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As filed with the Securities and Exchange Commission on October 7, 1999
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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LORACA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Nevada 87-0555751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5600 Wyoming Boulevard, N.E.
Suite 150
Albuquerque, New Mexico 87109
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (505) 856-0111
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Securities registered under Section 12(b) of the Exchange Act:
Title of Name of each exchange on
Each Class which registered
Common Stock Nasdaq National Market
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
(Title of class)
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FORWARD-LOOKING STATEMENTS
This Form 10 contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "intend," "anticipate," "believe,"
"estimate," "project" and "continue" or similar words. You should read
statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our financial condition; or (3) state other "forward-looking" information.
We believe it is important to communicate our expectations; however, there may
be events in the future that we are not able to predict accurately or over which
we have no control. Our actual results may differ materially from the
expectations we describe in forward-looking statements. Factors that could
cause actual results to differ materially from those we describe include, but
are not limited to, adverse economic conditions in the United States and
particularly in the West, interest rate fluctuations, federal and state
regulatory changes, a decline in the popularity of the Internet, the ability to
manage our growth, implement our strategy and adapt to technological change,
competition, a decline in real estate prices and Year 2000 issues. Forward-
looking statements below should be read in light of these factors.
Unless required by law, we undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Consequently, you should carefully review the risk factors
set forth in other reports or documents which we file from time to time with the
Securities and Exchange Commission, particularly our Annual Reports on Form 10-
K, our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
Item 1. Business.
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Overview
Loraca International, Inc.
Loraca International, Inc. ("Loraca") is a financial services holding company.
It was formed on March 11, 1996, as a Nevada corporation and currently operates
a mortgage bank through its wholly-owned subsidiary, NMMC, Inc. ("NMMC," and
together with Loraca, the "Company"), headquartered in Lake Oswego, Oregon. NMMC
is a New Mexico corporation which was formed on March 28, 1986, under the name
B.C. Trucking, Inc. In 1991, NMMC commenced loan originations and changed its
name to New Mexico Mortgage Co., Inc. In December 1998, the name New Mexico
Mortgage Co., Inc. was changed to NMMC, Inc. NMMC is currently focused on the
origination and sale of non-prime mortgage products in certain western states
and is doing business as New Mortgage Millenium Corp. All of the outstanding
capital stock of NMMC was acquired by Loraca in a purchase transaction on
February 23, 1998.
From 1991 through early 1999, NMMC originated primarily single family,
conventional and government insured mortgage loans. Commencing in March 1999,
NMMC began to shift its focus to origination of non-prime mortgage loans under
the direction of a new management team. See Item 5, Directors and Executive
Officers. As part of its new strategic focus, NMMC closed its retail lending
operations in Albuquerque, New Mexico and Irvine, California and relocated its
principal offices to Lake Oswego, Oregon.
The Mortgage Market
The mortgage market may be broadly divided into four major segments today:
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. mortgage origination - sourcing, verification and documentation of mortgage
loans, typically done by mortgage brokers and lenders;
. mortgage lending - underwriting, funding and selling closed loans to
mortgage loan investors;
. capital markets - providing liquidity for sales into the secondary market;
and
. servicing - ongoing billing, collection and foreclosure/asset management.
Consumers generally seek mortgage loans to finance a home purchase or to
refinance existing mortgage debt. In some cases, a borrower may refinance for
more than the existing mortgage amount and use the proceeds generated for other
purposes. Mortgage loans are originated through two primary lending channels,
frequently referred to as retail and wholesale. Retail lenders work directly
with consumers, while wholesale lenders work with mortgage brokers or purchase
closed loans from other lenders.
Mortgage Broker Businesses
Mortgage broker businesses are typically small, local enterprises that
increasingly lack the financial resources and technological capability to
compete with financially stronger and more established competitors. In
particular, they generally lack access to the technology necessary to determine
borrower eligibility quickly and to search and analyze available mortgage
products to find the best match for their customers. Because of the complex
nature of the mortgage loan process and the preference of many consumers for
personal contact, the Company believes that local mortgage brokers will continue
to be an integral and important part of the mortgage lending business. However,
as technology advances make it easier for consumers to deal directly with
lenders, the Company believes that mortgage brokers will need to find new ways
to compete more effectively for the consumer's business.
Market Opportunity for the Online Mortgage Origination
Management of the Company believes that mortgage lending is well suited to an
Internet-based distribution model for a number of reasons, including:
. mortgages are information products that need no physical delivery or
warehousing;
. pending mortgage lending transactions can be tracked more efficiently
through the use of graphical and dynamic real-time presentations over the
Internet;
. borrower data can be rapidly transmitted by mortgage originators to mortgage
lenders through the Internet, allowing automated underwriting and
streamlined overall processing; and
. local offices and expenses associated with the traditional distribution
model are reduced.
Consequently, the Company believes a significant market opportunity exists for
an easy to use online service aimed at mortgage originators with a broad
selection of products and services.
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Loraca's Business Strategy
Loraca's business strategy is to build upon its existing mortgage banking
platform and grow its customer base by: (i) expanding its mortgage banking
platform; (ii) offering conventional mortgage products; (iii) developing an
Internet mortgage lending and delivery system to reduce mortgage loan processing
times and enhance existing distribution channels; (iv) creating brand
recognition around its proprietary Internet domain names (including
"NM\\2\\C.com"); and (v) exploring potential acquisition opportunities and
strategic alliances to enlarge its operations in the above areas.
Expansion of Mortgage Banking Platform
Through NMMC, the Company currently originates non-prime mortgages under the
name New Mortgage Millenium Corp. Non-prime mortgages have historically been
the most profitable and least interest rate sensitive mortgage products. The
Company intends to expand its non-prime operations into additional states by
obtaining licenses to transact business in most of the United States, and will
add to its sales force to create additional sales volume.
Additional Mortgage Loan Products
The Company plans to offer additional mortgage loan products through
conventional and electronic-based distribution channels, including conforming
mortgage loans, jumbo mortgage loans and second mortgage loans.
Development of Internet Mortgage Loan Processing and Delivery System
The Company has contracted with J. A. Young & Co., Inc., a Bellevue,
Washington based technology consulting firm ("J. A. Young") to develop an
interactive electronic database which will automate many aspects of the loan
application, underwriting and approval process. Management of the Company
believes that such automation will result in (i) decreased loan processing
times; (ii) increased productivity; (iii) lower processing costs; and (iv)
broader distribution channels for the offer and sale of the Company's products.
Create Brand Recognition
The Company intends to create brand recognition by establishing websites under
Internet domain names which it has reserved, including "NM\\2\\C.com." The
Company plans to launch both traditional and online marketing campaigns to
increase customer awareness and penetrate its target markets.
Explore Potential Acquisitions
The Company intends to pursue acquisition opportunities, as they arise, as the
primary means of expanding its mortgage banking platform for conventional loans.
In evaluating any acquisition candidate, the Company will analyze several
strategic characteristics, including the candidate's geographic location(s), the
types of products or services it provides, existing distribution channels, the
presence and strength of local competition, the regulations applicable to the
candidate and the structure of the transaction. The Company may purchase
candidates which meet its criteria with cash, equity or debt securities or some
combination of the foregoing.
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Products and Services
The following is a description of the types of mortgage loan products that the
Company offers or intends to offer. All of these loans will be sold to various
institutional investors. Products are designed primarily to satisfy these
investors' criteria.
Conforming Mortgage Loans
Conforming mortgage loans are mortgage loans that conform to the underwriting
standards established by one of the two government-sponsored mortgage entities -
- - the Federal National Mortgage Association ("Fannie Mae") or the Federal Home
Loan Mortgage Association ("Freddie Mac").
Jumbo Mortgage Loans
Jumbo mortgage loans exceed the maximum loan size for a conforming mortgage
loan (currently $240,000 for a single-family home), but otherwise satisfy the
underwriting guidelines established by Fannie Mae or Freddie Mac.
Alternative A Mortgage Loans
Alternative A mortgage loans fail to satisfy one or more elements of the jumbo
or Fannie Mae/ Freddie Mac loan underwriting criteria, such as those relating to
documentation, employment history, income verification, loan-to-value ratios,
credit history, qualifying ratios or borrower net worth.
