., and Interstate Mortgage Corp. Funding, both of which engage in
originating the same types of loans as those currently made by the Company. In
the broader market, the Company's competitors consist of conventional mortgage
lenders, which include Bank of America, Bank One, Wells Fargo, Residential
Funding, First Security Bank, United Bank of Texas. Many of the companies
against which the Company competes have substantially greater financial,
technical and other resources than the Company.
Regulation
The operations of the Company are conducted through its wholly-owned
operating subsidiary, Capsource. These operations are subject to extensive
regulation by federal, state and local laws and governmental authorities.
Capsource conducts its real estate mortgage business under a "PRIVILEGED"
license issued by the Nevada Division of Financial Institutions (the
"Division"). Under Nevada Revised Statutes ("NRS") Sections 645B.010 through
645B.230, the Division has broad discretionary authority over Capsource's
activities, including the authority to conduct periodic regulatory audits of all
aspects of Capsource's operations.
Del Mar Mortgage, Inc. and Michael V. Shustek were subject to
disciplinary action by the Division in the past which action was subsequently
vacated after an audit of Del Mar Mortgage Inc.'s operations.
The Company is required to comply with the Equal Credit Opportunity Act
of 1974, (which prohibits creditors from discriminating against loan applicants
on the basis of race, color, sex, age or marital status), and the Fair Credit
Reporting Act of 1970 (which requires lenders to supply applicants with the name
and address of the reporting agency where the applicant is denied credit). The
Company is also subject to various other federal and state securities laws
regulating the issuance and sale of securities, as well as the Employee
Retirement Income Security Act of 1974, and other federal, state and local laws.
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Because the Company's business is highly regulated, the laws, rules and
regulations applicable to the Company are subject to regular modification and
change. There can be no assurance that laws, rules or regulations will not be
adopted in the future that could make compliance much more difficult or
expensive, restrict the Company's ability to originate, service or broker loans,
further limit or restrict the amount of commissions, interest and other charges
earned on loans originated or brokered by the Company, or otherwise adversely
affect the business or prospects of the Company.
Employees
As of December 31, 1999, the Company employed 20 personnel, of whom 18
were full time and 2 were part-time. Of these employees, 4 were employed in
underwriting and 3 performed general and administrative functions. The Company
has entered into employment agreements with senior managers to fill the
positions of President, Chief Executive Officer and Vice-President of Regulatory
Affairs. No employees are covered by a collective bargaining agreement. The
Company considers its relationship with its employees to be good.
Item 2. DESCRIPTION OF PROPERTY
The Company maintains its executive offices at 2901 El Camino Ave.,
Suite 206, Las Vegas, Nevada which consist of about 7,000 square feet of office
space. These offices contain the Company's marketing, loan processing and
administrative personnel. The current lease expires in March, 2004.
Item 3. LEGAL PROCEEDINGS
Del Mar Mortgage, Inc. is involved in several legal actions arising in
the ordinary course of its business. Del Mar Mortgage, Inc. is vigorously
defending itself through legal counsel against these legal actions. In one case,
which is still in the discovery phase, the adverse party has claimed damages in
excess of $790,000. Michael Shustek, the Company's Chairman and sole stockholder
of Del Mar Mortgage, Inc., has agreed to indemnify Del Mar Mortgage, Inc.
against any loss that may be incurred. Consequently, Del Mar Mortgage, Inc. does
not believe that an adverse determination in that action would have a material
adverse effect on its liquidity or financial statements. As a result of the
asset acquisition, the Company may be determined to be a successor in interest
to Del Mar Mortgage, Inc. in these legal actions.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote or consent of the shareholders
during the fourth quarter of 1999.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information: Trading in the Company's common stock commenced
on December 10, 1999 under the symbol "DLMA" on the OTC Bulletin Board which is
maintained by Nasdaq. The Company has applied for listing on the Nasdaq Small
Cap Market.
The table below lists the high and low bid prices for the common stock
as reported by the National Quotation Bureau for the Company's last two fiscal
years. Bid prices represent prices between broker-dealers and do not include
retail mark-ups and markdowns or any commission to broker-dealers. In addition,
these prices do not necessarily reflect actual transactions.
OTC Bulletin Board
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US$ High US$ Low
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2000
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First Quarter through March 15, 2000 7.63 6.13
1999
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4th Quarter 6.38 5.38
(b) Holders
At February 28, 2000, there were approximately 300 stockholders of
record of the Company's common stock.
(c) Dividends
The Company's policy is to retain all earnings, if any are realized,
for the development and growth of its business. The Company has never declared
or paid cash dividends on its common shares and does not anticipate paying cash
dividends in the foreseeable future. Any determination to pay dividends will be
at the discretion of the Company's Board of Directors and will depend upon the
Company's financial condition, results of operations, capital requirements,
limitations contained in loan agreements and such other factors as the Board of
Directors deems relevant.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves and provide
meaningful cautionary statements identifying important factors that could cause
actual results to differ from the projected results. All statements other than
statements of historical fact made in this Annual Report on Form 10-KSB are
forward looking. In particular, the statements regarding industry prospects and
future results of operations or financial position are forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently uncertain. The Company's actual results may differ
significantly from management's expectations.
The following financial review and analysis is of the financial
condition and results of operations of the Company, for the years ended December
31, 1999 and 1998. This information should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying notes and other
detailed information regarding the Company appearing elsewhere in this Form
10-KSB. All operations of the Company are conducted through its wholly owned
subsidiary, Capsource, Inc.
Overview
On April 27, 1999, the Company, then a non-operating public company
with nominal net assets, acquired certain assets and assumed certain liabilities
representing the operations of Del Mar Mortgage, Inc. and Del Mar Holdings, Inc.
(the "Del Mar Entities") in exchange for 4,891,270 shares of the Company common
stock (after the 5-for-3 stock split). The combination of the Del Mar Entities
has been accounted for in a manner similar to a pooling of interest, as the
companies were under common control. The Company (after the 5-for-3 stock split)
concurrently acquired 100% of the outstanding common stock of Capsource, Inc. in
exchange for 20,000 shares of Company common stock.
Under generally accepted accounting principles, the acquisition of the
Del Mar Entities is considered to be a capital transaction in substance, rather
than a business combination. That is, the acquisition is equivalent to the
issuance of stock by the Del Mar Entities for the net monetary assets of the
Company, accompanied by a recapitalization, and is accounted for as a change in
capital structure. Accordingly, the accounting for the acquisition is identical
to that resulting from a reverse acquisition, except that no goodwill is
recorded. Under reverse takeover accounting, the post reverse-acquisition
comparative historical financial statements of the "legal acquirer" (the
Company), are those of the "legal acquiree" (Del Mar Entities) (i.e. the
accounting acquirer).
Accordingly, the consolidated financial statements of the Company as of
December 31, 1999, and for the years ended December 31, 1999 and 1998, are the
combined historical financial statements of Del Mar Mortgage, Inc. and Del Mar
Holdings, Inc. The assets not acquired, net of the liabilities not assumed, have
been accounted for as distributions to the stockholder of Del Mar Mortgage, Inc.
and Del Mar Holdings, Inc., Michael Shustek, Chairman and Chief Executive
Officer of the Company.
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The business combination with Capsource has been accounted for as a
purchase business combination. The cost of Capsource is based upon the fair
value of the 20,000 common shares issued to the Capsource shareholder, which was
$12,360.
RESULTS OF OPERATIONS:
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 AND YEAR ENDED DECEMBER 31, 1998
The historical operations of the Company for the year ended December
31, 1999, and 1998 are analyzed as follows:
Revenue. Revenue is primarily comprised of loan origination and
servicing fees, and interest income. The Company reported total revenues of
$11.9 million in 1999, an increase from $7.2 million in 1998. The increase in
revenue was primarily due to increases in overall loan volume by approximately
$104 million and in the portfolio of loans serviced for others by approximately
$64 million compared to 1998. The Company had approximately 102 and 79 loans as
of December 31, 1999, and 1998, respectively. Repeat borrowers accounted for
over 25% of loans originated during the year ended December 31, 1999.
Sales and Marketing Expenses. Sales and marketing expenses primarily
consist of advertising, and commissions. Sales and marketing expenses of $1.7
million for the year ended December 31, 1999, increased from $500,000 in 1998.
The 1999 increase is primarily due to an overall increase in commissions paid as
a result of increased loan volume as discussed above.
General and Administrative Expenses. General and administrative
expenses primarily consist of payroll and related expenses, transition fees,
professional fees, and general corporate expenses. General and administrative
expenses of $6 million for the year ended December 31, 1999, increased from $3.8
million in 1998. The 1999 increase in general and administrative expenses was
primarily due to transitions fees of about $2.6 million in 1999, while no such
fees were incurred in 1998. On April 27, 1999, the Company entered into a
non-renewable transition agreement with Del Mar Mortgage, Inc., a company wholly
owned by the Company's majority stockholder. The transition agreement requires
the Company to pay Del Mar Mortgage, Inc. 25% of loan origination fees earned
from April 27, 1999, through October 26, 1999, and 12.5% of such fees from
October 27, 1999 through April 26, 2000. The Agreement also requires the Company
to remit to Del Mar Mortgage, Inc. all future loan servicing and extension fees
recognized on loans originated by the Company prior to April 27, 1999. The
Agreement terminates on April 26, 2000.
Income before Income Taxes. As a result of the foregoing factors,
income before income taxes of $3.9 million for 1999, increased from $2.7 million
in 1998.
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Pro Form Net Income. Prior to the recapitalization of the Company
(April 27, 1999), the earnings of Del Mar Mortgage, Inc., which are included in
the Consolidated Statements of Income, were taxed to the stockholder of Del Mar
Mortgage, Inc. pursuant to an election to be taxed as an S corporation. The pro
forma information reflects a provision for income taxes as if Del Mar Mortgage,
Inc. had been a C corporation for the years ended December 31, 1999 and 1998
using an assumed effective tax rate of 34%. Pro forma net income per share has
been computed by dividing pro forma net income by the weighted average shares
outstanding.
Liquidity and Capital Resources
Liquidity is a measure of a company's ability to meet potential cash
requirements, including ongoing commitments to fund lending activities and for
general purposes. Cash for originating loans and general operating expenses is
primarily obtained through cash flows from operations and private investors.
At December 31, 1999, the Company's principal sources of liquidity
consisted of $1.2 million of cash and marketable securities, and cash flows from
$5.5 million of investments in mortgage loans on real estate with maturities of
one year or less. As of that date, the Company's principal commitments consisted
of a line of credit of $2.0 million, and income taxes payable of $700,000.
During 1999, cash flows from operating activities of the Company
provided $4.0 million compared to $2.6 million provided during 1998. This
increase was primarily due to the increase in income before provision for income
taxes. Cash used in investing activities approximated $3.5 million during 1999
compared to $2.7 million in 1998. Investing activities during 1999 consisted
primarily of purchases of mortgage loans in the amount of $3.1 million. Cash
provided by financing activities approximated $168,000 in 1999 compared to cash
used of approximately $144,000 in 1998. Financing activities during 1999
consisted primarily of an advance on a line of credit of $2.0 million and
distribution to stockholder of $2.1 million. Prior to the recapitalization
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of the Company on April 27, 1999, the net income of Del Mar Mortgage, Inc.,
which is included in the Consolidated Statements of Income, were taxed to the
shareholder of Del Mar Mortgage, Inc. Accordingly, the distribution to
stockholder approximating $2.1 million relates to net income of Del Mar
Mortgage, Inc. from January 1, 1999 through April 26, 1999.
The Company relies upon the cash flow from operations to provide for
its capital requirements. Management believes that cash generated from
operations, together with cash flows and investments in mortgage loans on real
estate on hand at December 31, 1999, will be sufficient to provide for its
capital requirements for at least the next 12 months. From time to time, the
Company considers potential acquisitions of related businesses or assets, which
if undertaken could have a material effect upon the Company's results of
operations and liquidity position. The Company may seek additional equity
financing in the fourth quarter of 2000 through an offering of its common stock
in the range of $15 million to $20 million. Further, the Company will be
actively seeking initial credit lines or other arrangements for additional
financing. There can be no assurance that the Company will be able to complete a
secondary offering or obtain additional financing.
Impact Of Inflation and Changing Prices
The Consolidated Financial Statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars (except for securities that are carried at market
value), without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, substantially all
of the assets and liabilities of the Company are monetary in nature. As a
result, interest rates have a more significant effect on the Company's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or with the same magnitude as the
changes in prices of goods and services.
Item 7. FINANCIAL STATEMENTS:
The Company's consolidated financial statements as of December 31, 1999
and for the years ended December 31, 1999 and 1998 begin on page F-1.
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SUNDERLAND CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................ F-1
CONSOLIDATED BALANCE SHEET........................................ F-2
CONSOLIDATED STATEMENTS OF INCOME................................. F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS............................. F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................ F-6
REPORT OF HANSEN, BARNETT AND MAXWELL ON
DEL MAR HOLDINGS, INC........................................... F-20
REPORT OF HANSEN, BARNETT AND MAXWELL ON
DEL MAR MORTGAGE, INC........................................... F-21
15
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Sunderland Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Sunderland
Corporation and Subsidiaries (formed as a result of the combination of Del Mar
Mortgage, Inc. and Del Mar Holdings, Inc.) as of December 31, 1999 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. The consolidated financial statements give retroactive
effect to the merger of Del Mar Mortgage, Inc. and Del Mar Holdings, Inc. on
April 27, 1999, which has been accounted in a manner similar to the pooling of
interests method as described in the notes to the consolidated financial
statements. These consolidated financial statements are the responsibility of
the management of Sunderland Corporation. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sunderland Corporation and Subsidiaries as of December 31, 1999 and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
The financial statements of Del Mar Mortgage, Inc. and Del Mar Holdings, Inc.
(not separately presented herein) as of and for the year ended December 31,
1998, were audited by other auditors whose reports dated April 9, 1999 and May
21, 1999, respectively, expressed an unqualified opinion on those statements. We
also audited the combination of the accompanying consolidated statements of
income, stockholders' equity, and cash flows for the year ended December 31,
1998, after restatement for the 1999 pooling of interests; in our opinion, such
consolidated statements have been properly combined on the basis described in
Note A of the notes to the consolidated financial statements.
/S/ GRANT THORNTON LLP
Reno, Nevada
February 11, 2000
F-1
<PAGE>
Sunderland Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
Cash $ 1,085,753
Accounts receivable 902,622
Notes receivable 323,000
Investments in marketable securities 114,949
Investment in real estate held for sale 1,293,194
Investments in mortgage loans on real estate 5,516,244
Deferred tax asset 27,542
Other assets 115,870
Property and equipment, net 35,005
-------------
Total assets $ 9,414,179
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 232,935
Accrued expenses 197,751
Line of credit 1,980,000
Income taxes payable 736,875
Due to related party 244,641
Note payable 1,290,000
------------
Total liabilities 4,682,202
------------
Commitments and contingencies -
------------
Stockholders' equity
Preferred stock, $.0001 par value;
20 million shares authorized;
no shares issued -
Common stock, $.0001 par value;
100 million shares authorized;
6,161,270 shares issued and outstanding 616
Additional paid-in capital 1,642,490
Retained earnings 3,088,871
------------
Total stockholders' equity 4,731,977
------------
Total liabilities and stockholders' equity $ 9,414,179
============
The accompanying notes are an integral part of this statement.