Second Mortgage Loans
Second mortgage loans are mortgage loans secured by second liens on the
underlying property. These loans are designed primarily for high credit quality
borrowers and are underwritten according to the standards of the investor to
which the loans will be sold. Second mortgage loans are "closed-end," that is
they are fixed in amount at the time of origination and typically amortize over
the term of the loan or have a balloon payment feature at maturity, and
generally bear fixed interest rates.
Non-Prime Mortgage Loans
Non-prime mortgage loans consist of mortgage loans to borrowers who have
impaired or limited credit profiles or higher debt-to-income ratios than would
be acceptable for sale of such loans to Fannie Mae or Freddie Mac. Such mortgage
loans may also fail to satisfy the underwriting criteria of the government-
sponsored entities in other ways, including loan amount and distinctiveness of
property characteristics.
Sales and Marketing
The Company intends to sell its mortgage loan products (i) through its direct
sales force and (ii) online over the Internet. As of September 30, 1999, the
Company employed 13 salespeople marketing to small mortgage brokers and calling
upon accounts in states in which the Company operates. The Company is in the
process of developing websites to offer the Company's products online to
mortgage brokers, mortgage bankers, credit unions and community banks under the
domain name "NM\\2\\C.com."
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The Company plans to use both traditional and online marketing strategies as
well as sales executives to maximize customer awareness and enhance brand
recognition. Traditional advertising efforts will include print campaigns and
promotions at trade shows aimed at building nationwide brand awareness with the
Company's customers. In addition to its advertising campaign through traditional
mediums, the Company intends to enter into affiliations with its customers and
other financial services-related companies to cross-market products. Online
partnering arrangements may include (i) private label marketing arrangements
with mortgage banks, mortgage brokers, community banks, credit unions and real
estate brokers, whereby the Company will provide them with websites linked to
the Company's own websites, (ii) placing links and banner advertisements on
partners' websites and (iii) establishing mortgage loan monitoring services for
those partners' customers.
The Loan Process
Technology
The Company is currently developing technology aimed at the mortgage
origination business under the primary domain name "NM\\2\\C.com." Each mortgage
originator may apply with the Company to receive an account number and password.
The mortgage originator may then access the Company's system and input
information about a potential borrower into the Company's database. Within
minutes, the mortgage originator will receive a decision. If a pre-approval is
granted, the notification will include a list of those items required to
complete the lending process. Alternatively, the Company's proprietary
technology will provide the mortgage originator with alternative mortgage
products for which the borrower may qualify. The mortgage originator may then
track in real time the status of all loan requests submitted under its account.
The Company believes that its technology will reduce the processing time
between receipt of borrower information and loan approval, allow mortgage banks,
mortgage brokers, community banks and credit unions to increase their
transaction volumes and shorten the period of time in which the borrower may be
lost to the competition. In addition, the Company believes that earlier
approvals may result in (i) shorter sale times (and lower inventories) for
builders and developers and (ii) higher closing ratios and quicker realization
of commissions by real estate agents. Further, the Company believes that
increased automation of the mortgage loan approval process will ultimately
reduce the cost of providing a loan, which savings may then be passed on to the
borrower.
Underwriting
Automated underwriting ("AU") is expected to contribute significantly to the
Company's goal of greater efficiency in the lending process by providing the
Company's customers with faster, more cost-efficient credit reviews and
decisions. In addition, the Company believes that integration of existing AU
systems with the AU system of the Company will increase a mortgage originator's
capture rate. The Company intends to continue to invest substantial resources
into improving its AU capabilities. Because it does not hold mortgage loans for
investment purposes, the Company underwrites each mortgage loan to composite
criteria compiled from multiple investors. Such criteria generally involve a
review and analysis of a potential borrower's:
. overall credit history, with an emphasis on mortgage and installment debt;
. employment and income; and
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. subject property value and characteristics.
Quality Assurance and Control
Prior to funding a loan, the Company performs a pre-closing audit to ensure
that the loan meets investor requirements. The pre-closing audit includes:
. generation of a new credit report (depending upon the amount of time which
has elapsed between approval and funding);
. a verbal verification of current employment; and
. a lien search on the subject property.
The Company's quality control provider continuously samples closed loans (i)
to verify compliance with legal documentation requirements, (ii) to ensure
accuracy, and (iii) to help prevent fraud. Quality control reviews enable the
Company to monitor, evaluate and improve the overall quality of loan production
and to identify potential underwriting problems. The Company currently utilizes
the services of an independent outside quality control provider. Each month, the
quality control provider reviews a random 10% sample of loans funded by us. This
examination includes:
. a credit underwriting review;
. a completed loan package re-verification;
. a loan program compliance review; and
. a federal regulatory compliance review.
Every loan selected for review undergoes a complete re-verification of
employment, deposit, mortgage and rental history. A new residential mortgage
credit report is ordered on 10% of the selected loans, while a new review
appraisal may be ordered on another 10% of the selected loans. This review is
intended to detect evidence of fraudulent documentation and/or irregularities in
the processing, funding, servicing or selling of the mortgage loan.
Verification of occupancy and applicable information is made by regular mail.
Over each 12-month period, the Company's quality control provider is required to
examine loans of all product types (from all states of origination) and all
loans with high-risk characteristics. Quality control reports produced by the
outside quality control provider include individual loan overviews, loan group
overviews and key trends or patterns summarized on a monthly and year-to-date
basis. To date, these quality control reviews have not uncovered any material
deficiencies.
Loan Sales
The Company currently sells all mortgage loans that it funds along with the
mortgage loan servicing rights to various institutional investors. The Company
determines the investor following a comparison of prices available for each loan
to be sold, an analysis of market conditions at the time of sale and a review of
the risk profile of the mortgage loan to be sold.
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Recourse and Repurchases
The Company reduces its prepayment and default risk (other than first-payment
defaults) by selling all of the mortgage loans which it closes. However, in
connection with its whole-loan sales, the Company typically makes
representations and warranties to the purchasers of the loans relating to, among
other things: (i) compliance with applicable laws, regulations and program
standards and (ii) the accuracy of the information provided by the Company to
the purchaser. The Company's loan sale agreements with institutional investors
generally require it to repurchase mortgage loans if the representations made in
the agreement are materially inaccurate or if the warranties are breached. In
addition, the Company may be required to indemnify the investors for any damages
caused by such breach.
If a repurchase request is made, the Company typically attempts to remedy the
breach and seek a rescission of the repurchase request. In the event the
Company is unable to remedy the breach or obtain a rescission of the repurchase
request, it may refinance or sell the subject mortgage loan to another investor,
sometimes at a loss. Additionally, in connection with some non-prime mortgage
loan sales, the Company may be required to return a portion of the premium
received upon the sale of the mortgage loan if the loan is prepaid by the
borrower within the first year after sale, net of any prepayment penalty
collected. The Company has attempted to minimize the risk of a loan rejection
and repurchase request through its quality assurance program which monitors the
entire mortgage loan process. If the Company is required to repurchase loans
originated for or sold to investors, its operating results could be materially
adversely affected.
Warehouse Financing
The Company relies upon warehouse financing facilities to support its loan
originations prior to sale. The Company borrows money on a short-term basis
through warehouse lines of credit during the period from loan origination to
sale. The Company has established (i) a $5,000,000 warehouse line of credit
with The Provident Bank which may be terminated at any time by The Provident
Bank and (ii) a $5,000,000 warehouse line of credit with Sterling Bank & Trust
which matures on January 7, 2000. As of September 30, 1999, the Company had
borrowed $1,070,302 from The Provident Bank and had no outstanding borrowings
under its agreement with Sterling Bank & Trust.
The Company's agreements with the Provident Bank and the Sterling Bank & Trust
require it to comply with various operating and financial covenants. These
covenants restrict the Company's ability to, among other things, sell any of its
assets or merge or consolidate with another company. The Company intends to
increase and diversify further its short-term funding capabilities and continue
to identify and pursue alternative and supplementary sources to finance its
mortgage loan originations.