Sunderland Corporation and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
1999 1998
------ -----
Revenues
Loan origination and related fees $11,237,208 $6,517,057
Interest income 605,468 646,698
Other income 19,319 24,199
---------- ---------
Total revenues 11,861,995 7,187,954
---------- ---------
Expenses
Sales and marketing expenses 1,749,948 536,077
General and administrative expenses 6,049,323 3,820,273
Interest expenses 142,489 115,956
---------- ---------
Total expenses 7,941,760 4,472,306
---------- ---------
Income before provision for income taxes 3,920,235 2,715,648
Provision for income taxes 959,333 -
---------- ---------
NET INCOME $2,960,902 $2,715,648
========== ==========
Pro forma information (unaudited) (Note A):
Historical income before income taxes $3,920,235 $2,715,648
Pro forma income taxes 1,341,202 923,320
---------- ----------
Pro forma net income $2,579,033 $1,792,328
========== ==========
Pro forma net income per share - basic
and diluted $0.42 $0.38
========== ==========
Weighted average shares outstanding 6,154,914 4,730,284
========== ==========
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
Sunderland Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended December 31, 1999 and 1998
Preferred Stock Common Stock Additional Receivable
--------------- -------------------------- Paid-in From
Shares Amount Shares Amount Capital Stockholder
------ ------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 -- $ -- 4,477,870 $ 448 $ 612,323 $ --
Issuance of common stock for cash, January
through August 1998, $5.35 per share -- -- 413,400 41 2,211,025 --
Distribution of receivable to a
stockholder -- -- -- -- (2,101,087) --
Distribution of mortgage loans to a
Stockholder -- -- -- -- (362,762) --
Cash advances to stockholder -- -- -- -- -- (535,646)
Net income -- -- -- -- 2,715,648 --
Balance at December 31, 1998 -- -- 4,891,270 489 3,075,147 (535,646)
Cancellation of $0.0001 common stock in
Connection with recapitalization -- -- (100,000) (10) -- --
<CAPTION>
Retained
Earnings Total
----------- -----------
<S> <C> <C>
Balance at January 1, 1998 $ 127,969 $ 740,740
Issuance of common stock for cash, January
through August 1998, $5.35 per share -- 2,211,066
Distribution of receivable to a
stockholder -- (2,101,087)
Distribution of mortgage loans to a
Stockholder -- (362,762)
Cash advances to stockholder -- (535,646)
Net income -- 2,715,648
Balance at December 31, 1998 127,969 2,667,959
Cancellation of $0.0001 common stock in
Connection with recapitalization -- (10)
</TABLE>
F-2
<PAGE>
Sunderland Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
year ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Receivable
--------------- -------------------------- Paid-in From
Shares Amount Shares Amount Capital Stockholder
------ ------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of $0.0001 common stock in
Connection with recapitalization -- -- 1,350,000 135 291 --
Distribution of assets, net of liabilities,
to Del Mar Mortgage, Inc. -- -- -- -- (1,152,046) --
Distribution of assets, net of liabilities,
to Del Mar Holdings, Inc. -- -- -- -- (643,260) --
Acquisition of Capsource -- -- 20,000 2 12,358 --
Contribution by stockholder through
relief of note payable -- -- -- -- 350,000 --
Payments received on receivable from
Stockholder -- -- -- -- -- 535,646
Net income -- -- -- -- -- --
------ ------ ----------- ----------- ----------- -----------
Balance at December 31, 1999 -- $ -- 6,161,270 $ 616 $ 1,642,490 $ --
====== ====== =========== =========== =========== ===========
<CAPTION>
Retained
Earnings Total
----------- -----------
<S> <C> <C>
Issuance of $0.0001 common stock in
Connection with recapitalization -- 426
Distribution of assets, net of liabilities,
to Del Mar Mortgage, Inc. -- (1,152,046)
Distribution of assets, net of liabilities,
to Del Mar Holdings, Inc. -- (643,260)
Acquisition of Capsource -- 12,360
Contribution by stockholder through
relief of note payable -- 350,000
Payments received on receivable from
Stockholder -- 535,646
Net income 2,960,902 2,960,902
----------- -----------
Balance at December 31, 1999 $ 3,088,871 $ 4,731,977
=========== ===========
</TABLE>
F-3
<PAGE>
Sunderland Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Cash flow from operating activites:
Net income $2,960,902 $ 2,715,648
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 6,806 12,854
Interest and loan extension fee added
to note payable Changes in operating
assets and liabilities:
Accounts receivable (501,096) (308,954)
Defferred tax asset (27,542) -
Other assets (5,025) (3,038)
Due from related party (292,033) 983
Accounts payable and accrued expenses 764,594 216,417
Due to related party 332,270 (159,404)
Income taxes payable 736,875 -
------------ ------------
Net cash provided by operating activities 3,975,751 2,574,506
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (19,507) (18,562)
Purchase of investment in note receivable (323,000)
Purchase of investment in marketable securities (114,949) -
Purchase of real estate held for sale (3,194) -
Purchase of investments in mortgage loans (3,055,520) (2,643,491)
------------- -------------
Net cash used in investing activities (3,516,170) (2,662,053)
------------- -------------
Cash flows from financing activities:
Advance on line of credit 1,980,000 -
Advances to related party - (1,636,087)
Advances to stockholder - (535,646)
Proceeds on short-term note - 100,000
Payments on short-term note (100,000) (280,000)
Distribution to stockholder (2,132,305) -
Payments received from note receivable
from stockholder 535,646 -
Payments on capital lease obligations - (3,763)
Proceeds from issuance of common stock - 2,211,066
Deferred offering costs (115,100) -
------------- -------------
Net cash provided by (used in) financing
activities 168,241 144,430
------------- --------------
NET INCREASE (DECREASE) IN CASH 627,822 (231,977)
Cash at beginning of year 457,931 689,908
------------- --------------
Cash at end of year $ 1,085,753 $ 457,931
============= ==============
Supplemental cash flow information:
Cash paid for Federal income taxes $ 250,000 $ 1,513
============= ==============
Cash paid for interest $ 128,783 $ 19,447
============= ==============
Noncash investing and financing activities:
Investment in real estate held for sale $ 1,290,000 $ -
============= ===============
Contribution by stockholder through relief
of note payable $ 350,000 $ -
============= ===============
Distribution of liabilities, net of assets assumed
to stockholder of Del Mar Mortgage, Inc. and Del
Mar Holdings, Inc. $ 336,999 $ -
============= ===============
Distribution of receivable to stockholder $ - $ 2,101,087
============= ===============
Distribution of mortgage loans to stockholder $ - $ 362,762
============= ===============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note A - Organization and Summary of Significant Accounting Policies
Organization
Sunderland Corporation ("Sunderland" or the "Company"), was incorporated
in the state of Delaware on June 2, 1998. The Company conducts its
operations primarily through Capsource, Inc. (Capsource), its wholly owned
subsidiary. Capsource operates as a mortgage company licensed in the state
of Nevada. Capsource is engaged in the origination, arrangement and
secondary purchase and sale of loans secured by real property. The
Company's primary operations consist of arranging for investor funding of
mortgage loans for the construction of commercial and residential projects
in southern Nevada. The Company also services such loans and operates in
one business segment.
On April 27, 1999, Sunderland, a non-operating public company with nominal
net assets, acquired certain assets and assumed certain liabilities
representing the operations of Del Mar Mortgage, Inc. and Del Mar
Holdings, Inc. (the "Del Mar Entities") in exchange for 4,891,270 shares
of Sunderland common stock (post 5-for-3 stock split). The combination of
the Del Mar Entities has been accounted for in a manner similar to a
pooling of interests, as the companies were under common control.
Sunderland concurrently acquired 100% of the outstanding common stock of
Capsource in exchange for 20,000 shares of Sunderland common stock.
Under generally accepted accounting principles, the acquisition of the Del
Mar Entities is considered to be a capital transaction in substance,
rather than a business combination. That is, the acquisition is equivalent
to the issuance of stock by the Del Mar Entities for the net monetary
assets of Sunderland, accompanied by a recapitalization, and is accounted
for as a change in capital structure. Accordingly, the accounting for the
acquisition is identical to that resulting from a reverse acquisition,
except that no goodwill is recorded. The post reverse-acquisition
comparative historical financial statements of the "legal acquirer"
(Sunderland), are those of the "legal acquiree" (Del Mar Entities) (i.e.
the accounting acquirer).
Accordingly, the consolidated financial statements of Sunderland as of
December 31, 1999, and for the years ended December 31, 1999 and 1998, are
the combined historical financial statements of Del Mar Mortgage, Inc. and
Del Mar Holdings, Inc. The assets not acquired, net of the liabilities not
assumed, have been accounted for as distributions to Del Mar Mortgage,
Inc. and Del Mar Holdings, Inc.'s stockholders.
F-4
<PAGE>
The business combination with Capsource has been accounted for as a
purchase business combination. The cost of Capsource is based upon the
fair value of the 20,000 common shares issued to the Capsource
shareholder, which was $12,360.
F-5
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
Note A - Organization and Summary of Significant Accounting Policies
- Continued
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and it's wholly-owned subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Concentrations
Substantially all of the Company's operations are derived from Southern
Nevada. Consequently, the Company's results of operations and financial
condition are affected by general trends in the Southern Nevada economy
and its commercial and residential real estate market.
The Company's mortgage loans will require the borrower to make a balloon
payment of the principal at maturity. To the extent that a borrower has an
obligation to pay a mortgage loan in a lump sum payment, its ability to
satisfy this obligation may be dependent upon its ability to refinance or
raise a substantial amount of cash. An increase in interest rates over the
mortgage rate applicable at origination of the loan may have an adverse
effect on the borrower's ability to refinance.
Financial instruments, which potentially subject the Company to credit
risk, consist primarily of cash in bank. The Company maintains its cash in
bank deposit accounts, which at times may exceed Federally insured limits.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-6
<PAGE>
Revenue Recognition
The Company recognizes revenue primarily from loan origination fees, loan
servicing fees, and extension fees. Loan origination fees are recorded as
revenue at the close of escrow and reduced by direct loan origination
costs. Loan servicing fees are recorded as revenue when such services are
rendered. Servicing fees represent the interest spread between what is
paid to the investor and what the borrower pays for the use of the money.
This can vary from loan to loan. Extension fees are recorded as revenue at
the extension grant date.
Loan Origination Fees
Loan origination fees related to investments in mortgage loans on real
estate are amortized principally by the effective interest method over the
term of the related obligation.
F-7
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
Note A - Organization and Summary of Significant Accounting Policies
- Continued
INVESTMENTS IN MARKETABLE SECURITIES
Investments in equity securities consist of common stock. The securities
are stated at market value as determined by the most recently traded price
of each security at the balance sheet date. All marketable securities are
classified as available-for-sale securities under the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and unrealized holding gains and losses
are included in earnings. Debt securities for which the Company does not
have the intent or ability to hold to maturity and equity securities are
classified as available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of tax,
reported in other comprehensive income. The net unrealized gains and
losses were immaterial for the years ended December 31, 1999 and 1998. The
cost of investments sold is determined on the specific identification or
the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
principally on the straight-line method over the estimated useful lives of
the assets of 5 and 7 years. The cost of repairs and maintenance is
charged to expense as incurred.
Comprehensive Income
The Company has no material components of other comprehensive income, and
accordingly, comprehensive income is the same as net income for the
period.
Advertising Costs
Advertising costs are expensed as incurred and amounted to $339,000 and
$493,000 for the years ended December 31, 1999 and 1998, respectively.
Income Taxes
The liability method is used to account for income taxes. Under this
method, deferred income tax assets and liabilities are determined based on
differences between the financial reporting
F-8
<PAGE>
and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that are scheduled to be in effect when the differences
are expected to reverse. Prior to the recapitalization of the Company
(April 27, 1999), the earnings of Del Mar Mortgage, Inc., which are
included in the Consolidated Statements of Income, were taxed to the
stockholder of Del Mar Mortgage, Inc. pursuant to an election to be taxed
as an S corporation.
F-9
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
Note A - Organization and Summary of Significant Accounting Policies
- Continued
Pro Forma Financial Information (Unaudited)
The pro forma information reflects a provision for income taxes as if Del
Mar Mortgage, Inc. had been a C corporation for the years ended December
31, 1999 and 1998 using an assumed effective tax rate of 34%. Pro forma
net income per share has been computed by dividing pro forma net income by
the weighted average shares outstanding.
Impairment of Long-Lived Assets to be Disposed
The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of long-lived assets may not be
recoverable. When such events or changes in circumstances are present, the
Company assesses the recoverability of long-lived assets by determining
whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the future cash
flows is less than the carrying amount of those assets, the Company
recognizes an impairment loss based on the excess of the carrying amount
over the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or the fair value less costs to sell.
Earnings Per Share
Basic and diluted earnings per share is based on the weighted-average
number of outstanding common shares during the applicable period.
Note B - Accounts Receivable
The Company services loans which have been arranged for the investor
parties through a servicing agreement. The servicing agreement stipulates
that all extension fees charged on behalf of the investors shall be
retained by the Company as part of the loan servicing fees. Accounts
receivable represent extension and loan origination fees earned but not
yet received.
F-10
<PAGE>
Note C - Investment in Real Estate Held for Sale
The Company has an investment in real estate held for sale totaling
$1,293,194 at December 31, 1999. The investment in real estate held for
sale is recorded at the lower of historical cost or net realizable value
(see Note F).
F-11
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
Note D - Investments in Mortgage Loans on Real Estate
The Company invests in mortgage loans. The mortgage loans are secured by
first trust deeds on real estate. These loans have maturities of one year
or less with interest rates ranging from 12% to 14% payable monthly, with
principal due at maturity. Management believes the underlying value of the
assets securing the mortgage loans was sufficient at December 31, 1999 to
realize their carrying value. Accordingly, no allowance for loan losses
has been established.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999:
Furniture and equipment $ 52,429
Less: Accumulated depreciation (17,424)
-------------
$ 35,005
=============
NOTE F - NOTE PAYABLE
In 1999, the Company foreclosed on real estate which was subject to an
existing lien (the "note"). The term of the note is for one year and
includes interest at 12.75% per annum. The note is secured by certain real
estate. The note was originally due on October 8, 1999 and was extended to
April 8, 2000. The note requires monthly interest payments with the
balance of unpaid principal and interest due on April 8, 2000.
Note G - Line of Credit
The Company maintains a $3,000,000 floating line of credit with a
financial institution. The outstanding balance as of December 31, 1999
totaled $1,980,000. The line of credit, which is guaranteed by the
Company's majority shareholder, is payable in monthly installments of
interest only at the bank's prime lending rate plus 1.5% (10% at December
31, 1999) and expires on December 15, 2000. The line of credit is secured
by 1,450,000 shares of the Company's common stock held by the majority
stockholder (23.5% of the outstanding stock at
F-12
<PAGE>
December 31, 1999) and the deeds of trust on the property being advanced
against. The line of credit contains certain covenants, which the Company
has complied with as of December 31, 1999.
F-13
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE H - CREDIT AGREEMENT
The Company has entered into a credit agreement with a financial
institution that maintains non-interest bearing trust funds held on behalf
of the investors and the Company (Note I). The credit agreement allows the
Company to borrow funds up to the amount held in the trust accounts at a
rate of 1% and invest those funds in commercial paper (securities). The
Company has provided the financial institution with a security interest in
the securities and, at all times, the securities remain in the financial
institution's custody and control. The balance drawn down upon the credit
agreement was $0 at December 31, 1999.