Interest Rate Risk Management
The Company currently sells all loans that it originates together with the
loan servicing rights on a whole loan basis. The Company's loans are sold on
either a pre-approved basis or in bulk transactions within 60 days following
origination on a best-efforts basis. Due to (i) the limited period of time in
which the Company holds the mortgage loans it originates and (ii) the lower
interest-rate sensitivity of the Company's non-prime mortgage loan products, the
Company does not currently engage in hedging transactions.
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Government Regulation
The residential mortgage financing industry is highly regulated. The Company
must comply with extensive and complex rules and regulations of, and licensing
and examination by, various federal, state and local government authorities.
These rules impose obligations and restrictions on the Company's lending
activities. In particular, these rules (i) limit the broker fees, interest
rates, finance charges and other fees the Company may assess, (ii) require
extensive disclosure to the borrower, (iii) prohibit discrimination and (iv)
impose multiple qualification and licensing obligations upon the Company.
Failure to comply with these requirements may result in, among other things,
revocation of required licenses or registrations, loss of approval status,
voiding of loan contracts or security interests, indemnification liability or
the obligation to repurchase mortgage loans sold to mortgage loan purchasers,
rescission of mortgage loans, class action lawsuits, administrative enforcement
actions and civil and criminal liability. The Company believes that it is in
compliance with these rules and regulations.
As a mortgage company which intends to do business over the Internet, the
Company faces an additional level of regulatory risk since the statutes and
regulations governing mortgage transactions have not been revised or updated to
fully accommodate electronic commerce. Most of the federal and state laws,
rules and regulations governing mortgage loans contemplate or assume paper-based
transactions and do not currently address the delivery of required disclosures
and other documents through electronic communications. Until the applicable
laws, rules and regulations are revised to clarify their applicability to
transactions through e-commerce, any company offering mortgage loans through the
Internet or other means of e-commerce will face uncertainty as to legal
compliance. Moreover, there is no assurance that revisions to the laws, rules
and regulations will be adopted and, if adopted, will be timely or adequate to
eliminate this uncertainty.
At the state level, the Company must comply with licensing and regulation in
most of the states where it acts as a mortgage broker or lender. In addition,
any person who acquires 10% or more of the Company's stock may be required to
periodically file certain financial information and other personal and business
information pursuant to state licensing regulations. If any person holding 10%
or more of the Company's stock refuses or fails to comply with these filing
requirements, the Company's existing licensing arrangements could be
jeopardized. The loss of required licenses could have a material adverse effect
on the Company's results of operations and financial condition.
State laws limit the origination fees, interest rates, finance charges and
other fees that the Company may assess, including late charges, insufficient
funds charges for returned checks and prepayment penalties, and may require
payment of interest on escrow balances. State laws may also require extensive
disclosure to the Company's customers concerning fees and charges, brokerage
agreements, lock-in agreements and commitments, alternative mortgage
transactions, escrows for taxes and insurance, choosing settlement attorneys and
insurance agents and private mortgage insurance, among others. These laws
regulate both the content and timing of disclosures. In addition, many state
laws regulate advertising claims in connection with the solicitation of mortgage
loan applications. State and federal laws also prohibit unfair and deceptive
trade practices in the mortgage finance business. The Company believes that it
has obtained all licenses material to its business in the jurisdictions where it
is currently operating, and is substantially in compliance with the laws of
these jurisdictions.
At the federal level, the Company's mortgage brokering and lending activities
are regulated under a variety of laws, including, but not limited to, the Truth
in Lending Act and Regulation Z
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("TILA"), the Equal Credit Opportunity Act and Regulation B ("ECOA"), the Fair
Housing Act, the Fair Credit Reporting Act ("FCRA"), the Real Estate Settlement
Procedures Act and Regulation X ("RESPA"), the Home Mortgage Disclosure Act of
1975 and Regulation C ("HMDA") and the Flood Disaster Protection Act ("FDPA").
These statutes generally require detailed disclosure of information concerning
mortgage loans, and they regulate the manner in which loans are made, including
advertising, disclosure of consumer information, servicing (and transfer of
servicing) of mortgage loans, payments for settlement services and reporting of
consumer data. These laws regulate both the content and timing of disclosures.
The Company believes that it is operating substantially in compliance with the
laws applicable to its business.
Under TILA, lenders are required to provide consumers with uniform,
understandable information concerning certain terms and conditions of their loan
and credit transactions. Disclosures include providing the annual percentage
rate, monthly payment amount and total amount financed, plus certain disclosures
concerning alternative mortgage transactions. In addition, TILA gives
borrowers, among other things, the right to rescind loan transactions if the
lender fails to provide the requisite disclosure.
Under ECOA, creditors are prohibited from discriminating against applicants on
the basis of race, color, sex, age, religion, national origin or marital status.
The regulations under ECOA also restrict creditors from requesting certain types
of information from loan applicants. FCRA requires lenders to supply applicants
with certain information (called an "adverse action notice") when the lender
denies its applicants credit. The Fair Housing Act prohibits discrimination in
mortgage lending on the basis of race, color, religion, sex, handicap, familial
status or national origin. Finally, when acting as a mortgage lender, the
Company must also file annual reports with HUD pursuant to HMDA, which requires
the collection and reporting of statistical data concerning loan transactions.
RESPA requires certain disclosures, including (i) a good faith estimate of
closing costs, fees and impounds, (ii) notice of right to a copy of the property
appraisal and (iii) disclosure of the history of the Company's mortgage
servicing transfer practices. RESPA also prohibits the payment or receipt of
kickbacks or referral fees, fee shares or splits, or unearned fees in connection
with the provision of real estate settlement services.
Under the FDPA, mortgage providers are required to perform the following
actions: (a) determine flood risk by checking government-provided geographical
flood maps to ascertain whether a property is located in a high-risk flood area;
(b) inform the applicant if the property is determined to be in a high-risk area
by notifying him at least 10 days prior to funding or at loan commitment; (c)
require the applicant to buy flood insurance if the property is located in a
high-risk area; and (d) continually monitor loans to insure that if, based on
amendments to the flood plain maps, the property becomes located in a Special
Flood Hazard area during the life of the loan.
The laws, rules and regulations applicable to the Company may undergo periodic
modification and change. Various laws, rules and regulations, are currently
proposed, which if adopted, could impact the Company. There can be no assurance
that these proposed laws, rules and regulations, or other applicable laws, rules
or regulations, will not be adopted in the future, which could (i) make
compliance much more difficult or expensive, (ii) restrict the Company's ability
to originate, purchase or sell loans, (iii) further limit or restrict the amount
of commissions, interest and other charges earned on loans originated, brokered,
purchased or sold by the Company or (iv) otherwise adversely affect the business
or prospects of the Company.
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Competition
The market for mortgage loans is rapidly evolving, both online and through
traditional channels. The competition in wholesale mortgage lending is intense,
and the Company faces additional competitive pressure with the rise of online
lending. The Company currently competes with a variety of other companies
offering mortgage and other financial services products, including the
following.
. Online mortgage brokers, including Loanworks.com (IndyMac), Unifi.com, E-
loan, Iown.com, Mortgage.com, Quicken Mortgage.com, Lending Tree, Keystroke
Financial, Microsoft's Home Advisor.com and Rock Financial to name a few.
. Traditional lenders, including Countrywide Home Loans, Norwest Mortgage,
Bank of America and Chase Mortgage.
. Other mortgage banking companies, commercial banks, savings associations,
credit unions and other financial institutions.
Many of the Company's potential competitors have substantial competitive
advantages over the Company, including:
. longer operating histories;
. greater name recognition;
. larger established customer bases; and
. greater financial, marketing, technical and other resources.
Increased competition, particularly online competition, could result in price
reductions, reduced margins or loss of market share, any of which could
adversely affect the Company's business. Further, there can be no assurance
that the Company's competitors and potential competitors will not develop
services and products that are equal or superior to the Company's or that
achieve greater market acceptance than the Company's products and services. The
Company believes that its ability to compete online will depend upon, among
other things: (i) the efficiency and cost effectiveness of its operations and
technology; (ii) the quality of its service; (iii) brand recognition of the
Company's proprietary domain names, including "NM\\2\\C.com"; and (iv) its
ability to generate customer loyalty.
Intellectual Property
The Company has applied for, but not yet received, trademark protection from
the United States Office of Patents and Trademarks for the trademarks "Go2e.com"
and "Go2efinancial.com." The Company does not currently hold any patents.
While the Company seeks to protect its trademarks and other proprietary rights
through a variety of means, it may not have taken adequate steps to protect
these rights. The Company may also license intellectual property from third
parties in the future, and it is possible that it could be subjected to
infringement actions based upon the intellectual property licensed from these
third parties. Any intellectual property claims brought against the Company,
regardless of their merit, could result in costly litigation and the diversion
of its financial resources and technical and management personnel. Further, if
such claims are proved valid, through litigation or otherwise, the Company
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may be required to change its trademarks or other proprietary marks and pay
financial damages which would adversely affect the Company's business.
The Company currently enters into confidentiality agreements with its new
employees and consultants and has attempted in other ways to limit and control
access to and distribution of its technologies and other proprietary
information. Despite the Company's efforts to protect its proprietary rights
from unauthorized use or disclosure, parties may attempt to disclose, obtain or
use its proprietary rights. The steps the Company has taken may not prevent
misappropriation of its proprietary rights, particularly in foreign countries
where laws or law enforcement practices may not protect the Company's
proprietary rights as fully as in the United States.
Employees
As of September 30, 1999, the Company employed 27 full-time employees of which
13 were in sales, 13 were in administration and 1 comprised its technology
staff. None of the Company's employees are represented by a labor union or is
the subject of a collective bargaining agreement.
Item 2. Financial Information.
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On February 23, 1998, Loraca acquired all of the issued and outstanding
capital stock of NMMC in a transaction accounted for as a purchase. The
Company's results of operation and statement of financial position for fiscal
year 1998 include NMMC's results of operations since the date of its acquisition
by Loraca.
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Selected Financial Data of Loraca
(Dollar amounts in thousands, except per share data)
The following selected data as of December 31, 1998, and for each of the
periods in the period ended December 31, 1998, has been derived from the
Company's financial statements audited by BDO Seidman, LLP, independent
certified public accountants, whose report with respect thereto appears
elsewhere herein. Such selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is qualified by reference to the Financial Statements and Notes
thereto appearing elsewhere in this Registration Statement on Form 10. The
following selected data as of June 30, 1999, and for each of the six month
periods ended June 30, 1999 and 1998 have been derived from the unaudited
financial statements of the Company and include all adjustments, consisting only
of normal recurring accruals, which management considers necessary for a fair
presentation of such financial information for those periods. Results for the
six months ended June 30, 1999, are not necessarily indicative of the results to
be expected for the year ending December 31, 1999, or for any other period
within that year.
<TABLE>
<CAPTION>
For the Six Months
For the Years Ended Ended June 30,
December 31, (Unaudited)
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From
Inception on
March 11,
1998 1997 1996 through 1999 1998
December 31, 1996
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INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 637 $ -- $ -- $ 116 $ 406
Operating Expenses:
Interest Expense 452 -- -- 53 255
General and 1,362 80 -- 1,300 489
administrative
---------------------------------------------------------------------------
Total operating expenses 1,814 80 -- 1,353 744
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Loss from operations (1,177) (80) -- (1,237) (338)
Other income, net 44 -- -- 2,391 14
---------------------------------------------------------------------------
Net income (loss) $(1,133) $ (80) $ -- $ 1,154 $ (324)
===========================================================================
Net income (loss) per share:
Basic and diluted $ (.19) $(.12) $(.01) $ .16 $ (.07)
===========================================================================
BALANCE SHEET DATA
(AT END OF PERIOD)
Mortgage loans
held-for-sale $ 1,798 $ -- $ -- $ 277 $4,946
Cash and cash equivalents 36 69 5 9 398
Total assets 5,102 69 5 5,736 7,898
Warehouse lines payable 1,791 -- -- 277 4,778
Long term obligations 40 -- -- -- --
Total stockholders' equity
(deficit) $ 2,323 $ (10) $ 5 $5,345 $2,184
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Financial Statements and Notes thereto appearing elsewhere in this registration
statement. In addition to historical information, the following discussion and
other parts of this registration statement contain forward-looking statements
that involve significant risks and uncertainties. There are several important
factors that could cause the Company's actual results to differ materially from
historical results and those anticipated by the forward-looking statements,
including competitive factors and other factors discussed elsewhere in this
registration statement. The Company has sought to identify the most significant
risks to its business, but cannot predict whether or to what extent any of
such risks may be realized nor can there be any assurance that the Company has
identified all possible risks that might arise. Investors should carefully
consider all of such risks before making an investment decision with respect to
the Company's stock. In particular, investors should refer to the section
entitled, "Factors That May Affect Future Results."
Overview
General
The Company's revenues are derived from both the origination and sale of
mortgage loans. As a wholesale mortgage banker specializing in nonprime
lending, the Company generates income through discount points, fee charges for
processing, documentation preparation, underwriting and other miscellaneous
fees. With respect to the loans that it sells, the Company generates revenues
from net premium income and interest income. Net premium income consists of the
net gain on the sale of mortgage loans and mortgage servicing rights. This net
gain is recognized at the time of receipt of funds based on the difference of
the loans and their related servicing rights value minus the carrying value of
the mortgage loans sold. The carrying value includes loan related expenses,
consisting of fees paid to third parties for appraisal, credit reports and other
third party charges related to the closing and funding of the mortgage
loans. Interest income consists of the interest the Company receives on the
mortgage during the period prior to sale.
The Company's costs and expenses consist largely of the following:
. Interest paid under its warehouse credit facilities.
. Salaries, commissions and benefits paid to employees.
. General and administrative expenses such as occupancy costs, office expenses
and professional services.
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. Depreciation and amortization expense related principally to the Company's
facilities, computers, software and technology development and goodwill
associated with its acquisitions.
. Reserves for potential loan repurchase demands and premium recapture from
the Company's investors.
Seasonality and Rates
Mortgage loan originations are typically at their lowest level during the
first and fourth calendar quarters primarily due to a reduced level of home
buying activity during the winter months. Mortgage loan originations generally
increase beginning in March and continuing through October. As a result, the
Company's earnings may be lower in the first and fourth quarters than in the
second and third quarters. Further, the Company's expenses may vary quarter to
quarter based on fluctuations in the volume of loans it originates. In
addition, economic and interest rate cycles also impact the mortgage industry,
and mortgage loan volume typically falls in rising interest rate environments.
During such periods, refinancing loan volume decreases because higher interest
rates provide reduced economic incentives for borrowers to refinance their
existing mortgages.
Results Of Operations
Six Months Ended June 30, 1999, compared to the Six Months Ended June 30, 1998
Revenues
Revenues for the six months ended June 30, 1999, decreased $290,150 or 71% to
$115,606 as compared to $405,756 for the same period in 1998. The decrease
resulted from the reduction in gain on sales of loans and interest income as
mortgage loan origination volume declined due to the closure of NMMC's retail
lending operations and the commencement of wholesale operations in Lake Oswego,
Oregon.
Expenses
Total expenses increased $608,954 or 82% to $1,353,215 for the six months
ended June 30, 1999, as compared to $744,261 for the six months ended June 30,
1998. The principal components of the increase in expenses include $434,000 of
additional personnel and commission expense, $95,000 in incremental professional
and consulting fees and an increase in tax and licenses of $80,000. The
increases in expenses are attributable to an overlap of NMMC operations in New
Mexico and Oregon and costs incurred to further the Company's new business
initiatives. The expenses related to the closure of the New Mexico operation
included payment of severance to the terminated employees. The expenses for the
six months ended June 30, 1999, included approximately $90,000 related to the
start-up and subsequent closure of a retail office in California.
Other Income, Net
Other income, net was $2,391,825 for the six months ended June 30, 1999, an
increase of $2,377,542 compared to $14,283 for same period in 1998. The
increase was primarily attributable to the gain on the sale of investments of
$2,387,123 liquidated during the six months ended June 30, 1999 for working
capital expenses, compared to $20,915 during the six months ended June 30, 1998,
an increase of $2,366,208.
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<PAGE>
Fiscal Year Ended December 31, 1998, Versus Fiscal Year Ended December 31, 1997
Revenues
Revenues for the year ended December 31, 1998, were $637,339. The Company did
not earn any revenue during the same period in 1997. Revenues for 1998 included
gains on the sale of loans of $285,843 and interest income of $351,496.