NOTE I - TRUST ACCOUNTS
The Company manages on behalf of Del Mar Mortgage, Inc., a company wholly
owned by the Company's majority stockholder, certain trust assets
including cash and receivables on behalf of the investors. The cash is
held at a financial institution and the Company records and reconciles the
receivables from borrowers. At December 31, 1999, the cash held in trust
was $667,345 and the trust receivables were $1,215,466. The related trust
liability was $1,882,811 at December 31, 1999. The trust assets and
liabilities are not recorded on the balance sheet of the Company at
December 31, 1999.
Note J - LOANS SERVICED FOR OTHERS
The Company services loans for others, which are not shown on the balance
sheet. The face amount of these loans at December 31, 1999 approximated
$227,000,000. Loans serviced for others include construction loans that
are originated by the Company.
F-14
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
Note K - Related Party Transactions
On April 27, 1999, the Company entered into a non-renewable transition
agreement (the "Agreement") with Del Mar Mortgage, Inc., a company wholly
owned by the Company's majority stockholder. The Agreement requires the
Company to pay Del Mar Mortgage, Inc. 25% of loan origination fees earned
from April 27, 1999 through October 26, 1999 and 12.5% of such fees from
October 27, 1999 through April 26, 2000. The Agreement also requires the
Company to remit to Del Mar Mortgage, Inc. all future loan servicing and
extension fees recognized on loans originated by the Company prior to
April 27, 1999. The Agreement terminates on April 26, 2000. The Company
incurred $2,597,641 in fees related to the Agreement for the year ended
December 31, 1999, which have been recorded as general and administrative
expenses in the consolidated financial statements.
The Company has recorded accounts receivable from Del Mar Mortgage, Inc.
of $443,390 as of December 31, 1999. The Company also has a balance due to
Del Mar Mortgage, Inc. of $244,641. These balances bear no interest and
are due on demand.
The Company incurred accounting and financial consulting fees of $150,000
and $180,000 for the years ended December 31, 1999 and 1998, respectively,
which were paid to an accounting firm whose managing principal is an
officer, director and stockholder of the Company (see Note S).
On December 23, 1999, the Company consummated agreements to acquire two
related party companies (see Note Q).
In 1998, the Company paid various expenses totaling $2,101,087, for and on
behalf of Shustek Investments, Inc., resulting in a receivable from
Shustek Investments, Inc. for that amount. On December 31, 1998, this
receivable was distributed to the majority stockholder of the Company.
F-15
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
Note L - Income Taxes
The components of income tax expense (benefit) are as follows as of
December 31:
1999 1998
------------- ---------
Current $986,875 $ -
Deferred (27,542) -
------------- ---------
$959,333 $ -0-
============= =========
Deferred taxes result from temporary differences in the recognition of
certain revenue and expense items for income tax and financial reporting
purposes. The significant components of the Company's deferred taxes as of
December 31, 1999 are as follows:
Deferred tax assets:
Accrued compensation $27,542
Less: Valuation allowance -
-----------
Net deferred taxes $27,542
===========
The reconciliation of the statutory federal rate to the Company's
effective income tax rate is as follows for the years ended December 31:
1999 1998
--------------- ---------------
Statutory tax provision $1,332,880 $923,320
Earnings taxed to shareholder (381,867) (923,320)
Non-deductible expenses 8,320 -
--------------- ---------------
$ 959,333 $ -0-
=============== ===============
F-16
<PAGE>
NOTE M - EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) Savings Plan which covers substantially all
full-time employees. Participants may make tax-deferred contributions of
up to 15% of annual compensation (subject to other limitations specified
by the Internal Revenue Code). The Company matches employee contributions
dollar for dollar up to 5% of compensation. The Company contributed $
37,537 and $20,316 to the plan for the years ended December 31, 1999 and
1998, respectively.
F-17
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE N - EMPLOYMENT AGREEMENTS
The Company has employment agreements and arrangements with certain
officers and key employees. The agreements generally continue for a period
of three years or until terminated by the executive or the Company with
cause. The agreements and arrangements provide the employees with a base
salary and benefits. The agreements contain covenants against competition
with the Company, which extend for a period of time after termination.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, notes receivable,
mortgage loans, accounts payable and notes payable approximate fair value
because of the short-term maturity of these instruments.
NOTE P - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company operates from a leased office facility under a noncancellable
operating lease. The lease requires the Company to pay certain escalation
clauses for real estate taxes, operating expense, usage and common area
charges. Rent expense for the leased office facility charged to operations
for the years ended December 31, 1999 and 1998 was $140,000 and $194,000,
respectively.
The Company leases equipment under a noncancellable operating lease. Rent
expense for the equipment was $20,000 and $3,600 for the year ended
December 31, 1999 and 1998, respectively.
Future minimum rental payments required under the operating leases as of
December 31, 1999, are as follows:
2000 $180,418
2001 190,193
2002 193,728
2003 197,128
2004 66,363
------------
$827,830
============
F-18
<PAGE>
Sunderland Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
Note Q - Acquisitions
On December 23, 1999, the Company consummated an agreement to acquire all
the outstanding capital stock of DM Financial Services, Inc., a Las Vegas,
Nevada based securities broker-dealer for 10,300 shares of the Company's
common stock and DM Mortgage Advisors, Inc., a Phoenix, Arizona based
mortgage funding company for 17,700 shares of the Company's common stock.
The acquisition of DM Financial Services, Inc. is pending regulatory
approval of both the National Association of Securities Dealers and the
Corporate Securities Division of the State of Nevada. The acquisition of
DM Mortgage Advisors, Inc. is also pending regulatory approval by the
State of Arizona.
NOTE R - LITIGATION
Item 18. The Company is a defendant in various lawsuits incurred in the normal
course of business. In the opinion of management, after consulting with legal
counsel, the liabilities, if any, resulting from these matters will not have a
material effect on the consolidated financial statements of the Company.
NOTE S - SUBSEQUENT EVENTS
Item 21. In January 2000, the Company entered into a letter of intent to merge
with an accounting firm (the "Firm") whose managing principal is an officer,
director and shareholder of the Company. The proposed transaction would transfer
100% of the outstanding common stock of the Firm to the Company in exchange for
800,000 common shares of the Company's stock.
F-19
<PAGE>
[LETTERHEAD OF HANSEN, BARTNETT & MAXWELL]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Del Mar Holdings, Inc.
Las Vegas, Nevada
We have audited the balance sheet of Del Mar Holdings, Inc. as of December 31,
1998, and the related statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein). Those financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Del Mar Holdings, Inc. as of
December 31, 1998, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
May 21, 1999
F-20
<PAGE>
[LETTERHEAD OF HANSEN, BARTNETT & MAXWELL]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Del Mar Mortgage, Inc.
Las Vegas, Nevada
We have audited the balance sheet of Del Mar Mortgage, Inc. as of December 31,
1998, and the related statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein). Those financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on those financial statements based on our audit.
We conducted our audit 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 audit provides 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 Del Mar Mortgage, Inc. as of
December 31, 1998, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
April 9, 1999
F-21
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On December 13, 1999, the Company dismissed Hansen, Barnett & Maxwell
("HBM") as its independent auditor. On January 3, 2000 the Company retained
Grant Thornton LLP ("Grant Thornton") as independent certified public
accountants to replace HBM.
The Company and HBM have not, in connection with the audit of the
Company's financial statements for each of the two years ended December 31, 1998
and 1997, had any disagreement on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreement, if not resolved to HBM's satisfaction, would have caused HBM
to make reference to the subject matter of the disagreement in connection with
its reports. In connection with the Company's June 30, 1999, unaudited
consolidated financial statement, HBM disagreed with the appropriate accounting
for the net assets of the Del Mar Entities that were not transferred to the
Company. It was resolved that these net assets would be accounted for as capital
distributions from the accounting acquirer. In addition, there were
disagreements regarding the representation of the operations of the Del Mar
Entities prior to the reorganization as those of predecessor entities. This
matter was also resolved to present those prior operations.
The reports of HBM on the Company's financial statements for the past
two years did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainties, audit scope or accounting
principles.
The decision to change accountants was approved by the Company's Board
of Directors.
The Company had no relationship with Grant Thornton that is required to
be reported under Regulation S-B Item 304(a)(2) during the two years ended
December 31, 1998 and 1997 or the subsequent interim period prior to and
including December 13, 1999. The Registrant knows of no disagreements with Grant
Thornton on accounting and financial disclosure.
PART III
The Proxy Statement for the Annual Meeting of Stockholders to be held
on May 18, 2000, which when filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, will be incorporated by reference in this
Annual Report on Form 10-KSB pursuant to General Instruction E(3)A. The Proxy
Statement will provide the information required under Part III (Items 9, 10, 11
and 12).
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements filed herewith as required under
Item 8 of this report include the Consolidated Balance Sheet at December 31,
1999, and the Consolidated
15
<PAGE>
Statements of Income, Stockholders Equity and Cash Flows for
the years ended December 31, 1999 and 1998.
(b)None.
(c) The following exhibits are included in this report or are
incorporated by reference:
<TABLE>
<CAPTION>
Exhibit Exhibit Sequentially
Number Numbered
Page
<S> <C> <C>
2.1** Agreement and Plan of Reorganization between The Company, a Delaware
corporation, and Stephen J. Byrne, dated as of April 9, 1999, filed
with the Form 8-K of The Company (file no. 0-24802) filed with the
Commission on April 27, 1999 and incorporated herein by reference
2.2** Asset Acquisition Agreement between the Company, a Delaware
corporation, and Del Mar Holdings, Inc., a Nevada corporation, dated as
of April 19, 1999 on Form, 8K, of the Company (file no. 0-24803) filed
with the Commission on April 27, 1999, and incorporated herein by
reference
2.3** Asset Acquisition Agreement between the Company, a Delaware
corporation, and Del Mar Mortgage, Inc., a Nevada corporation, dated as
of April 9, 1999 filed with the Form 8-K of the Company (file no.
0-24803) filed with the Commission on April 27, 1999, and incorporated
herein by reference
2.4** Letter of Intent dated January 12, 2000 between the Company and L.L.
Bradford & Company
3.1** Certificate of Incorporation (incorporated by reference to Exhibit 2.1
to the Company's registration statement on Form 10-SBA, file no.
0-24803, filed with the Commission on August 13, 1998)
3.2** By-laws (incorporated by reference to Exhibit 2.2 to the Company's
registration statement on Form 10-SBA, filed with the Commission on
August 13, 1998
4. Specimen Common Stock Certificate; Specimen Preferred Stock
Certificate; Articles Four, Eight, Ten and Twelve of the Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 to the
Company's registration statement on Form 10-SBA, file no. 0-24803,
filed with the Commission on October 12, 1997)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit Sequentially
Number Numbered
Page
<S> <C> <C>
10.1 Employment Agreement between Del Mar Mortgage, Inc. and Stephen J.
Byrne dated November 3, 1998
10.2 Transition Agreement between Del Mar Mortgage, Inc. and Capsource, Inc.
dated April 27, 1999 and First Amendment to Transition Agreement dated
April 27, 1999
10.3 Employment Agreement between Del Mar Mortgage, Inc. and Michael
Whiteaker dated May 3, 1999
10.4 The 2000 Stock Option Plan of Sunderland Corporation
10.5 Employment Agreement between the Company and Michael Shustek dated
December 1, 1999
16 Letter on Change of Certifying Accountant (Incorporated by reference to
Exhibit 16.1 to the Company: Form 8-K (file no. 0-24803) filed with
the Commission on December 12, 1999.)
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
- ----------
** Previously filed.
(d) Schedules filed herewith include:
All schedules for which provision is made in Regulation S-K of the
Commission are not required under the related instructions or are not applicable
and therefore have been omitted.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 29, 2000 SUNDERLAND CORPORATION
By: /s/ Michael V. Shustek
---------------------------------------------
Michael V. Shustek, Chief Executive Officer
(Principal Executive Officer)
By: /s/ Lance Bradford
---------------------------------------------
Lance Bradford
(Chief Financial Officer)
Pursuant to the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
March 29, 2000 By: /s/ Michael V. Shustek
---------------------------------------------
Michael V. Shustek, Director
March 29, 2000 By: /s/ Stephen J. Byrne
---------------------------------------------
Stephen J. Byrne, Director
March 29, 2000 By: /s/ Robert W. Fine
---------------------------------------------
Robert W. Fine, Director
March 29, 2000 By: /s/ Lance Bradford
---------------------------------------------
Lance Bradford, Director
18
<PAGE>
March 29, 2000 By: /s/ John E. Dawson
---------------------------------------------
John E. Dawson, Director
March 29, 2000 By: /s/ Robert L. Forbuss
---------------------------------------------
Robert L. Forbuss, Director
March 29, 2000 By: /s/Robert Aalberts
---------------------------------------------
Robert Aalberts, Director
19
<PAGE>
Exhibit 2.4
Via Federal Express (702) 735-5030
March 29, 2000
PERSONAL AND CONFIDENTIAL
- -------------------------
Lance Bradford, President
L.L. Bradford &
Company 3980 S. Eastern
Avenue
Las Vegas, NV 89119
Dear Lance:
The purpose of this Letter of Intent ("Letter of Intent") is to
confirm certain non-binding understandings and agreements in principle and
certain binding agreements on the part of (i) The Sunderland Company
("Sunderland"); (ii) LL. Bradford & Company. ("LL. Bradford"); and (iii) the
owners of the Company (the "Partners"), with respect to the matters described
herein (the "Proposed Transaction").
The parties hereto intend to negotiate to determine if they can
reach a mutually satisfactory, definitive, binding agreement ("Master
Transaction Agreement"). The Master Transaction Agreement will summarize the
arrangements described herein, and the exhibits to the Master Transaction
Agreement will consist of the documents necessary to implement the various
aspects of the Proposed Transaction. Except for paragraphs 11 through 15, this
letter is not intended to and does not constitute a binding agreement among the
parties. Any such binding agreement would arise only as a result of the
execution and delivery of the Master Transaction Agreement and certain of its
exhibits containing terms and conditions satisfactory to each of the parties
hereto. No person shall bring any claim against any other person based upon
this Letter of Intent as a result of a failure to agree on or enter into the
Master Transaction Agreement or (except as expressly contemplated by paragraphs
10 through 14 hereof) otherwise. Consummation of the Proposed Transaction will
be subject to a number of conditions.
<PAGE>
L.L. Bradford & Company.
Letter of Intent
1. Structure of Transaction. It is currently contemplated that the Proposed
Transaction would be implemented as follows:
A. Asset Acquisition - Partners transfer all of its non-attest assets
and agreed liabilities ("Asset Transfer") to a wholly owned
subsidiary of Sunderland ("Subco"), Partners will receive stock in
consideration for the assets transferred, The forms of the agreements
necessary to effect these transactions will be prepared by Sunderland
and will be mutually acceptable to Sunderland and Partners.
B. Management Services Agreement - Subco will manage the business
aspects of the accounting practice of the Partners through the
following steps (the forms of documentation for which will be
prepared by Sunderland and will be mutually acceptable to Sunderland
and the Partners):
STEP I - The Partners organize a new professional entity ("New PC").
The ownership of this entity will remain with the Partners to conduct
their attest practice.