Expenses
Total expenses increased $1,734,722 to $1,814,383 for the year ending December
31, 1998, as compared to $79,661 in 1997, which included a recovery of bad debt
expense equaling $361,006. The increase is attributable to the inclusion of the
operations of NMMC subsequent to February 23, 1998.
Other Income
Other income was $44,530 for the year ending December 31, 1998, primarily
attributable to gain on the sale of securities of $41,107. No other income was
generated during the year ending 1997.
Income Taxes
At December 31, 1998, the Company had approximately $643,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income. In addition, the Company has $516,000 of capital loss
carryforwards that may be applied against future capital gain. The Company's
ability to utilize these tax loss carryforwards may be restricted under
applicable tax laws.
Fiscal Year Ended December 31, 1997, Versus Period From Inception, March 11,
1996, Through December 31, 1996
Revenues
The Company did not generate any revenues during the year ended December 31,
1997, or the period from Inception, March 11, 1996, through December 31, 1996.
Expenses
Total expenses increased $79,381 to $79,661 for the year ending December 31,
1997, as compared to $280 for 1996. The increase is attributable to the
initiation of operations within the Company during 1997 as it prepared to
acquire NMMC in 1998.
Quantitative and Qualitative Disclosures about Market Risk
Interest rate movements significantly impact the Company's volume of closed
mortgage loans and represent the primary market risk to the Company. In a
higher interest rate environment, consumer demand for mortgage loans,
particularly refinancing of existing mortgage loans, declines. Interest rate
movements affect the interest income earned on mortgage loans held for sale,
interest expense on the warehouse lines of credit payable, the value of mortgage
loans
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<PAGE>
held for sale and ultimately the gain on sale of mortgage loans. In addition, in
an increasing interest rate environment, the Company's mortgage loan brokerage
volume is adversely affected.
The Company originates mortgage loans and manages the market risk related to
these mortgage loans by pre-selling them on a best-efforts basis at the time
that the Company establishes the borrower's interest rate. The Company currently
does not maintain a trading portfolio of mortgage loans and/or mortgage
securities. As a result, the Company is not exposed to market risk as it relates
to trading activities. The majority of the Company's portfolio is held for sale
which requires it to perform market valuations of its pipeline, its mortgage
loan portfolio held for sale and related forward sale commitments in order to
properly record the portfolio and the pipeline at the lower of cost or market.
Therefore, the Company monitors the interest rates of its loan portfolio as
compared to prevailing interest rates in the market. Because the Company pre-
sells its mortgage loan commitments forward, it believes that a 1.00% increase
or decrease would not have a significant adverse affect on the Company's
earnings from its interest rate sensitive assets. The Company pays-off the
warehouse lines payable when the mortgage loan is sold and consequently would
not be expected to incur significant losses from an increase in interest rates
on the warehouse line of credit due to the short time frame that the warehouse
line is drawn down. In the future, if the Company does not pre-sell the mortgage
loan commitments, its market risk could change significantly.
Liquidity And Capital Resources
Operating cash flow
The Company has historically operated on a negative cash flow basis due
primarily to development stage expenses and operating expenses that exceeded the
limited revenues from NMMC's retail loan origination operations. During the six
months ended June 30, 1999, the Company incurred additional expenses pursuant to
the development of the Company's new business initiatives and the transition of
NMMC to the non-prime wholesale operation in Oregon.
For the six months ended June 30, 1999, the Company had operating cash flow of
$219,016, compared to operating cash flow of $1,924,271 for the comparable
period in 1998. The decrease in operating cash flow resulted from an increase in
operating expenses and a net decrease in the net cash provided from the sale of
loans during the six months ended June 30, 1999, compared to the same period in
1998.
Currently, the Company's primary cash requirements include the funding of (1)
mortgage originations pending their sale, (2) interest expense on its warehouse
and other financings and (3) ongoing administrative and other operating
expenses. The Company must be able to sell loans and obtain adequate credit
facilities and other sources of funding in order to achieve positive operating
cash flows and to maintain the ability to originate and purchase loans.
Warehouse Financing
The Company relies upon warehouse financing facilities to support its loan
originations prior to sale. The Company borrows money on a short-term basis
through warehouse lines of credit during the period from loan origination to
sale to third party investors. The Company has relied upon a limited number of
lenders to provide the primary credit facilities for its loan originations. As
of June 30, 1999, the Company had a $5 million warehouse facility with The
Provident Bank which provided a committed credit line with a variable rate of
interest which could have been terminated at any time by The Provident Bank.
The Company has since established (i) a
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<PAGE>
$5,000,000 warehouse line of credit with The Provident Bank which may be
terminated at any time by The Provident Bank and (ii) a $5,000,000 warehouse
line of credit with Sterling Bank & Trust which matures on January 7, 2000.
The Company is required to comply with various operating and financial
covenants as provided in the agreements described above which are customary for
agreements of their type. The continued availability of funds provided to the
Company under these agreements is subject to the Company's continued compliance
with these covenants. The Company was in violation of certain of the financial
covenants under a $5,000,000 warehouse line of credit with U.S. Bank that was in
place as of December 31, 1998, including (i) failure to maintain required
financial ratios, (ii) exceeding allowable quarters of net operating losses and
(iii) failure to maintain positive monthly cash flow. The lender subsequently
waived the loan covenant requirements as of December 31, 1998, and the warehouse
line expired on its extended maturity date of May 31, 1999.
Transactions with Affiliates
From time to time, the Company's Chief Executive Officer, Ronald R. Baca, has
made loans to Loraca and NMMC in order to fund the Company's working capital
needs, including payroll and other office expenses. In consideration of Mr.
Baca's capital contributions, the Company issued to Mr. Baca an unsecured demand
promissory note dated as of December 31, 1998 in the amount of $701,737 and
bearing interest at the rate of 8% per annum. During the first and second
quarters of 1999, the Company made net advances to Mr. Baca in the amount of
$919,299, including the transfer to Mr. Baca in May 1999 of 41,000 shares of the
common stock of ZiaSun Technologies, Inc., a publicly traded corporation
("ZiaSun"), with a market value of $645,750. As of June 30, 1999, all
outstanding principal and interest on the note had been fully repaid by the
Company, and Mr. Baca owed the Company $217,562.
Transactions Involving Capital Stock
In conjunction with the acquisition of NMMC, Loraca issued a total of
6,200,000 shares of its common stock during the year ended December 31, 1998.
In February 1998, Loraca issued 2,100,000 shares of its common stock ("Common
Stock") to Mr. Baca in exchange for 100 percent of the outstanding shares of
NMMC's common stock. In connection with the acquisition of NMMC, the Company
acquired $173,848 in cash. Loraca also issued 4,100,000 shares of Common Stock
to acquire 1,000,000 shares of the common stock of ZiaSun. The shares of ZiaSun
common stock acquired were valued at $2,125,000.
Sales of Marketable Securities
During the six months ended June 30, 1999 the Company sold 179,000 shares of
ZiaSun Common Stock, generating a gain on sale of $1,906,435. In addition, in
May 1999 the Company transferred 41,000 shares of ZiaSun common stock, with a
market value of $645,750, to Mr. Baca in exchange for forgiveness of a like
amount of the principal and accrued interest on the note payable to Mr. Baca.
As of June 30, 1999, the Company held 495,000 shares of ZiaSun common stock with
an approximate market value of $4,160,970. The Company may liquidate additional
investment securities, as needed, to fund its working capital needs.
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<PAGE>
New Accounting Standards Not Yet Adopted
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS 133 was originally
to be effective for fiscal years beginning after June 15, 1999. SFAS No. 137
has deferred the effective date of SFAS 133 to all fiscal quarters of fiscal
years beginning after June 15, 2000. Management believes the adoption of this
statement will not have a material impact on the Company's results of
operations, financial position or cash flow.