STEP 2 - Subco will allow the Partners, who will be employed by
Subco, to provide their services as deemed necessary to New PC.
STEP 3 - Subco and New PC enter into a management service agreement
to establish the terms, compensation, etc. for the services described
in Step 2 above ("Management Services Agreement").
STEP 4 - Subco will obtain, at its expense, vicarious malpractice
insurance and will obtain key man life and disability (or other
business continuity) insurance on each of the New PC Partners as
named insureds.
2
<PAGE>
L.L. Bradford & Company.
Letter of Intent
2. Consideration. Subject to due diligence and subject to this Letter of
Intent being executed by the parties not later than January 31, 2000, it
is anticipated that consideration would be given by Sunderland in the
fixed amount of 800,000 common shares of Sunderland ("Total
Consideration").
3. Financial Statements. Promptly after signing this letter, the Partners,
at Partners's sole expense, will cause the financial statements of
Partners to be prepared by Partners and compiled by L.L-Bradford. Partners
understand that such financial statements must be prepared and presented
in accordance with generally accepted accounting standards (among others,
accrual basis of accounting).
4. Registration Rights. The Partners will have "piggy-back registration
rights" to include their Sunderland common stock in registration
statements filed by or on behalf of Sunderland under the Securities Act of
1933. The terms of the registration rights will be set forth in the
Purchase Agreement, and exhibit to the Master Transaction Agreement.
5. Management Services Agreement. The Management Services Agreement will
initially be executed by and between New PC and Subco and will have an
initial term of 40 years. Under the Management Services Agreement, Subco
will be the exclusive provider of management services and serve as the
administrator of the business functions and business affairs of New PC.
Specifically, the manager will provide the use of the Partners on a
part-time basis, billing and collection services, supplies, support
services, other personnel, financial record keeping and administrative
management. New PC will employ all staff and other personnel.
The manager will be entitled to reimbursement for reasonable expenses
incurred on behalf of New PC, and will also be compensated for its
services. The compensation payable to the manager and the method of
determining such compensation will be determined after completion of due
diligence.
3
<PAGE>
L.L. Bradford &
Company. Letter of Intent
6. Partner Employment Agreements. Partner's employment agreements will be
executed by and between New PC and each Partner ("Partner Employment
Agreements"). The Partner Employment Agreements will require each Partner
to be a full-time employee of New PC or Sunderland. All professional fees
generated and collections received will be the property of New PC. Each
Partner will have specific duties and obligations, such as maintaining
financial records, promoting the professional practice of New PC,
maintaining and improving professional skills and maintaining unrestricted
license to practice accounting in the state. New PC will provide health,
group disability and group life insurance, Partners' aggregate
compensation (including benefits) will be mutually agreed upon prior to
closing.
The initial term of each agreement will be for five years, automatically
renewing for one-year terms unless otherwise terminated. Each party will
be able to terminate the Partner Employment Agreements under certain
conditions.
7. Non-Competition Arrangements. As part of the agreements executed in
connection with the Proposed Transaction, each partner will agree to
noncompetition covenants applicable within specified, geographically
restricted areas for an initial five-year term. In addition, a
non-competition covenant will apply for a one-year period from the last
date of employment.
8. Regulatory Compliance. Consummation of the proposed transactions will
be dependent upon a determination by counsel for Sunderland that the
transactions are in compliance with appliance federal and state law and
regulations. It is the intent of Sunderland that all transactions comply
with the intent and spirit of all regulatory and statutory requirements of
each state in which Sunderland conducts business. For these reasons, the
parties will agree to amend or modify any agreement that has been executed
between the parties in the event that there is a material change in a
state or federal statutory requirement or regulatory provision that would
adversely affect the parties' ability to conduct business as contemplated
by the transactions.
9. Approval. The Proposed Transaction and the form and terms of the Master
Transaction Agreement and the exhibits thereto shall be subject to
approval by the I boards of directors of Sunderland and by the Partners.
Each party recognizes that 'prior to the execution of any Master
Transaction Agreement, the other party will be conducting additional due
diligence to verify information regarding such party's business and
assets. The remits of such due diligence must be satisfactory to each
party in its sole discretion.
4
<PAGE>
L.L. Bradford &
Company. Letter of Intent
10. Access and Confidentiality. From the date hereof until February 12,
2000 (the "Subject Period"), and thereafter until closing if the Master
Transaction Agreement is executed within the Subject Period, each party
will permit the officer, employees, agents and advisors of the other party
and its affiliates to have reasonable access to the officers, employees,
agents, advisors, properties, records and documents of such party, as may
be reasonably necessary or appropriate with respect to the investigation
and analysis of the Proposed Transaction and preparation of the Master
Transaction Agreement.
11. Public Announcements. Unless otherwise required by applicable law or
securities exchange regulations, each party agrees that (a) it will not
disclose to any third party (other than such party's officers, directors,
partners, affiliates, lenders, advisors, agents and representatives, on a
"need-to-know" basis, and, in Sunderland's case, to its affiliated
Partners or Partners with whom Sunderland is negotiating or discussing a
potential affiliation), and (b) it will not issue a press release or
announcement with respect to, the Proposed Transaction or the existence of
discussions with respect thereto, in each case without the prior written
consent of the other parties.
12. No Solicitation. Until the expiration of the Subject Period, neither
Partners nor any Partners affiliate will directly or indirectly,
encourage, solicit or engage in discussions or any negotiations with, or
provide any information to, any person or entity (other than the other
party hereto or its affiliates) concerning (A) any possible disposition of
all or substantially all of the assets contemplated to be transferred to
Subco under the terms hereof, (B) any possible merger or consolidation of
Partners with any third party, except as otherwise provided herein, (C)
any possible arrangement for the management of the business aspects of the
accounting practice currently conducted by Partners or (D) any possible
arrangement that would prevent or interfere with the consummation of the
arrangements contemplated herein.
13. Expenses. The parties hereto acknowledge that they will incur
significant legal, accounting and other out-of-pocket expenses in pursuing
the Proposed Transaction. Each of the parties hereto will bear and pay all
costs and expenses incurred by it in connection with the transactions
contemplated by this Letter of i Intent, regardless of whether the Master
Transaction Agreement is executed or the Proposed Transaction is
consummated.
5
<PAGE>
L.L. Bradford &
Company. Letter of Intent
14. Termination. This Letter of Intent may be terminated at any time by
the mutual agreement of all of the parties hereto, and if not sooner
terminated, this Letter of Intent shall terminate automatically if the
Master Transaction Agreement has not been executed prior to the expiration
of the Subject Period. In the event of such termination, neither party
shall have any liability or obligation to the other party hereunder,
except that the provisions of paragraphs 10 through 13 shall remain in
full force and effect.
15. Choice of Law. The documents for the Proposed Transaction shall be
construed, interpreted, and the rights of the parties determined in
accordance with the laws of the State of Nevada except with respect to
matters of law concerning the internal corporate or partnership entity
which is a party to or the subject of this Letter of Intent or
Transaction documents, and as to those matters the law of the state of
incorporation or organization of the respective entity shall govern.
6
<PAGE>
L.L. Bradford &
Company. Letter of Intent
This Letter of Intent is solely for the benefit of the parties hereto and will
not be construed to give rise to or create any liability or obligation to, or to
afford any claim or cause of action to, any other person or entity. This Letter
of Intent will be superseded in its entirety by the provisions of the Master
Transaction Agreement upon the approval and execution thereof.
If the foregoing correctly sets forth our current intentions, please execute two
originals of this letter in the space provided below, retain one fully executed
original for your files and return the other to the undersigned. This letter may
be executed in multiple counterparts, each of which shall be an original and all
of which taken together shall constitute one instrument.
Sincerely,
THE SUNDERLAND COMPANY
By:
--------------------------
Title:
-----------------------
Accepted and agreed to this ____ day of __________, 2000
L.L. BRADFORD & COMPANY
By:
--------------------------
Lance Bradford
Title: Managing Principal
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
Agreement made, effective as of this 3rd day of November, 1998, by and
between Del Mar Mortgage, Inc., a Nevada corporation (hereinafter referred to as
"Company"), and Steve Byrne (hereinafter referred to as "Employee").
RECITALS
The parties recite and declare:
A. Company desired to retain Employee as its Chief Loan Officer
for the operation of the mortgage broker business in the State
of Nevada.
B. Employee desires to act as such Chief Loan Officer for the
operation of a mortgage broker in the State of Nevada.
In consideration of the mutual covenants and agreements contained in
this agreement, the parties agree as follows'
SECTION ONE
APPOINTMENT OF EMPLOYEE
A. Company hereby employs Employee to serve as its Chief Loan
Officer for the operation of a mortgage broker business in the
State of Nevada and to perform such other duties as may be
determined from time to time.
B. Employee hereby accepts such appointment and agrees to observe
all terms and conditions of this agreement.
SECTION TWO
COMPENSATION
Company agrees to pay Employee for his services as follows:
A. A salary of $60,000.00 annually, paid in equal bi-monthly
installments.
B. A commission/incentive plan as follows: Three eighths of one
percent (0.375%) monthly on Nevada loan volume from
$3,000,000.00 and above. Incentives shall be paid to the
Employee monthly.
C. Health insurance for Employee within 90 days of employment.
D. All other benefits offered by employer to its other employees.
<PAGE>
SECTION THREE
OBLIGATIONS OF COMPANY
A. Employer shall pay for all approved business development and
operating expenses of the business. All loans and contracts are subject to
acceptance of the employer at its discretion, and no loan or contract shall be
binding until so accepted and approved.
SECTION FOUR
DUTIES OF EMPLOYEE
A. Employee shall use his best efforts and entire time during usual
business hours to promote and solicit the business of employer actively and
diligently. Employee may maintain his interest in Cap Source, Inc., which is a
Nevada licensed mortgage company.
B. Employee shall maintain appropriate records and accounts as required
by governmental and licensing authorities and employer.
C. Employee shall return to employer immediately upon demand after the
termination of this agreement, in good condition, any and all documents and
accounts held or maintained for the benefit of the employer.
D. Employee shall conduct himself and his business activities at all
times so as to not detract from, or reflect adversely on the reputation of
employer and its services; and, after the termination of this agreement, not to
defame or disparage employer or its business, or services, or its officers) nor
engage in any unfair trade practices toward employer.
E. Employee shall treat as confidential any information obtained by him
concerning the customers or sales personnel of company or its business, lists of
investors and borrowers, services, products, techniques, methods, systems,
pricing, plans, or policies; and will not during his employment, or at any time
after such employment, disclose such information in whole or in part to any
person, firm, corporation, or other entity for any reason or purpose whatsoever.
SECTION FIVE
NON-COMPETITION
Employee agrees that during the term of this agreement and for a period
of two (2) years following the termination of this agreement, he will not,
directly or indirectly, either as an individual or on his own account, or as a
partner, employee, agent, manager, regional employee, employee, or salesperson
of or for any person, firm, association, corporation, or other entity, or as an
officer, director, or shareholder of a closely held corporation, as defined
below, engage in any or all of the following activities within Clark County,
Nevada and within the distance of 100 miles from the nearest point to the outer
boundary of such location:
A. Enter into or engage in any business that competes with company's
business except as already performed by Cap Source. Company is primarily engaged
in the business of mortgage brokering or solicitation or collection of monies to
be secured by deeds of trust or other secured real estate related investments.
B. Solicit employer customers, business, patronage, or contacts for or
market or sell any services or products in the above-defined areas for himself
or for any person, firm, association, corporation, or other entity engaged in a
business that competes with employer's business as
2
<PAGE>
defined above, or supervise others engaged in such activities. Except customers
or clients of Cap Source which is a business owned and operated by Employee
prior to employment with employer.
C. Enter into or engage in any discussion or negotiation, or assist in
such actions to encourage clients, employees, agents, managers, or employees to
disassociate their relationship with employer in order to engage in any business
that competes with employer's business, except what is already performed by Cap
Source.
D. Promote or assist, financially or otherwise, any person, firm,
association, corporation, or other entity engaged in a business that competes
with employer's business, except what is already performed by Cap Source.
This covenant on the part of employee is of the essence of this
agreement; it shall be construed as independent of any other provision of this
agreement, and the existence of any claim or cause of action of employee against
company, whether predicated on this agreement or otherwise, shall not constitute
a defense to the enforcement by employer of this covenant.
SECTION SIX
TERMINATION
A. Within the first ninety (90) days of employment, either party
may terminate this agreement with one (1) day written notice.
B. After the initial ninety (90) day period, should Employer
terminate this agreement, Employer shall pay to Employee a
severance of equal to six (6) months salary from the date of
the written notice of termination, and any
commission/incentive due to Employee or any closed loan or
loan in process. A commission on a loan in process will not be
paid unless, and until, the loan closes.
C. Should Employer be sold to a third party entity, this
agreement shall be non-temimable by the new third party owners
for a period of three (3) years from the date of the sale. A
third party entity shall mean any entity which is not owned in
whole or in part by Michael Shustek or his affiliate entities,
A third party entity shall specifically not include a public
offering by Employer or related, affiliated company or the
present merger/sale to CFI.
D. Either party shall have the right, at any time, to cancel and
terminate tills agreement by giving at least thirty (30) days
notice to the other party. Employee is an at will employee as
that term is defined under Nevada law.
SECTION SEVEN
ASSIGNMENT
The rights of each party under this agreement are personal to that
party and may not be assigned or transferred to any other person, firm,
corporation, or other entity without the prior, express, and written consent of
the other party.
3
<PAGE>
SECTION EIGHT
LAW TO GOVERN CONTRACT
It is agreed that this agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Nevada.
SECTION NINE
ENTIRE AGREEMENT
This agreement shall constitute the entire agreement between the
parties and any prior understanding or representation of any kind preceding the
date of this agreement shall not be binding upon either party except to the
extent incorporated in this agreement.
SECTION TEN
MODIFICATION OF
AGREEMENT
Any modification of this agreement or additional obligation assumed by
either party in connection with this agreement shall be binding only if
evidenced in writing signed by each party or an authorized representative of
each party.
SECTION ELEVEN
NO WAIVER
The failure of either party to this agreement to insist upon the
performance of any of the terms and conditions of this agreement, or the waiver
of any breach of any of the terms and conditions of this agreement, shall not be
construed as thereafter waiving any such terms and conditions, but the same
shall continue and remain in full force and effect as if no such forbearance or
waiver had occurred.
SECTION TWELVE
ARBITRATION OF
DISPUTES
All disputes, claims, and questions regarding the rights and
obligations of the parties under the terms of this agreement are subject to
arbitration. Either party may make a demand for arbitration by filing such
demand in writing with the other party after the dispute first arises.
Thereafter, arbitration shall be conducted by rules and procedures of the
4
<PAGE>
American Arbitration Association.
SECTION THIRTEEN
ATTORNEY FEES
In the event that any action is filed in relation to this agreement,
the unsuccessful party in the action shall pay to the successful party, in
addition to all the sums that either party may be called on to pay, a reasonable
sum for the successful party's attorney's fees.
SECTION FOURTEEN
EFFECT OF PARTIAL
INVALIDITY
The invalidity of any portion of this agreement will not and shall not
be deemed to affect the validity of any other provision. In the event that any
provision of this agreement is held to be invalid, the parties agree that the
remaining provisions shall be deemed to be in full force and effect as if they
had been executed by both parties subsequent to the expungement of the invalid
provision.
SECTION FIFTEEN
PARAGRAPH HEADINGS
The titles to the paragraphs of this agreement are solely for the
convenience of the parties and shall not be used to explain, modify, simplify,
or aid in the interpretation of the provisions of this agreement.
5
<PAGE>
SECTION SIXTEEN
In witness whereof, each party to this agreement has caused it to be
executed at Las Vegas, Nevada on the date indicated below.
EMPLOYEE:
- ----------------------------
STEVE BYRNE
EMPLOYER:
- ----------------------------
MIKE SHUSTEK - President
6
<PAGE>
Exhibit 10.2
TRANSITION AGREEMENT
between
DEL MAR MORTGAGE, Inc.
and
CAPSOURCE, Inc.
This TRANSITION AGREEMENT ("Agreement*) is entered and effective this
27* day of April, 1999, between DEL MAR MORTGAGE. INC. ("Del Mar"), a Nevada
corporation and CAPSOURCE, INC. ("Capsource"), a Nevada corporation. Del Mar and
Capsource are sometimes collectively referred to herein as the "parties."
THE TERM OF THIS AGREEMENT (the "transition period") shall be l2
months, expiring upon the sooner of April 26, 2000, or FIVE days written notice
from any party to the others-
WHEREAS this Agreement is mutually beneficial and necessary in order for the
parties to facilitate and complete the transfer of operations of Del Mar to
Capsource, pursuant to certain agreements relating to the acquisition by
Sunderland Acquisition Corporation of Capsource and certain assets of Del Mar
(the "Acquisition").
WHEREAS, during the transition period, Del Mar will continue to require
the use of the equipment and staff now belonging to Capsource, in exchange for
Which Del Mar will be obligated to pay an Administrative Service Fee to
Capsource, as more particularly set forth below.
NOW, THEREFORE, Del Mar and Capsource adopt this Agreement and agree as follows:
1. Administrative Service Fee. Del Mar, for good and valuable
consideration, the receipt of which is hereby acknowledged, while
continuing in operation during the transition period, is hereby
assigned and shall be entitled to the use of the equipment and staff,
which in no manner shall hinder or interfere with Capsource's right to
use the same at 2901 El Camino Avenue. Suites 206 and 201, Las Vegas,
Nevada (the"Premises").
2. Loan Origination and Marketing Fee. Capsource will diligently
perform services and incur expenses in order to assist Del Mar in the
marketing and origination of loans, each operating as a licensed Nevada
mortgage company pursuant to Nevada Revised Statutes Chapter 645B and
Nevada Administrative Code Chapter 645B. Del Marshall collect all
revenues generated from the marketing and origination of loans. The
revenue generated through the joint efforts of Del Mar and Capsource in
the marketing and origination of loans, which shall include but not be
limited to loan origination fees and interest, but shall not include
loan servicing fees, shall be received and disbursed by Del Mar for
those earnings derived during a particular month, within 15 days of the
end of the month, as follows; For the first six months of the term of
this agreement, 75%to Capsource and 25% to Del Mar; and, for any
remaining term of the agreement 87,5% to Capsource, and 12.5 % to Del
Mar.
<PAGE>
3. Loan Origination and Marketing Fee Adjustments. To the extent that
loan origination fees that were paid to Capsource are subject to a
subsequent adjustment between Del Mar and the Borrower, then 87.5% of
such adjustment shall be either charged or credited to Capsource in the
month the adjustment is made by Del Mar and shall be included as an
adjustment to the Loan Origination and Marketing Fees paid by Del Mar
to Capsource in the following month.
4. Reimbursement of Costs. Costs and expenses incurred shall be paid by
each of the parties in the ordinary course of business in the
transition period. Each party shall be entitled to monthly
reimbursement from another party for any and all costs and expenses
paid on behalf of said party. Costs shall be reimbursed within 15 days
from the end of the month in which they are due.
5. Right of Offset. Moneys due and payable to a party may be reduced to
the extent that moneys are due from the same party.
6. Termination. This Agreement is terminable upon the sooner of the
expiration of 5 days after receipt of written notice from one party to
the others (with the five days beginning to run on the date of receipt
by the last party receiving notice), or at the end of business on April
26, 2000.
7. Notice. Any notice required hereunder may be made by hand delivery,
telefax or First Class U.S. Mail, and shall be deemed received if by
hand delivery on the date of delivery, if by telefax on the date of
transmittal and if by First Class U.S. Mail, on the third business day
after mailing.
8. Attorneys' Fees. The prevailing party, or parties, shall be entitled
to reasonable attorneys' fees and costs that may be incurred as a
result of any dispute arising from this Agreement.
9. Choice of Law and Venue. This Agreement and the rights of the
parties hereto shall be interpreted, governed and construed in
accordance with the laws of the State of Nevada. Venue of any action
shall be in the State Court of Nevada, in Clark County, Nevada.
10. Sole Agreement; Amendment. This is the sole Agreement between the
parties relating to the subject matter contained herein, and shall
supercede all previous Agreements between the parties, whether written,
oral or otherwise existing in any form whatsoever. Any amendment to
this Agreement. or future superceding agreement must be in writing,
signed by all the parties. Each party will execute such additional
instruments and take such actions as may be reasonably required to
carry out the intent and purposes of this Agreement.
11. Indemnification. Each party shall indemnify the other for claims
arising in the transition period by brokers or finders employed or
alleged to have been employed by the indemnifying party.
12. Assignment. This Agreement shall inure to the benefit of, and be
binding upon, the parties and their successors and assigns; provided,
however, that any assignment by any party, or parties, without the
unanimous written consent of all parties shall be void.
13. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed and original, but
ail of which together shall
2
<PAGE>
constitute one and the same instrument. Signatures sent by telefax
transmission shall be deemed to be evidence of the original execution
thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first referenced above.
DEL MAR MORTGAGE, INC.
By:
------------------------------
3
<PAGE>
First Amendment to
TRANSITION AGREEMENT
Between
DEL MAR MORTGAGE, Inc.
and
CAPSOURCE, Inc.
This amends the TRANSITION AGREEMENT ("Agreement") entered into and
effective the 27" day of April. 1999. between DEL MAR MORTGAGE, INC. ("Del
Mar"), a Nevada corporation and CAPSOURCE, INC. ("Capsource"), a Nevada
corporation. Del Mar and Capsource are sometimes collectively referred to herein
as the "parties."
This amendment relates back to the original date of the Agreement and
is for clarification purposes and does not change in any manner the terms of the
Agreement.
Del Mar and Capsource agree that for good and valuable consideration,
as already set forth in the agreement:
I. During the transition period and thereafter, and in order to
facilitate the transition contemplated by the Agreement, Capsource shall be
entitled to use all powers of attorney used in business operations and in loan
servicing by Del Mar, as Capsource is doing business as Del Mar Mortgage.
IN WITNESS WHEREOF, the parties have executed this First Amendment
Agreement effective on the date fast referenced above.
DEL MAR MORTGAGE, INC.
By:
----------------------------
CAPSOURCE, INC.
By:
----------------------------
4
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 3rd day of May. 1999, by and between Del Mar Mortgage. Inc. A Nevada
Corporation ("Employer"), and MIKE WHITEAKER ("Employee").
W I T N E S S E T H:
WHEREAS, Employer and Employee deem it to be in their respective best
interests to enter into an agreement providing for Employer's employment of
Employee pursuant to the terms herein stated.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, it is hereby agreed as follows:
1. Term of Employment. Employer hereby employs and Employee hereby
accepts with employment with Employer for a term of three (3) years effective as
Of May 10. 1999 ("Commencement Date"), and ending on May 9. 2002 (the
'Termination Date"), unless sooner terminated as provided herein.
2. Duties of Employee. Employer agree to engage Employee, and Employee
agrees to serve Employer, in the capacity of Compliance Officer, and shall do
and perform all services, acts, or things necessary or advisable to accomplish
the objectives and complete the tasks assigned to Employee by Employer's
management, including, without limitation: (i) establishment of procedures for
the proper processing by Del Mar of loans (originating both within and outside
the State of Nevada), including, trust accounting, funding, title policy, and
assignments, (ii) learning the regulations and administrative codes for all
states in which Employer lends and establish procedures for lending in those
states; and (iii) working directly with government officials regarding policy
and audits.
3. Devotion of Time to Employer's Business. Employee shall be a
full-time employee of Employer and shall devote such substantial and sufficient
amounts of this productive time, ability, and attention to the business of
Employer during the term off this Agreement as may be necessary to accomplish
the objectives and complete the task assigned to Employee. Employee acknowledges
that Employee, in the course of fulfilling his duties hereunder, may be required
to travel outside the State of Nevada. Employee acknowledges that Employer may
require Employee to become licensed by the United States Securities and Exchange
Commission; the Nevada Association of Securities Dealers, and/or such other
entities as may be required for Employee to market securities to the public.
Prior written consent of Employer shall be required 1>efore Employee undertakes
any outside services of a business, commercial, or professional nature, whether
for compensation or otherwise. Written consent shall not be required as to
Employee's reasonable participation in educational and professional activities
related to the maintenance of Employee's qualifications and stature in his
profession.
4. Uniqueness of Services. Employee acknowledges that the services to
be performed by him under the terms of this Agreement are of a special and
unique value.
<PAGE>
Accordingly, the obligations of Employee under this Agreement are
non-assignable.
5. Compensation of Employee.
a. Annual Base Salary. Subject to other specific provisions in
the Agreement, as compensation for service hereunder. Employee
shall receive a salary at the rate of not less than Seventy
Thousand and No/I 00 Dollars ($70,000.00) per annum ("Annual
Base Salary").
b. Cash Bonus. Within forty-five (45) days of expiration of
each Fiscal Quarter (as hereinafter defined), and provided
Employee is still employed by Employer on the date of
expiration of such Fiscal Quarter, Employer shall pay to
Employee a bonus equal to the greater of. (i) the product
obtained by multiplying the number of loans closed in such
Fiscal Quarter by One Hundred Seventy Five and No/I 00 Dollars
($175.00); or (ii) Five Thousand and No/100 Dollars
($5,000.00). Within forty-five (45) days of the expiration of
each Fiscal Year (as herein defined), and provided Employee is
still employed by Employer on the date of expiration of such
Fiscal Year, Employer shall pay to Employee a bonus calculated
as follows: (i) if on the date of expiration of a Fiscal Year
the then most current annual audit rating (as prepared by the
State of Nevada, Department of Business and Industry,
Financial Institutions Division ("FID")) for Employer shall be
I, then the bonus amount for such Fiscal Year shall be
Thirty-Five Thousand and No/100 Dollars ($35,000.00), (ii) if
on the date of expiration of a Fiscal Year the then most
current annual audit rating (as prepared by FID) for Employer
shall be 2, then the bonus amount for such Fiscal Year shall
be Twenty Thousand and No/100 Dollars ($20,000.00). (iii) if
on the date of expiration of a Fiscal Year the then most
current annual audit rating (as prepared by FID) for Employer
shall be 3, then the bonus amount for such fiscal year shall
be Ten Thousand and No/100 Dollars ($10,000.00). The term
"Fiscal Quarter" shall mean, commencing on the Commencement
Date, the first three (3) month period of the term of this
Agreement, and each three (3) month period during the term of
this Agreement thereafter. The term "Fiscal Year" shall mean,
commencing on the Commencement Date, the first twelve (12)
month period of the term of this Agreement, and each twelve
(12) month period during the term of this Agreement
thereafter.
c. Employee Benefits. Employee shall receive health and dental
insurance benefits, and 401K Plan coverage designated by
Employer arid no less favorable than the coverage provided by
Employer to its employees of same executive level (as
determined by Employer in its reasonable discretion).
d. Stock Options. Management will make a reasonable attempt to
give Employee the same option programs that will be available
to other executives
e. Business Expenses. Employer will reimburse employee for
reasonable business expenses incurred in performing Employee's
duties and promoting the business of Employer.
f. Vacation. Employee shall be entitled to fifteen (15) work
days (i.e., as a
2
<PAGE>
practical matter, three (3) weeks) per Fiscal Year as paid
vacation days. All vacation schedules shall be subject to the
reasonable approval of Employer.
g. Occasional Absence. Employee shall be entitled to five (5)
work days (i.e., as practical matter, one (1) week) per Fiscal
year as unpaid occasional absence days. All occasional absence
schedules shall be subject to the reasonable approval of
Employer.
h. Sick. Employee shall be entitled to ten (10) work days
(i.e., as a practical matter, two (2) weeks) per Fiscal Year
as paid sick days.
6. Termination of Employment.
a. Termination for Cause. Employer shall have the right to
terminate Employee's employment at any time for cause by
giving Employee written notice of the effective date of
termination. In the event of Employer's termination of
Employee with cause. Employee shall not be entitled to any
further payments, rights, or benefits, hereunder, except such
as have accrued prior to the effectiveness of Employees
termination. For purposes of this Agreement, "cause" shall
mean:
(1) fraud, misappropriation, embezzlement, or any other
action of material misconduct against Employer;
(2) substantial failure to render services in accordance
with the provisions of the Agreement, provided that:
(i) a written demand for performance has been
delivered to Employee by Employer at least
ten (10) days prior to termination
identifying the manner in which Employer
believes that Employee has failed to
perform, and
(ii) Employee has thereafter failed to remedy
such failure to perform;
(3) material violation of any law, rule, or regulation of
any governmental or regulatory body material to the
business of Employer;
(4) conviction or a guilty plea or nolo contendere plea
to a felony
(5) the loss, revocation, or suspension of any license or
certification of Employee necessary for Employee to
discharge his duties on behalf of Employer;
(6) repeated and persistent failure to abide by the
policies established by the management of Employer;
(7) any acts of violence or threats of violence made by
Employee against Employer or anyone associated with
Employer's business; or
3
<PAGE>
(8) drug dependency or habitual insobriety.
b. Termination without Cause. Employer shall have the right to
terminate Employee's employment at any time without cause by giving
Employee at least thirty (30) days prior written notice of the
effective date of termination. In the event of termination of this
Agreement without cause. Employer shall continue to pay Employee and
Annual Base salary (in accordance with Section 5(a) hereof), for a
period which is the lesser of (a) twelve (12) months or (b) the number
of full months from the effective date of termination of Employee
without cause to the Termination Date. Except for Employer's obligation
to pay the Annual Base Salary in accordance with the foregoing, in the
event of Employer's termination of Employee without Cause, Employee
shall not be entitled to any further payments, rights, or benefits
hereunder, except such as have accrued prior to the effectiveness of
Employee's termination.
c. Termination by Employee. Employee may terminate Employee's
employment hereunder, provided: (i) Employer commits a material breach
of this Agreement; and (ii) Employer receives written notice thereof
from Employee; and (iii) Employer fails to cure such default within
thirty (30) days of receipt of such notice.
d. Death or Incapacity. This Agreement shall terminate
automatically in the event that: (1) Employee fails or is unable to
perform Employee's duties due to injury, illness or other incapacity
for ninety (90) days in any twelve (12) month period; or (2) death of
Employee. If this Agreement shall terminate in accordance with this
Section 6(c), the obligation of Employer to make any payments
whatsoever under this Agreement shall cease except that in the event
this Agreement is terminated as a result of Employee's death.