Year 2000 Compliance
The Company will rely upon a significant number of computer software programs
and operating systems in conducting its operations, including software purchased
from third-party vendors and internally developed programs. To the extent that
these software applications contain source code that is unable to correctly
interpret the upcoming calendar year "2000," some level of modification or even
possible replacement of such source code or applications will be necessary. The
Company has received written confirmation from its primary software vendors that
their applications are Year 2000 compliant or will be before December 31, 1999.
Additionally, the Company is creating or revising all internally developed
software to be Year 2000 compliant. Given the information known at this time,
it is currently not anticipated that these "Year 2000" costs will have any
material adverse impact on the Company's business, financial condition, results
of operations or cash flows.
The Company is, however, dependent on Year 2000 compliance by its vendors to
some extent, for example third-party servicers. The Company is requiring its
systems and software venders to represent that the services and products
provided are, or will be Year 2000 compliant. Although no assurance can be
provided regarding compliance by third-party vendors, the Company does not
expect that noncompliance by any such vendors will have a material adverse
effect on its operations. In the event of noncompliance by any such vendor, the
Company believes that alternative vendors will be available to it.
Factors That May Affect Future Results
If we continue to experience losses in the future, our business, financial
condition and growth prospects could be materially adversely affected.
We have had net operating losses in each year since inception, and we may
incur losses in future periods. We may continue to incur losses due to near-
term investments in information systems, sales, marketing, recruiting and
establishing customer support and administrative infrastructure. As a result,
we may not be able to implement our future business plans, and our business,
results of operation, financial condition and growth prospects could be
materially adversely affected. In addition, if revenue grows slower than we
anticipate, or if operating expenses exceed our expectations or cannot be
adjusted accordingly, our business, results of operations and financial
condition will be adversely affected.
If we lose access to credit facilities to finance our mortgage lending
activities, our growth prospects would be severely limited.
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<PAGE>
We are dependent upon specialized mortgage credit facilities from other
lenders to finance our mortgage lending activities. We currently maintain two
warehouse credit facilities with different terms, conditions and restrictive
covenants. These lines may expire or be cancelled at the discretion of the
lending institutions.
We cannot assure you that financing will continue to be available on favorable
terms or at all. To the extent that we are unable to access adequate capital to
fund loans, we may have to curtail or cease our loan funding activities
entirely. This would have a material adverse effect on our business, results of
operations and financial condition.
If we lose key mortgage investor relationships, our business could be materially
adversely affected.
We rely on select investors to purchase the loans that we originate. These
investors are under no obligation to continue their relationship with us or to
purchase any loan offered for sale by us. Failure of these investors to offer
competitive terms could have a material adverse affect on our business results
of operation and financial condition. In addition, if private investors reduce
their purchases of these mortgage loans, the market and price for such mortgage
loans will be adversely affected, which would have a material adverse affect on
our business, results of operations and financial condition.
We have a limited operating history.
We recently redirected our strategic focus toward wholesale lending, and we
have not yet developed an extensive financial history or experienced a wide
variety of interest rate fluctuations or market conditions. Consequently, our
financial results to date may not be indicative of our future results. We have
recently retained a new senior management team to execute our new business
strategy. Our ability to improve and expand our operations, financial
condition, profitability and growth prospects, is dependent upon execution of
our new strategic focus aimed at wholesale lending. If we are unable to execute
our business plan, our business, results of operations and financial condition
could be materially adversely affected.
We are dependent on our key personnel for successful operations.
We believe that our future success will depend significantly on the continued
services of our senior management and other key personnel, including Ronald R.
Baca, Bernard A. Guy and Thomas G. Bowser, the Chief Executive Officer of
Loraca, President of Loraca and Chief Executive Officer of NMMC, and President
of NMMC, respectively. We have entered into employment agreements with Messrs.
Baca, Guy and Bowser, but there can be no assurance of their continued
employment. We do not maintain life insurance for any of our key personnel. The
loss of the services of any of the above mentioned personnel, or other key
employees, could have a material adverse affect on our business, results of
operations and financial condition.
If the mortgage banking community does not embrace online mortgage financing and
sales, our business may be materially adversely affected.
The growth of our operations is dependent, to some extent, upon the acceptance
of online mortgage financing by mortgage brokers and other mortgage loan
originators. If these groups do not embrace our model for mortgage finance, our
business, results of operations and financial condition may be materially
adversely affected. The market for electronic mortgage financing, particularly
over the Internet, is at an early state of development and is evolving rapidly.
Rapid growth in the use of and interest in the Internet is a recent development.
We cannot be certain
20
<PAGE>
that Internet usage will continue to grow or that a sufficiently broad base of
businesses and consumers will utilize the Internet as a medium by which to
communicate and obtain services traditionally provided in person. Our business
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in the new and rapidly evolving market for
Internet products and services.
We believe that acceptance of our online products and services will depend on
the following factors, among others:
. the growth of the Internet as a medium for commerce generally, and as a
market for financial products and services in particular;
. development of the necessary Internet network infrastructure to support new
technologies and handle the demands placed upon the Internet;
. government regulations of the Internet; and
. our ability to successfully and efficiently develop online products and
services that are attractive to a sufficiently large number of mortgage
brokers and other mortgage loan originators.
There is a risk that online mortgage financing will not gain market acceptance
and that businesses and consumers will not significantly increase their use of
the Internet for obtaining loans. If the market for online mortgage financing
fails to develop, or develops more slowly than expected, our business, results
of operations and financial condition would be materially adversely affected.
In addition, if there are insufficient communications services to support the
Internet, it could result in slower response times, which would adversely affect
usage of the Internet. Even if the Internet gains acceptance, we may be unable,
for technical or other reasons, to develop and introduce new online products and
services or enhancements of existing products and services in a timely manner,
and such products and services and enhancements may not gain widespread market
acceptance. Any of these factors could have a material adverse affect on our
business, results of operations and financial condition.
In addition, because the market for online mortgage lending is at an early
state of development, the volume of loans that we originate or sell in any given
period is difficult to predict. If the volume of loans that we originate or
sell falls below our expectations, our business, results of operation and
financial condition could be materially adversely affected.
If we fail to comply with extensive federal and state laws regulating our
industry, we could be subject to penalties, disqualification, lawsuits or
enforcement actions that could have a material adverse affect on our business.
Our operations are subject to extensive regulation by federal and state
authorities. For example, the United States Department of Housing and Urban
Development, or HUD, regulates certain aspects of the mortgage lending business
as do the Federal Reserve Board and the Federal Trade Commission. The Real
Estate Settlement Procedure Act of 1974, the Truth in Lending Act and other
federal statutes require that certain disclosures, such as good faith estimates
of settlement charges, a Truth-in-Lending Statement and a HUD-1 settlement
statement be provided to borrowers. Additional information, such as the HUD
Settlement Cost booklet, must also be provided to borrowers. The Federal Fair
Housing Act and the Equal Credit Opportunity Act prohibit discrimination and
various state statutes prohibit unfair and deceptive trade practices and
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impose disclosure and other requirements in connection with the mortgage loan
origination process. If we fail to comply with such regulations, possible
consequences could include loss of approved status, demands for indemnification,
class action lawsuits, and administrative enforcement actions.
In addition, RESPA contains certain prohibitions regarding the giving or
taking of a fee, kickback, or anything of value for the referral of business to
any specific person or organization. However, the payment of reasonable
compensation for the provisions of goods, services and facilities is generally
not prohibited.
If we are unable to differentiate ourselves from competition in our industry,
our business prospects could be harmed.
To compete successfully, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance and expand our services, as well as our
sales and marketing channels. Increased competition, particularly online
competition, could result in price reductions, reduced margins or loss of market
share, any of which could adversely affect our business. We may not be able to
compete successfully in our market environment and our failure to do so could
have an adverse effect on our business, results of operations and financial
condition.
The e-commerce market is new, rapidly evolving and intensely competitive. We
expect competition to intensify in the future. Barriers to entry are minimal,
so our competitors can launch new Internet sites at relatively low cost. In
addition, the residential mortgage loan business is highly competitive. We
currently compete with a variety of other companies offering mortgage services,
including:
. various online mortgage brokers, including E-LOAN, Inc., iOwn.com,
Mortgage.com, Quicken Mortgage.com and Keystroke Financial;
. mortgage companies that offer products through online search engines, such
as Yahoo! and Microsoft Corporation's Home Advisor website;
. mortgage banking companies, commercial banks, savings associations, credit
unions and other financial institutions which still originate the vast
majority of mortgage loans; and
. mortgage brokers.
Many of our mortgage banking and mortgage brokerage competitors have longer
operating histories or significantly greater financial, technical, marketing and
other resources than we do. Some of our online competitors are spending
substantial funds on mass marketing and branding their mortgage services. In
addition, some of our competitors offer a wider range of services and financial
products to customers and have the ability to respond more quickly to new or
changing opportunities. As a result, many have greater name recognition and
more extensive customer bases and can offer more attractive terms to customers
and adopt more aggressive loan pricing policies. We cannot be sure that we will
be able to compete successfully against current and future competitors. If we
are unable to do so it will have a material adverse affect on our business,
results of operations and financial conditions.
If we are unable to manage growth in our business, our results of operation may
not improve.
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<PAGE>
We anticipate that we will need to rapidly expand our employee base,
facilities and infrastructure in order to be able to compete successfully and
take advantage of market opportunities. We expect this expansion to place
significant strain on our management, operational and financial resources. Our
current personnel, systems, procedures and controls are not adequate to support
anticipated growth of our operations. To manage this expected growth, we will
need to improve our mortgage processing, operational and financial systems,
information processing capacity, procedures and controls. As we may be unable to
hire, train, retain or manage necessary personnel, or to identify and take
advantage of existing and potential strategic relationships and market our
business, our results of operations and financial condition may not improve and
could deteriorate.
If we are unable to respond to rapid technological change and improve our
products and services, our business could be materially adversely affected.
The mortgage market is subject to rapid technological change, changes in user
and customer requirements and preferences, frequent new product and service
introductions embodying new technologies and the emergence of new industry
standards and practices that could render existing technology and systems
obsolete. To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our products and services. We
cannot be sure that others will not develop and offer superior products and
services, or if so offered, that they will not gain a greater acceptance among
potential customers. Our success will depend, in part, on our ability to (i)
license and internally develop leading technologies useful in our business, (ii)
enhance our existing services, (iii) develop new services and technology that
address the increasingly sophisticated and varied needs of our customers, and
(iv) respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
The development of proprietary technology entails significant technical and
business risks. There can be no assurance that we will successfully use new
technologies effectively or adapt our technology and transaction-processing
systems to customer requirements or emerging industry standards. If we are
unable, for technical, legal, financial or other reasons, to adapt in a timely
manner to changing market conditions, customer requirements or emerging industry
standards, our business, results of operations and financial condition could be
materially adversely affected.
If our quarterly revenues and operating results fluctuate significantly, the
price of our Common Stock is likely to be volatile.
Our quarterly revenues and operating results are likely to continue to vary
substantially from quarter-to-quarter. Fluctuation in our quarterly results may
cause the price of our Common Stock to be volatile. We believe that the
following factors, among others, could affect our quarterly results:
. fluctuations in mortgage loan interest rates;
. seasonal or other economic factors affecting demand for mortgage credit;
. the volume of our mortgage loan originations;
. the size and timing of our loan sales;
. our ability to offer competitive mortgage rates;
23
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. changes in our pricing policies or our competitors' pricing policies for
mortgage origination and processing fees;
. the proportion of our mortgage originations which are used to purchase homes
or refinance existing debt;
. the introduction of new products and services by us or our competitors;
. the level of consumer interest and confidence in the Internet as a means of
accessing financial products and services;
. the timing of release of enhancements to our products and services;
. our ability to upgrade and develop our information systems and operational
infrastructure to accommodate growth;
. the timing and rate at which we increase our expenses to support projected
growth;
. the cost of compliance with federal and state government laws and
regulations, including any changes in our historic business practices that
could result from legal interpretations;
. any termination or restructuring of any strategic alliance or agreements
with any key financing sources or service providers;
. our announcement of new marketing initiatives or strategic alliance with
other Internet-based companies, or termination of any such initiative or
alliance;
. the volume of business resulting from collaborative marketing efforts with
our strategic partners;
. technical difficulties or service interruptions affecting our Internet
websites or operational data processing systems;
. changes in our operating expenses and investment in our infrastructure;
. general economic conditions; and
. additions or departures of key executives and operational personnel.
In addition, we are aware that from time-to-time, chat groups may develop on
the Internet and that participants in those groups may post statements about us.
These statements may influence the market price of our Common Stock. We do not
monitor statements about us that appear on the Internet, except for authorized
statements made by us. We undertake no obligation of any kind whatsoever to
monitor, correct, comment or respond to statements on the Internet or elsewhere
by others, and it is our policy not to monitor, correct, comment on or respond
to such statements.
If interest rates rise, our results of operations could be materially adversely
affected.
Our residential mortgage business depends upon overall levels of sale and
refinancing of residential real estate as well as on mortgage loan interest
rates. Any fluctuation in interest rates or an adverse change in residential
real estate or general economic conditions, both of which are
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<PAGE>
outside our control, could have a material adverse affect on our business,
results of operations and financial conditions. Residential real estate values
are highly cyclical. Shifts in the economy and residential real estate values
generally affect the number of home sales and new housing starts. The demand for
mortgage loan financing increases as the number of home sales increases.
Declining interest rates generally increase mortgage loan financing activity
because homeowners refinance existing mortgage loans to obtain more favorable
interest rates. Rising rates, in contrast, discourage refinancing activities and
generally reduce the number of home sales that occur.
The effect of interest rate changes tends to be greater on the market for
refinancing loans than it is on the market for purchase loans, since refinancing
a mortgage loan is voluntary and motivated primarily by a homeowner's desire to
lower financing costs, whereas new home purchasers are motivated by a need or
desire for a new home. Accordingly, the annual volume of mortgage refinance
activity may fluctuate significantly. We cannot predict future interest rate
trends, their impact on our business, or our ability to manage this business
mix.
The value of the loans we make is based, in part, on market interest rates,
and our business, results of operations and financial condition may be
materially adversely affected if interest rates change rapidly or unexpectedly.
If interest rates rise after we fix a price for a loan but before we sell the
loan into the secondary market, the value of that loan may decrease. If we
delay in selling our loans into the secondary market, our interest rate exposure
increases and we could incur a loss on the sale.
If we have to repurchase loans sold to investors, our operating results could be
materially adversely affected.
We may be required to repurchase loans from our investors in the event of
material misrepresentations by us or inaccuracies in the underlying loan
documents. If we have insufficient funds to repurchase such loans upon demand,
it may result in a default under our agreement with that investor.
Additionally, if a loan is repurchased, we may be required to hold it in
inventory until resold. Depending on the circumstances of the transaction, such
resale may result in a loss which may have a material adverse effect on our
business, results of operations and financial condition.
We May Require Additional Capital in the Future
We have expended, and will continue to expend, substantial funds on
development of technology, expansion of our business, potential acquisitions and
product development. We may require additional funds to finance our operations.
We do not know at this time when we may need additional funds, and we cannot be
certain that if we do need additional funds in the future that we will be able
to obtain them on terms satisfactory to us, if at all. If we do raise
additional funds through the issuance of equity or convertible debt securities,
your stock ownership will be diluted. Further, these new securities may have
rights, preferences or privileges senior to yours. Additionally, any debt
financing that may be available to us may include restrictive covenants. If we
are unable to raise additional funds when necessary, we may have to reduce
planned capital expenditures, scale back our operations or enter into financing
arrangements on terms which we would not otherwise accept, any of which may have
a material adverse effect on our business, financial condition and results of
operations.
25
<PAGE>
If our electronic security devices are breached, our business would be
materially adversely affected.
We rely on certain encryption and authentication technology licensed from
third parties to provide secure transmission of confidential information, such
as borrowers' financial information. There can be no assurance that advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments will not result in a compromise or breach of the
algorithms we use to protect customer transaction data. If any such compromise
were to occur, it could have a material adverse affect on our business, results
of operations and financial condition.
We may be required to spend significant capital and other resources to protect
against such security breaches or to alleviate problems caused by such breaches.