Employee's executors, administrators' or other legal representatives,
shall within thirty (30) days of the date of Employees death, be paid
any compensation pursuant to this Agreement which is accrued and unpaid
as of the date of death of Employee (and to which Employee is otherwise
entitled pursuant to the terms of this Agreement).
e. Mitigation. In the event of a termination of Employee's
employment for any reason, Employee shall be required to seek other
employment in order to mitigate any damages resulting from the breach
of this Agreement.
7. Covenant of Confidentiality. All documents, records, files,
manuals, forms, materials, supplies, computer programs, trade secrets,
and other information which comes into Employee's possession from time
to time during Employee's employment by Employer, and/or any of
Employer's subsidiaries or affiliates, shall remain the sole and
exclusive property of Employer. Employee acknowledges that all such
confidential and propriety information is confidential and proprietary
and not readily available to Employer's business competitors. On the
effective date of the termination of the employment relationship or at
such other date specified by Employer, Employee agrees that he will
return to Employer all such confidential and propriety items
(including, but not limited to, company badge and keys) in his control
or possession, and all copies thereof,
4
<PAGE>
and that he will not remove any such items from the offices of
Employer.
8. Covenant of Non-Disclosure. Employee shall keep
confidential and not disclose or otherwise make use of any of the
confidential or proprietary information or trade secrets referred to in
Section 7 nor the same to any third patty whomsoever, except as
required by law.
9. Covenant of Non-Solicitation. During the term of this
Agreement and for a period of five (5) years following the effective
date of termination of the employment relationship. Employee, either on
Employee's own account or for any person, film, company or other
entity, shall not solicit, interfere with or induce, or attempt to
induce, any employee of Employer, or any of its subsidiaries or
affiliates to leave their employment or to breach their employment
agreement, if any with Employer.
10. Covenant of Non-Disparagement, During the term of this
Agreement and for a period of five (5) years following the effective
date of the termination of the employment relationship. Employee shall
not make any remarks disparaging the conduct or character of Employer
or any of its subsidiaries or affiliates, their agents, employees,
officers, directors, successors, or assigns.
11. Covenant of Cooperation. Employee agrees to cooperate with
Employer in any litigation or administrative proceedings involving any
matters with which Employee was involved during his employment by
Employer. Employer shall reimburse Employee for reasonable expenses
incurred in providing such assistance.
12. Covenant Against Competition. During the term of this
Agreement and for a period of three (3) years following the effective
date of the termination of the employment relationship. Employee shall
not directly or indirectly engage in or become a partner, principal,
investor, creditor or stockholder of any business, proprietorship,
association, firm, corporation or any other business entity which is
engaged or proposes to engage or hereafter engages in any business
which competes with the business of Employer and/or any of its
subsidiaries or affiliates in any geographic area in which Employer
conducts business at the time of the termination of the employment
relationship.
13. Remedies. Notwithstanding any other provision in this
Agreement to the contrary. Employee acknowledges and agrees that if
Employee commits a material breach of the Covenant of Confidentiality
(Section 7), Covenant of Non-Disclosure (Section 8), Covenant of
Non-Solicitation (Section 9), Covenant of Non Disparagement (Section
10), Covenant of Cooperation (Section II), or the Covenant Against
Competition (Section 12), Employer shall have the right to have the
obligations of Employee specifically enforced by any court having
jurisdiction on the grounds that any such breach will cause irreparable
injury to Employer and money damages will not provide an adequate
remedy. Such equitable remedies shall be in addition to any other
remedies at law or equity,
5
<PAGE>
all of which remedies shall be cumulative and not exclusive. Employee
further acknowledges and agrees that the obligations contained in
Section 7 through 12, of this Agreement are fair, do not unreasonably
restrict Employee's future employment and business opportunities, and
are commensurate with the compensation arrangement set out in this
Agreement.
14. Survivability. Section 7 through 13, of this Agreement
shall survive termination of the employment relationship and this
Agreement.
15. General Provisions.
a. Notices. Any notices to be given hereunder by either party
to the other shall be in writing and may be effected by
personal delivery or by mail, registered or certified, postage
prepaid with return receipt requested. Notices delivered
personally shall be deemed communicated as of actual receipt.
Mailed notices shall be deemed communicated as of two (2) days
after mailing. Notice however sent, if received, shall be
effective and deemed communicated no later than time of
receipt.
b. Employer's address is:
2901 El Camino, Suite 206
Las Vegas, Nevada 89102
c. Employee's address is:
4008 Tyler William Lane
Las Vegas. Nevada 89130
Any such changes in the address for notice of either party shall be provided to
the other party within ten (10) days of such change.
d. Arbitration. Other than disputes concerning Section 7
through 13 of this Agreement, any controversy between Employer
and Employee involving the construction, application,
enforceability or breach of any of the terms, provisions, or
conditions of this Agreement, including without limitation
claims for breach of contract, violation of public policy,
breach implied covenant, intentional infliction of emotional
distress or any other alleged claims which are not settled by
mutual agreement of the parties, shall be submitted to final
and binding arbitration in accordance with the roles of the
American Arbitration Association. The cost of arbitration
shall be borne by the losing party. In consideration of each
party's agreement to submit to arbitration all disputes that
arise under this Agreement (except disputes involving Sections
7 through 13), each party agrees that the arbitration
provisions of this Agreement shall constitute his/her/its
exclusive remedy and each party expressly waives the right to
pursue redress of any kind in any other forum. The parties
farther agree that the arbitrator acting hereunder shall not
be empowered to add to, subtract from, delete or in any other
way modify the terms of this Agreement.
6
<PAGE>
e. Attorneys' Fees and Costs. If any action in law, equity,
arbitration or otherwise is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which
he/she/it may be entitled. The term "prevailing party" means
the party obtaining substantially the relief sought, whether
by compromise, settlement, award or judgement.
f. Authorization. Employer and Employee each represent and
warrant to the other that he/she/it has the authority, power
and right to deliver, execute and fully perform the terms of
this Agreement
g. Entire Agreement. Employee understands and acknowledges
that this documents constitutes the entire agreement between
Employee and Employer with regard to Employee's employment by
Employer and Employee's post-employment activities concerning
Employer. This Agreement supersedes any and all other written
and oral agreements between the parties with respect to the
subject matter hereof. Any and all prior agreements, promises,
negotiations, or representations' either written or oral,
relation to the subject matter of this Agreement not expressly
act forth in this Agreement are of no force and effect. This
Agreement may altered, amended, or modified only in writing
signed by all of the parties hereto. Any oral representations
or modifications concerning this instrument shall be of no
force and effect.
h. Severabilitv. If any term, provision, covenant, or
condition of this Agreement is held by a court or other
tribunal of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of such provisions and all of the
remaining provisions hereof shall remain in full force and
effect to the fullest extent permitted by law and shall in no
way be affected, impaired, or invalidated as a result of such
decision.
i. Governing Law. Except to the extent that federal law may
preempt Nevada law, this Agreement and the rights and
obligations hereunder shall be governed, construed and
enforced in accordance with the laws of the State of Nevada.
j. Taxes. All compensation payable hereunder is gross and
shall be subject to such withholding taxes and other taxes as
may be provided by law. Employee shall be responsible for the
payment of all taxes attributable to the compensation provided
by this Agreement except for those taxes required by law to be
paid or withheld by Employer.
k. Assignment. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of Employer.
Employee may not sell, transfer, assign, or pledge any of his
rights or interests pursuant to this Agreement.
l. Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed
as a waiver of any
7
<PAGE>
such provision or provisions, or prevent that party thereafter
from enforcing such provision or provisions and each and every
other provision of this Agreement.
M. Captions. Titles and headings to sections in this Agreement
arc for the purpose contained therein.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have read, understood, and
voluntarily executed this Agreement as of the day and year first above written.
EMPLOYEE EMPLOYER
- -----------------------------------
- -----------------------------------
MIKE WHITEAKER CEO
Date: Date:
------------------------------
------------------------------
<PAGE>
Exhibit 10.4
THE 2000 STOCK OPTION PLAN OF
SUNDERLAND CORPORATION
Sunderland Corporation, a Nevada corporation, has adopted The 2000
Stock Option Plan of Sunderland Corporation (the "Plan"), effective
_______________________, 2000, for the benefit of its eligible employees,
consultants, officers and directors. The Plan consists of two plans, one for the
benefit of key Employees (as such term is defined below), Independent Directors
(as such term is defined below) and consultants and a second solely for the
benefit of Independent Directors.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I
DEFINITONS
I.I General. Wherever the following terms are used in this Plan they
shall have the meaning specified below, unless the context clearly indicates
otherwise.
1.2 Board. "Board" shall mean the Board of Directors of the Company.
1.3 Change in Control. "Change in Control" shall mean a change in
ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the Company
or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company)
directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of
securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which the Board does
not recommend such stockholders to accept;
<PAGE>
(b) (b) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months (or less) such
that a majority of the Board members (rounded up to the
nearest whole number) ceases, by reason of one or more proxy
contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members
continuously since the beginning of such period or (ii) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in clause (i) who were still in office at the time
such election or nomination was approved by the Board.
1.4 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.5 Committee. "Committee" shall mean the Board or any Compensation
Committee of the Board, or another committee, or a subcommittee of the Board,
appointed as provided in Section 6.1.
1.6 Common Stock. "Common Stock" shall mean the common stock of the
Company.
1.7 Company. "Company" shall mean Sunderland Corporation, a Nevada
corporation.
1.8 Corporate Transaction. "Corporate Transaction" shall mean any of
the following stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal
purpose of which is to change the State in which the Company
is incorporated, form a holding company or effect a similar
reorganization as to form whereupon this Plan and all Options
are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all
or substantially all of the assets of the Company, in complete
liquidation or dissolution of the Company in a transaction not
covered by the exceptions to clause (a), above; or
(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person
or persons different from those who held such securities
immediately prior to such merger.
1.9 Director. "Director" shall mean a member of the Board.
1.10 Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401 (c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.11 Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
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1.12 Fair Market Value. "Fair Market Value" of a share of Common Stock
as of a given date shall be (i) the closing price of a share of Common Stock on
the principal exchange on which shares of Common Stock are then trading, if any
(or as reported on any composite index which includes such principal exchange),
on the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (ii) if Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by NASDAQ or such successor quotation system;
or (iii) if Common Stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Committee (or the Board, in the case of
grants to Independent Directors) acting in good faith.
1.13 Incentive Stock Option. "Incentive Stock Option" shall mean an
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
1.14 Independent Director. "Independent Director" shall mean a member
of the Board who is not an Employee of the Company.
1.15 Non-Qualified Stock Option. "Non-Qualified Stock Option" shall
mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.16 Option. "Option" shall mean a stock option granted under Article
III of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
1.17 Optionee. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under this Plan.
1.18 Plan. "Plan" shall mean The 2000 Stock Option Plan of Sunderland
Corporation.
1.19 QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended) or the rules thereunder.
1.20 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under
the Exchange Act, as such Rule may be amended from time to time.
1.21 Subsidiary. "Subsidiary" shall mean. (i) any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain and (ii) any
partnership or limited liability company in which the Company (A) directly or
indirectly holds a managing partner or managing member interest or (B) is
entitled to 50 percent or more of the profits or assets upon dissolution.
1.22 Termination of Consultancy. "Termination of Consultancy" shall
mean the time when the engagement of an Optionee as a consultant to the Company
or a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, by resignation, discharge, death or retirement;
but excluding terminations where there is a simultaneous commencement of
employment with the Company or any Subsidiary. The Committee, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Consultancy. Notwithstanding any other provision of this Plan,
the Company or any Subsidiary has an absolute and
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unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.23 Termination of Directorship. "Termination of Directorship" shall
mean the time when an Optionee who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a termination
by resignation, failure to be elected, death or retirement. The Board, in its
sole and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.
1.24 Termination of Employment. "Termination of Employment" shall mean
the time when the employee-employer relationship between an Optionee and the
Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i)terminations where
there is a simultaneous reemployment or continuing employment of an Optionee by
the Company or any Subsidiary, (ii)at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Employment; provided, however, that, with respect to
Incentive Stock Options, a leave of absence, change in status from an employee
to an independent contractor or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that, such leave of absence, change in status or other change interrupts
employment for the purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section. Notwithstanding
any other provision of this Plan, the Company or any Subsidiary has an absolute
and unrestricted right to terminate an Employee's employment at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO
PLAN
2.1 Shares Subject to Plan. The shares of stock subject to Options
shall be Common Stock, initially shares of the Company's Common Stock. The
aggregate number of such shares which may be issued upon exercise of such
options under the Plan shall not exceed Six Hundred Thousand (600,000) shares of
Common Stock. The shares of Common Stock issuable upon exercise of such options
may be either previously authorized but unissued shares or treasury shares.
2.2 Add-back of Options and Other Rights. If any Option, or other
right to acquire shares of Common Stock under any other award under this Plan,
expires or is canceled without having been fully exercised, or is exercised in
whole or in part for cash as permitted by this Plan, the number of shares
subject to such Option or other right but as to which such Option or other right
was not exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or withheld by
the Company upon the exercise of any Option under this Plan, in payment of the
exercise price thereof,
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may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of
Common Stock may again be optioned if such action would cause an Incentive Stock
Option to fail to qualify as an incentive stock option under Section 422 of the
Code.
ARTICLE III
GRANTING OF
OPTIONS
3.1 Eligibility. Any Employee, Independent Director or consultant
selected by the Committee pursuant to Section 3.4(a)(i) shall be eligible to be
granted an Option.
3.2 Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
3.3 Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code. No Incentive Stock Option shall be
granted to any person who is not an Employee.
3.4 Granting of Options:
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and
select from among the key Employees, Independent Directors or consultants
(including Employees. Independent Directors or consultants who have previously
received Options or other awards under this Plan) such of them as in its opinion
should be granted Options;
(ii) Determine the number of shares to be subject to
such Options granted to the selected key Employees, Independent Directors or
consultants;
(iii) Determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such Options
are to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code; and
(iv) Determine the terms sad conditions of such
Options, consistent with this Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not be limited
to, such terms and conditions as may be necessary to meet the applicable
provisions of Section 162(m) of the Code.
(b) Upon the selection of a key Employee, Independent Director
or consultant to be granted an Option, the Committee shall instruct the
Secretary of the Company to issue the Option and may impose such conditions on
the grant of the Option as it deems appropriate. Without limiting the generality
of the preceding sentence, the Committee may, in its discretion and on such
terms as it deems appropriate, require as a condition on the grant of an Option
to an Employee, Independent Director or consultant that the Employee,
Independent Director or consultant surrender for cancellation some or all of the
unexercised
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Options, or other rights which have been previously granted to him
under this Plan or otherwise. An Option, the grant of which is conditioned upon
such surrender, may have an option price lower (or higher) than the exercise
price of such surrendered Option or other award, may cover the same (or a lesser
or greater) number of shares as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option or other award.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
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ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board, in the case of grants to Independent Directors) shall
determine, consistent with this Plan. Stock Option Agreements evidencing Options
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code. Stock
Option Agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
4.2 Option Price. The price per share of the shares subject to each
Option shall be set by the Committee; provided, however, that such price shall
be no less than the par value of a share of Common Stock, unless otherwise
permitted by applicable state law, and (i) in the case of Incentive Stock
Options and Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted; (ii) in the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code) such price shall not be less than 110% of the Fair Market Value of a
share of Common Stock on the date the Option is granted; and (iii) in the case
of grants to Independent Directors, such price shall equal 100% of the Fair
Market Value of a share of Common Stock on the date the Option is granted;
provided, however, that the price of each share subject to each Option granted
to Independent Directors on the date of the initial public offering of Common
Stock shall equal the initial public offering price per share of Common Stock.
4.3 Option Term. The term of an Option shall be set by the Committee in
its discretion; provided, however, that, (i) in the case of grants to
Independent Directors, the term shall be ten (10) years from the date the Option
is granted, and (ii) in the case of Incentive Stock Options, the term shall not
be more than ten (10) years from the date the Incentive Stock Option is granted,
or five (5) years from such date if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy of
the Optionee, or amend any other term or condition of such Option relating to
such a termination.
4.4 Option Vesting;
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted. At any time after grant of an
Option, the Committee may, in its sole and absolute discretion and subject to
whatever terms and conditions it selects, accelerate the period during which an
Option.
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(b) No portion of an Option which is unexercisable at
Termination of Employment, Termination of Directorship or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as may
be otherwise provided by the Committee in the case of Options granted to
Employees, Independent Directors or consultants either in the Stock Option
Agreement or by action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
Subsidiary) exceeds $100,000.00, such Options shall be treated as Non-Qualified
Options to the extent required by Section 422 of the Code. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(c), the Fair
Market Value of stock shall be determined as of the time the Option with respect
to such stock is granted.
4.5 Consideration. In consideration of the granting of an Option, the
Committee may require the Optionee to agree, in the written Stock Option
Agreement, to remain in the employ of (or to consult for or to serve as an
Independent Director of, as applicable) the Company or arty Subsidiary for a
period of at least one year after the Option is granted or, in the case of an
Independent Director, to the end of such Independent Director's current Board
term (or such shorter period a-s may be fixed in the Stock Option Agreement or
by action of the Committee or the Board following grant of the Option). Nothing
in this Plan or in any Stock Option Agreement hereunder shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Optionee at any time for any
reason whatsoever, with or without good cause.
4.6 Other Terms. The Stock Option Agreement may contain such other
terms and conditions as the Committee may deem appropriate, including, but not
limited to, the granting of rights to require the Company to register the
securities received upon exercise; provided, however, that no term may be
included which would violate the terms of this Plan or any applicable law.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in whole
or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee (or the Board, in the case of Options
granted to Independent Directors) may require that, by the terms of the Option,
a partial exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option shall
be deemed exercised upon delivery of all of the following to the Secretary of
the Company or his office:
(a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options granted to
Independent Directors pursuant to Section 3.4(d)) stating that the Option, or a
portion thereof, is exercised. The notice shall be signed by the Optionee or
other person then entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee (or
the Board, in the case of Options granted to Independent Directors, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal
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or state securities laws or regulations. The Committee or Board may, in its
absolute discretion, also take whatever additional actions it deems appropriate
to effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant
to Section 7.1 by any person or persons other than the Optionee) appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee (or the Board, in the case of Options granted to
Independent Directors) may in its discretion (i) allow a delay in payment up to
thirty (30) days from the date the Option, or portion thereof, is exercised; or
(ii) allow payment, in whole or in part, through the delivery of shares of
Common Stock owned by the Optionee, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof.
5.3 Conditions to Issuance of Stock Certificates. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body which the Committee or Board shall, in its absolute discretion,
deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee (or Board, in the case
of Options granted to Independent Directors shall, in its absolute discretion,
determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
5.4 lights as Stockholders. The holders of Options shall not be, nor
have any of the rights or privileges of, stockholders of the Company in respect
of any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
5.5 Ownership and Transfer Restrictions. The Committee, in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Stock Option Agreement
and may be referred to on the certificates evidencing such shares. The Committee
may require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting such Option to such Employee or (ii) one
year after the transfer of such shares to such Employee. The Committee may
direct that the certificates evidencing shares acquired by exercise of an Option
refer to such requirement to give prompt notice of disposition.
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ARTICLE VI
ADMINISTRATION
6.1 Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under this Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
(i) a "non-employee director" (as defined by Rule l6b-3), (ii) to the extent
required by the applicable provisions of Rule l6b-3, a "disinterested person"
(as defined by Rule l6b-3) and (iii) an "outside director" for purposes of
Section 162(m) of the Code. Appointment of Committee members shall be effective
upon acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
6.2 Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options are granted or awarded, and to adopt
such rules for the administration, interpretation, and application of this Plan
as are consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to grants to Independent Directors. Any such grant or award under this
Plan need not be the same with respect to each Optionee. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
6.3 Majority Rule; Unanimous Written Consent. The Committee shall act
by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
6.4 Compensation; Professional Assistance; Good Faith Actions. Members
of the Committee shall receive such compensation for their services as members
as may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of this Plan shall be
borne by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Stockholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan or Options, and all members of the Committee and the Board
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Not Transferable. Options under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such rights or awards
have been exercised, or the shares underlying such rights or awards have been
issued, and all restrictions applicable to such shares have lapsed. No Option or
interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee, only he may exercise an Option or
other right or award (or any portion thereof) granted to him under the Plan,
unless it has been disposed of pursuant to a QDRO. After the death of the
Optionee, any exercisable portion of an Option or other right or award may,
prior to the time when such portion becomes unexercisable under the Plan or the
applicable Stock Option Agreement or other agreement, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
7.2 Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 7.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan, and no action of
the Committee may be taken that would otherwise require stockholder approval as
a matter of applicable law, regulation or rule. No amendment, suspension or
termination of this Plan shall, without the consent of the holder of Options,
alter or impair any rights or obligations under any Options theretofore granted
or awarded, unless the award itself otherwise expressly so provides. No Options
may be granted or awarded during any period of suspension or after termination
of this Plan, and in no event may any Incentive Stock Option be granted under
this Plan after the first to occur of the following events:
(a) The expiration often years from the date the Plan is adopted by the
Board;
(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under section 7.4.
7.3 (changes in Common Stock or Assets of the Company, Acquisition
or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 7.3(d), in the event that the Committee (or
the Board, in the case of grants to Independent Directors)
determines that any dividend or other distribution (whether in
the form of cash, Common Stock, other securities, or other
property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition,
of all or substantially all of the assets of the
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Company (including, but not limited to a Corporate
Transaction), or exchange of Common Stock or other securities
of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or
other similar corporate transaction or event, in the
Committee's sole discretion (or in the case of grants to
Independent Directors, the Board's sole discretion), affects
the Common Stock such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to
be made available under the Plan or with respect to an Option,
then the Committee (or the Board, in the case of grants to
Independent Directors) shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of
shares of Common Stock (or other securities or property) with
respect to which Options may be granted under the Plan
(including, but not limited to, adjustments of the limitations
in Section 2.1 on the maximum number and kind of shares which
may be issued), (ii) the number and kind of shares of Common
Stock (or other securities or property) subject to outstanding
Options, and (iii) the grant or exercise price with respect to
any Option.
(b) Subject to Sections 7.3(b)(vii) and 7.3(d), in the event of
any Corporate Transaction or other transaction or event
described in Section 7.3 (a) or any unusual or nonrecurring
transactions or events affecting the Company, any affiliate of
the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Committee (or the Board, in the
case of grants to Independent Directors) in its discretion is
hereby authorized to take any one or more of the following
actions whenever the Committee (or the Board, in the case of
grants to Independent Directors) determines that such action
is appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made
available under the Plan or with respect to any option, right
or other award under this Plan, to facilitate such
transactions or events or to give effect to such changes in
laws, regulations or principles:
(i) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee
(or the Board, in the case of grants to Independent Directors)
may provide, either by the terms of the agreement or by action
taken prior to the occurrence of such transaction or event and
either automatically or upon the optionee's request, for
either the purchase of any such Option for an amount of cash
equal to the amount that could have been attained upon the
exercise of such option, right or award or realization of the
optionee's rights had such option, right or award been
currently exercisable or payable or fully vested or the
replacement of such option, right or award with other rights
or property selected by the Committee (or the Board, in the
case of grants to Independent Directors) in its sole
discretion;
(ii) In its sole and absolute discretion, the
Committee (or the Board, in the case of grants to Independent
Directors) may provide, either by the terms of such Option or
by action taken prior to the occurrence of such transaction or
event that it cannot be exercised after such event;
(iii) In its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, the
Committee (or the Board, in the case of grants to Independent
Directors) may provide, either by the terms of such Option or
by action taken prior to the occurrence of such transaction or
event, that for a specified period of time prior to such
transaction or event, such option, right or award shall be
exercisable as to all shares covered thereby, notwithstanding
anything to the contrary in (i) Section 4.4 or (ii) the
12
<PAGE>
provisions of such Option;
(iv) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee
(or the Board, in the case of grant to Independent Directors)
may provide, either by the terms of such Option or by action
taken prior to the occurrence of such transaction or event,
that upon such event, such option, right or award be assumed
by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar
options, rights or awards covering the stock of the successor
or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of
shares and prices; and
(v) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee
(or the Board, in the case of grants to Independent Directors)
may make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to
outstanding Options and/or in the terms and conditions of
(including the grant or exercise price), and the criteria
included in, outstanding options which may be granted in the
future.
(vi) None of the foregoing discretionary terms of
this Section 7.3(b) shall be permitted with respect to Options
granted to independent Directors to the extent that such
discretion would be inconsistent with the applicable exemptive
conditions of Rule 16b'3. In the event of a Change in Control
or a Corporate Transaction, to the extent that the Board does
not have the ability under Rule 16b-3 to take or to refrain
from taking the discretionary actions set forth in Section
7.3(b)(iii) above, each Option granted to an Independent
Director shall be exercisable as to all shares covered thereby
upon such Change in Control or during the five days
immediately preceding the consummation of such Corporate
Transaction and subject to such consummation, notwithstanding
anything to the contrary in Section 4.4 or the vesting
schedule of such Options. In the event of a Corporate
Transaction, to the extent that the Board does not have the
ability under Rule 16b-3 to take or to refrain from taking the
discretionary actions set forth in Section 7.3(b)(ii) above,
no Option granted to an Independent Director may be exercised
following such Corporate Transaction unless such Option is, in
connection with such Corporate Transaction, either assumed by
the successor or survivor corporation (or parent or subsidiary
thereof) or replaced with a comparable right with respect to
shares of the capital stock of the successor or survivor
corporation (or parent or subsidiary thereof).
(c) Subject to Section 7.3(d) and 7.8, the Committee (or the Board, in
the case of grants to Independent Directors) may, in its discretion, include
such farther provisions and limitations in any Option as it may deem equitable
and in the best interests of the Company.
(d) With respect to Incentive Stock Options and Options intended to
qualify as performance-based compensation under Section 162(m), no adjustment or
action described in this Section7.3 or in any other provision of the Plan shall
be authorized to the extent that such adjustment or action would cause the Plan
to violate Section 422(b)( I ) of the Code or would cause such option or stock
appreciation right to fail to so qualify under Section 162(xn), as the case may
be, or any successor provisions thereto. Furthermore, no such adjustment or
action shall be authorized to the extent such adjustment or action would result
in short-swing profits liability under Section 16 or violate the exemptive
conditions ofRulel6b-3 unless the Committee (or the Board, in the case of grants
to Independent Directors) determines that the option or other award is not to
comply with such exemptive conditions. The number of shares of Common Stock
subject to any option, right or award shall always be rounded to the next whole
13
<PAGE>
number.
(e) In the event of any Corporate Transaction, each outstanding Option
shall, immediately prior to the effective date of the Corporate Transaction,
automatically become fully exercisable for all of the shares of Common Stock at
the time subject to such rights or fully vested, applicable, and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding right shall not so accelerate if and to the extent:
(i) such right is, in connection with the Corporate
Transaction, either to be assumed by the successor or survivor corporation (or
parent thereof) or to be replaced with a comparable right with respect to shares
of the capital stock of the successor or survivor corporation (or parent
thereof) or (ii) the acceleration of exercisability of such right is subject to
other limitations imposed by the Plan Administrator at the time of grant. The
determination of comparability of rights under clause (i) above shall be made by
the Plan Administrator, and its determination shall be final, binding and
conclusive.
7.4 Approval of Plan by Stockholders. This Plan will be submitted for
the approval of the Company's stockholders within twelve months after the date
of the Board's initial adoption of this Plan. Options may be granted prior to
such stockholder approval, provided that such Options shall not be exercisable
prior to the time when this Plan is approved by the stockholders, and provided
further that if such approval has not been obtained at the end of said
twelve-month period, all Options previously granted under this Plan shall
thereupon be canceled and become null and void.
7.5 Tax Withholding. The Company shall be entitled to require payment
in cash or deduction from other compensation payable to each Optionee of any
sums required by federal, state or local tax law to be withheld with respect to
the issuance, vesting or exercise of any Option. The Committee (or the Board, in
the case of grants to Independent Directors) may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee to elect to have
the Company withhold shares of Common Stock otherwise issuable under such Option
or other award (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.
7.6 Loans. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Option
granted under this Plan. The terms and conditions of any such loan shall be set
by the Committee.
7.7 Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to awards under the Plan, the
Committee (or the Board, in the case of grants to Independent Directors) shall
have the right (to the extent consistent with the applicable exemptive
conditions of Rule 16b-3) to provide, in the terms of Options or other awards
made under the Plan, or to require the recipient to agree by separate written
instrument, that (i) any proceeds, gains or other economic benefit actually or
constructively received by the recipient upon any receipt or exercise of the
award, or upon the receipt or resale of any Common Stock underlying such award,
must be paid to the Company, and (ii) the award shall terminate and any
unexercised portion of such award (whether or not vested) shall be forfeited, if
(a) a Termination of Employment, Termination of Consultancy or Termination of
Directorship occurs prior to a specified date, or within a specified time period
following receipt or exercise of the award, or (b) the recipient at any time, or
during a specified time period, engages in any activity in competition with the
Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Committee (or the Board, as applicable).
7.8 Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option granted .to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule
14
<PAGE>
16b-3 of the Exchange Act) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, the Plan and Options
granted hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule. Furthermore, notwithstanding any other provision
of this Plan or any Option intended to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code shall be subject to any
additional limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings issued
thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
7.9 Effect of Plan Upon Options and Compensation Plans. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i)to establish any other forms of incentives or
compensation for Employees. Independent Directors or consultants of the Company
or any Subsidiary or (ii) to grant or assume options or other rights otherwise
than under this Plan in connection with any proper corporate purpose including
but not by way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, partnership, firm or
association.
7.10 Compliance with Laws. This Plan, the granting and vesting of
Options under this Plan and the issuance and delivery of shares of Common Stock
under this Plan or under Options hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements) and
to such approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan or Option granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
7.11 Titles. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of this Plan.
7.12 Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Nevada without regard to conflicts of laws thereof.
15
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered effective as of December 1, 1999 by
and between SUNDERLAND CORPORATION, a Delaware corporation (the "Corporation"),
and Michael Shustek (the "Executive") with reference to the following facts:
WITNESSETH:
WHEREAS, the Corporation previously hired Executive in the position of
Chief Executive Officer of the Corporation; and
WHEREAS, there have been significant changes in the Corporation since
Executive"s employment; and
WHEREAS, in order to retain the services of the Executive and to
maximize the period of his continued availability, the Corporation desires to
enter into the Agreement with Executive as is more fully set forth herein.
NOW, THEREFORE, on the basis of the foregoing facts and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
1. Employment. The Corporation hereby agrees to, and does hereby,
employ the Executive and Executive hereby accepts employment with the
Corporation on the terms and conditions set forth in this Agreement (the
"Agreement").
2. Term. The term of this Agreement shall commence on December 1, 1999,
and shall continue for a period of three (3) years until November 30, 2002 (the
"Term"). After the original Term, this Agreement shall continue for successive
one (1) year periods unless either party hereto shall notify the other in
writing at least thirty (30) days prior to the end of the Term of their
intention of not renewing the same. The Corporation agrees not to terminate the
Executive during the Term except for Cause. Executive shall be considered
terminated, at the Executive"s election, if (i) there is a Change of Control of
the Corporation or (ii) a reduction in Executive"s duties, salary or position
with the Corporation.
3. Duties and Services.
a. The Corporation and the Executive hereby agree that,
subject to the provisions of this Agreement, the
Corporation will employ the Executive and the
Executive will serve the Corporation as Chief
Executive Officer during the Term.
<PAGE>
b. Executive agrees during the term of this Agreement
not to usurp a corporate opportunity for his own
financial gain. A corporate opportunity shall be
defined as a business opportunity which the
Corporation is financially able to undertake, is,
from its nature, in the line of the Corporation"s
business and is one in which the Corporation has an
interest or a reasonable expectancy. Executive agrees
that he shall offer a corporate opportunity to the
Corporation. The Corporation shall have ten (10) days
to either take the opportunity for itself or to
reject the opportunity in which case Executive shall
have the right to pursue such opportunity for
himself. Failure to notify Executive within such ten
(10) day period shall be deemed a rejection of the
opportunity by the Corporation.
4. Definitions. The following terms shall have the following meanings
when used herein:
a. Change of Control. For the purpose of this Agreement,
a "Change in Control" of the Corporation shall be
deemed to occur if any person or entity directly or
indirectly acquires ownership, control, power to
vote, or proxies representing more than thirty-five
percent (35%) of the Voting Stock of Sunderland, or
of any entity controlling Sunderland, or obtains
control of the election of a majority of the members
of the Board of Directors of Sunderland (the "Board")
or of any entity controlling Sunderland.
b. Cause. Cause shall exist when and only when Executive
(i) after receipt of written notification by the
Board of Directors or the CEO has wilfully failed and
continues to fail after such written notice for a
period of thirty (30) days to substantially perform
his duties (other than failure resulting from
incapacity due to physical or mental illness), (ii)
is convicted of a crime constituting a felony, or
(iii) has been proven to be dishonest, has embezzled
or has committed common law fraud ("for Cause").
5. Compensation.
a. As salary during the Term, the Corporation shall pay
the Executive, in accordance with its normal payroll,
a minimum annual salary of Seven Hundred Twenty
Thousand Dollars ($720,000) such salary to be paid no
less than bi-monthly during the Term. The Executive
shall receive such additional salary as the Board of
Directors of the Corporation may from time to time
determine during the Term. Unless expressly agreed in
writing by the parties hereto, no such additional
compensation or benefits shall be deemed to modify or
otherwise affect the terms or conditions of this
Agreement. Notwithstanding the foregoing if Executive
is terminated other than (i) for Cause, as defined
herein, or (ii) as a result of a Change of Control,
as defined herein, Executive shall be entitled to
twelve (12) months salary as severance
<PAGE>
as Executive"s sole and exclusive rights pursuant to
this Agreement. In the event of a Change of Control,
Executive shall be entitled to two (2) years salary,
as severance, provided Executive exercises his right
pursuant to this Agreement to treat such change of
control as a termination of this Agreement. In the
event Executive does not exercise his right to be
terminated upon a Change of Control the Executive
shall continue his employment pursuant to the Salary
Continuation Agreement. In the event Executive is
terminated other than for cause or there is a Change
in Control, all obligations to pay Executive shall be
due and owed in a lump sum payment exactly thirty
(30) days from the earlier of the date of
termination, the date of the Change of Control and/or
the date Executive elects termination pursuant to the
provisions of Paragraph 2 hereof.
b. Executive shall receive an automobile and living
allowance in the amount of One Thousand Dollars
($1,000) per month during the Term.
6. Other Benefits. During the Term the Executive shall receive all
rights and benefits for which he is then eligible under any employee benefit
plan or bonus plan which the Corporation generally provides for its employees.
Such benefits shall include, but not be limited to, a bonus plan, which shall be
explicitly set forth by the Corporation"s Board of Directors within one hundred
eighty (180) days of the execution of this Agreement, and full medical, dental
and health insurance for Executive. Further, Executive shall receive disability
insurance guarantying payments equal to sixty percent (60%) of his salary.
7. Grant of Options and Warrants to Acquire Stock.
a. Corporation acknowledges that it currently has plans
to adopt a qualified stock option plan at the next
annual meeting of shareholders and that Executive
will be covered under such plan. Further, Corporation
guarantees Executive will receive, whether such stock
option plan is adopted or not, a minimum of Two
Hundred Thousand (200,000) options upon adoption of
the stock option plan, that such options will vest
subject only to the passage of time, and that the
exercise price will not be in excess of the closing
price of the publicly traded shares on the last day
of any such twelve (12) month period. The parties
further agree that a mutually satisfactory agreement
shall be entered into between the Corporation and
Executive no later than thirty (30) days from the
date of the next annual meeting of Shareholders.
b. Corporation within one hundred twenty (120) days from
the date of this Agreement shall grant to Executive
warrants to acquire fifty thousand (50,000) shares of
the Corporation"s common stock, at the closing bid
price on the date such warrants are issued, pursuant
to the terms and conditions of the Warrant Agreement
attached hereto as Exhibit A.
<PAGE>
8. Death or Disability. In the event of the death of the Executive or
the disability of the Executive, this Agreement shall immediately terminate and
the Corporation shall pay to the Executive or his estate one (1) year"s salary
in a single lump sum payment which payment shall be due and payable upon the
sooner of (i) thirty (30) days of Executive"s death or (ii) thirty (30) days
after Executive is declared by his physician incapable of performing his duties
as specified in this Agreement. The Corporation shall have the right to fund
Executive"s death and/or disability benefit through life insurance.
9. Place of Performance. In connection with his employment by the
Corporation during the Term, the Executive shall at all times be entitled to an
office at the principal executive offices of the Corporation, located in Las
Vegas, Nevada, or at such other office of the Corporation, in Las Vegas, Nevada,
as the Chief Executive Officer of the Corporation shall, in his reasonable
discretion deem to be in the best interest of the Corporation. In the event the
Corporation moves its principal place of business outside of Las Vegas, Nevada,
Executive at his option shall have the right to terminate this Agreement and
receive the greater of such salary due him for the remaining Term of this
Agreement but in no event less than twelve (12) months" salary or to cause the
Corporation to maintain an office in Las Vegas, Nevada for the Executive during
the Term..
10. Outside Activities and Non-Competition.
a. Covenant Not to Compete. Executive recognizes that
the Corporation"s decision to enter into this
Agreement is induced primarily because of the
covenants and assurances made by Executive, that
Executive"s covenant not to compete is necessary to
ensure the continuation of the business of the
Corporation and the reputation of the Corporation,
and that irrevocable harm and damage will be done to
the Corporation if Executive competes with the
Corporation. Therefore, Executive agrees that during
the term of this Agreement and for a period of one
(1) year following termination of this Agreement,
Executive shall not, directly or indirectly, as an
employee, employer, contractor, consultant, agent,
principal, shareholder, corporate officer, director,
or in any other individual or representative
capacity, engage or participate in any business or
practice within the Practice Territory that is in
competition in any manner whatsoever with the
business of the Corporation without the written
permission of the Corporation. The term "in
competition in any manner whatsoever with the
business of the Corporation" shall include the
practice of accounting in the Practice Territory and
engaging in the mortgage business in the State of
Nevada. Practice Territory shall be defined as any
area in which the Corporation has an office or
conducts business. Executive agrees:
(i) If Executive should set up an office within
the Practice Territory in competition with
the business of the Corporation, it would
cause economic harm and loss of goodwill to
the Corporation resulting in immediate and
irreparable loss, injuries, and damage to
the Corporation.
<PAGE>
(ii) Notwithstanding anything to the contrary in
this Section 10, Executive is not prohibited
from owning less than five percent (5%) of
the equity of any publicly traded entity.
b. Enforcement. The Corporation and Executive further
agree that if any restriction in this Article is held
by any court to be unenforceable or unreasonable, a
lesser restriction will be enforced in its place and
the remaining restrictions in this Agreement will be
enforced independently of each other. In any action
to enforce any provision of this Article 10, the
court may award reasonable attorneys" fees, costs,
and expenses to the prevailing party. Notwithstanding
the prior provisions of this Article, Executive shall
be immediately released from the restrictive covenant
in this Article and may practice in competition with
the Corporation within the Practice Territory after
the termination of this Agreement by purchasing the
covenants described in this Article 10.a. The parties
believe that reasonable compensation to the
Corporation for the release of Executive from the
restrictive covenants of this Article 10 would be
Fifty Thousand Dollars ($50,000.00), which is the
Corporation"s anticipated costs of recruiting and
training a replacement for Executive. Executive
promises to pay, and the Corporation agrees to
accept, that amount as consideration if Executive
should desire to be released from the restrictive
covenants of this Article 10.
c. Survival. The provisions of this Article 10 shall
survive the termination of this Agreement for one (1)
year.
11. Confidentiality of Information.
a. Confidential Information. Executive agrees to keep
confidential and not to use or to disclose to others
during the term of this Agreement and for a period of
five (5) years thereafter, except as expressly
consented to in writing by the Corporation or
required by law, any secrets or confidential
technology, proprietary information, patient lists,
or trade secrets of the Corporation, or any matter or
thing ascertained by Executive through Executive"s
affiliation with the Corporation, the use or
disclosure of which matter or thing might reasonably
be construed to be contrary to the best interest of
the Corporation, the use or disclosure of which
matter or thing might reasonably be construed to be
contrary to the best interests of the Corporation.
This restriction shall not apply to any information
that (i) is or becomes generally available to and
known by the public (other than as a result of an
unpermitted disclosure directly or indirectly by
Executive or Executive"s affiliates, advisors, or
representatives); (ii) is or becomes available to
Executive on a nonconfidential basis from a source
other than the Corporation or its
<PAGE>
affiliates, advisors, or representatives, provided
that, at the time of disclosure to Executive,
Executive is not aware that such source was bound by
a confidentiality agreement with or other obligation
of secrecy to the Corporation; or (iii) has already
been or is hereafter independently acquired or
developed by the Corporation; without violating any
confidentiality agreement with or other obligation of
secrecy to the Corporation.
b. Departure. Except as provided herein, should
Executive leave the employment of the Corporation,
Executive will neither take nor retain, without prior
written authorization from the Corporation, any
papers, client lists, fee books, client records,
files, or other documents or copies thereof or other
confidential information of any kind belonging to the
Corporation pertaining to the Corporation"s clients,
business, sales, financial condition, or products.
Without limiting other possible remedies to the
Corporation for the breach of this covenant,
Executive agrees that injunctive or other equitable
relief shall be available to enforce this covenant,
such relief to be without the necessity of posting a
bond, cash or otherwise. Executive further agrees
that if any restriction contained in this paragraph
is held by any court to be unenforceable or
unreasonable, a lesser restriction shall be enforced
in its place and remaining restrictions contained
herein shall be enforced independently of each other.
c. Exceptions.
(i) Executive shall not be prohibited from
releasing any confidential or proprietary
information to Executive"s legal counsel or
financial advisors, provided that Executive
places such advisors under legal obligation
not to disclose the confidential
information.
(ii) It shall not be a breach of Executive"s
covenants under this Article 11 if a
disclosure is made pursuant to a court
order, a valid administrative agency
subpoena, or a lawful request for
information by an administrative agency.
Executive shall give the Corporation prompt
notice of any such court order, subpoena, or
request for information.
12. Notice. All Notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
after delivery to any overnight courier, or when transmitted by facsimile
transmission facilities, and addressed to the party to be notified as follows:
If to Corporation at: 2901 El Camino, Suite 206
Las Vegas, Nevada 89102
<PAGE>
If to Executive at:
13. Miscellaneous.
a. This Agreement shall inure to the benefit of and be
binding upon the Corporation, its successors and
assigns. This Agreement may not be assigned by the
Corporation without the prior written consent of the
Executive. The obligations and duties of the
Executive hereunder shall be personal and not
assignable.
b. Whenever possible, each provision of this Agreement
shall be interpreted in such a neater as to be valid
and effective under applicable law, but if any
provision of this Agreement is found to be prohibited
or invalid under applicable law, such provision will
be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such
provision or the remaining provisions of this
Agreement.
c. For purposes of this Agreement an "affiliate" of a
person shall include any person, firm, corporation,
association, organization, or unincorporated trade or
business that, now or hereinafter directly or
indirectly, controls, or is controlled by, or
practices is under common control with such person.
d. Any waiver, alteration or modification of any term of
this Agreement will be valid only if made in writing
and signed by the parties hereto. Each party hereto
from time to time may waive any of his or its rights
hereunder without effecting a waiver with respect to
any subsequent occurrences or transactions hereunder.
e. Captions and paragraph heading used herein are for
convenience only are not a part hereof and shall not
be used in construing this Agreement.
f. This Agreement constitutes the entire understanding
and agreement of the parties and, except as otherwise
provided hereunder, there are no other agreements or
understandings, written or oral, in effect between
the parties relating to the employment of the
Executive by the Corporation during the Term. AU
prior negotiations or agreements, if any, between the
parties relating solely to the employment of the
Executive by the Corporation during the Term are
hereby superseded.
g. This Agreement shall be governed by and interpreted
in accordance with the
<PAGE>
laws of the State of Nevada.
h. This Agreement may be executed in counterparts, each
of which shall be deemed an original,, but both of
which taken together shall constitute one and the
same instrument.
14. Arbitration. Any controversy between the parties hereto, including
the construction or application of any of the terms, covenants or conditions of
this Agreement, shall on written request of one party served on the other be
settled exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect. The arbitrator selected must be a member
of the National Academy of Arbitrators and must have significant experience in
arbitrating labor disputes. Further, the Arbitrator must be an attorney
practicing labor law in the Southern California area. The cost of such
arbitration shall be borne by the losing party or in such proportions as the
Arbitrator(s) shall decide. Judgment may be entered on the arbitrator's award in
any court of competent jurisdiction.
15. The Executive's Employment. Nothing contained in this Agreement (i)
obligates the Corporation or any subsidiary of the Corporation to employ the
Executive 'in any capacity whatsoever, or (ii) prohibits or restricts the
corporation (or any such subsidiary) from terminating the employment, if any, of
the Executive at any time or for any reason whatsoever,,with or without cause,
subject to the terms and conditions of this Agreement.
IN WITNESS WHEREOF, this Agreement is effective as of the day and year
first above written.
WITNESS: EXECUTIVE
- ------------------------------------ ------------------------------------
Michael Shustek
SUNDERLAND CORPORATION,
a Delaware corporation
By:
- ------------------------------------ ---------------------------------
Name:
Title:
EXHIBIT A
<PAGE>
WARRANT AGREEMENT
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Capsource, Inc., a Nevada corporation
DM Mortgage Investors, LLC,
a Nevada limited liability company