Concerns over the security of transactions conducted on the Internet and privacy
of users may also inhibit the growth of the Internet generally, and e-commerce
in particular. To the extent that our activities involve the storage and
transmission of proprietary information, such as borrowers' financial
information and profile information, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible
liability. There can be no assurance that our security measures will prevent
security breaches or that a failure to prevent such security breaches will not
have a material adverse effect on our business, financial condition and results
of operations.
Any acquisitions that we undertake could be difficult to integrate, disrupt our
business, dilute stockholder value and adversely affect our operating results.
We may acquire or make investments in complementary businesses, technologies,
service or products. These acquisitions and investments could disrupt our
ongoing business, distract our management and employees and increase our
expenses. We have had discussions with companies regarding our acquiring, or
investing in, their businesses, products, services or technologies. If we
acquire a company, we could have difficulty in assimilating that company's
personnel, operations, technology and software. In addition, the key personnel
of the acquired company may decide not to work for us. We could also have
difficulty in integrating the acquired products, services or technologies into
our operations and we may incur indebtedness or issue equity securities to pay
for any future acquisitions. The issuance of equity securities could be
dilutive to our existing stockholders.
Our business will suffer if we are unable to expand and promote our brand
recognition.
Establishing and maintaining our brand is critical to attracting and expanding
our customer base, solidifying our business relationships and successfully
implementing our business strategy. We cannot assure you that our brand will be
positively accepted by the market or that our reputation will be strong.
Promotion and enhancement of our brand will also depend, in part, on our
success in providing a high-quality customer experience. We cannot assure you
that we will be successful in achieving this goal. Customer complaints may
significantly damage our reputation and offset the efforts we make in promoting
and enhancing our brand and could have an adverse effect on our business,
results of operations and financial condition. If our customers do not perceive
our existing service to be of high-quality or if we alter or modify our brand
image, introduce new services or enter into new business ventures that are not
favorably received, the value of our brand could be diluted, thereby decreasing
the attractiveness of our service to potential customers.
26
<PAGE>
If we are unable to retain and attract qualified personnel, our business could
suffer.
Our ability to grow and our future success depend on our ability to identify,
attract, hire, train, retain and motivate other highly skilled technical,
managerial, sales and marketing customer service and professional personnel.
Competition for such employees is intense, and there is a risk that we will not
be able to successfully attract, assimilate or retain sufficiently qualified
personnel. If we fail to retain and attract the necessary technical,
managerial, sales and marketing, customer service personnel and experienced
professionals, our business, results of operations and financial condition could
be materially adversely affected.
If there are interruptions or delays in obtaining appraisal, credit reporting,
title searching and other underwriting services from third parties, we may
experience customer dissatisfaction and difficulties closing loans.
We rely on other companies to perform certain aspects of the loan underwriting
process, including appraisals, credit reporting and title searches. If the
provision of these ancillary services were interrupted or delayed, it could
cause delays in the processing and closing of loans for our customers. The
value of the service we offer and the ultimate success of our business is
dependant on our ability to secure the timely provision of these ancillary
services by third parties with whom we have business relationships. If we are
unsuccessful in securing the timely delivery of these ancillary services, we
would likely experience increased customer dissatisfaction and our business,
results of operations and financial condition could be materially adversely
affected.
If legislation or regulations surrounding the use of the Internet restrict our
ability to originate mortgages over the Internet, our business could be
materially adversely affected.
Laws and regulations directly applicable to the Internet and e-commerce may
become more prevalent in the future. In the event the Federal Trade Commission
or other governmental authorities adopt or modify laws or regulations relating
to the Internet, our business, results of operations and financial condition
could be materially adversely affected. Such legislation and regulation could
dampen the growth in Internet usage generally and decrease the acceptance of the
Internet as a commercial medium. The laws and regulations governing the
Internet remain largely unsettled, even in areas where there has been some
legislative or regulatory action. It may take years to determine whether and how
existing laws and regulations such as those governing intellectual property,
privacy and taxation apply to the Internet. In addition, the growth and
development of the market for e-commerce may prompt calls for more stringent
consumer protection laws and regulations, both in the United States and abroad,
that may impose additional burdens on companies conducting business over the
Internet.
If our computer systems fail, our business would be materially adversely
affected.
An important element of our strategy is to generate a high volume of traffic
on, and use of, our websites once they have been established. Accordingly, the
satisfactory performance, reliability and availability of our websites,
transaction-processing systems and network infrastructure are critical to our
reputation and ability to attract and retain customers and maintain adequate
customer service levels. Our revenues will depend in part on the number of
potential customers who visit our websites. Any system interruption that results
in the unavailability of our websites would reduce the volume and attractiveness
of our product and service offerings. Our communications hardware and some of
our other computer hardware operations are located at our facilities in Lake
Oswego, Oregon. The hardware for our internal loan and product database, as well
as our loan processing operations, is also maintained in Lake Oswego, Oregon.
Fires, floods, earthquakes, power loss, telecommunications failures, breaches
and similar events could damage these systems. Computer viruses, electronic
breaches or other similar disruptive problems could also adversely affect our
27
<PAGE>
computer systems. Our business, results of operations and financial condition
could be adversely affected if our systems were affected by any of these
occurrences. Our insurance policies may not adequately compensate us for losses
that may occur in the event of a failure of our computer systems or other
interruptions in our business.
Our systems must accommodate a high volume of traffic and deliver frequently
updated information, the accuracy and timeliness of which is critical to our
business. In the past, we have experienced periodic system interruptions, which
we believe will continue to occur from time to time. Any substantial increase in
the volume of traffic on our systems will require us to expand and upgrade
further our technology, transaction-processing systems and network
infrastructure. We cannot be sure that we will be able to accurately project the
rate or timing of increases, if any, in the use of our computer systems or
expand and upgrade our systems and infrastructure to accommodate such increase
in a timely manner. In addition, our future website users may depend on Internet
service providers, online service providers and other website operators for
access to our websites. Many of them have experienced significant outages in the
past, and could experience outage delays and other difficulties due to system
failures unrelated to our systems. Moreover, the Internet infrastructure may not
be able to support continued growth in its use. Any of these problems could
materially adversely affect our business, results of operations and financial
condition.
If previously unregistered shares of our Common Stock are sold into the market,
it could cause the market price of our Common Stock to drop.
This registration statement covers substantially all of the shares of our
Common Stock, some of which could otherwise currently be sold pursuant to Rule
144 of the Securities Act. Accordingly, the number of shares freely tradable in
the open market following the effective date of this prospectus will increase
significantly. If the holders of these shares sell large numbers of shares in
the open market, the market price of our Common Stock could fall sharply. In
addition, the perception that such sales could occur may cause the market price
of our Common Stock to remain relatively low indefinitely. These factors could
also make it more difficult for us to raise funds through future offerings of
Common Stock.
If our internal systems, or the internal systems of our suppliers are not Year
2000 compliant, our business could be seriously disrupted.
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00," which the system might consider to be the year 1900 rather than the year
2000. This could result in system failures, delays or miscalculations.
Computer systems and software that have not been developed or enhanced recently
may need to be upgraded or replaced to comply with Year 2000 requirements.
We believe that each of our software systems on a stand-alone basis will be
year 2000 compliant. However, we rely on software components acquired from
third parties which may not be Year 2000 compliant. The Internet operations of
many of our customers may also be affected by Year 2000 complications. The
failure of our customers or suppliers to ensure that their systems are year 2000
compliant could have an adverse affect on our customers, resulting in decreased
ability to obtain necessary data, telecommunication capacity and Internet use,
which in turn could have an adverse affect on our business, results of
operations and financial condition.
28
<PAGE>
Item 3. Properties.
----------
Loraca's executive offices are located at 5600 Wyoming Blvd., N.E., Suite 150,
Albuquerque, New Mexico, 87109. Loraca currently occupies approximately 5,015
square feet of office space pursuant to a lease expiring in September 2002.
NMMC is headquartered at 6 Centerpointe Drive, Suite 360, Lake Oswego, Oregon,
97035. NMMC currently occupies approximately 4,758 square feet of office space
under a lease which expires in June 2002. The Company anticipates that it will
require additional office space as more personnel join Loraca and NMMC. Loraca
is currently considering relocation to a major West-Coast metropolitan area in
order to attract qualified personnel at the executive level.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The following table sets forth certain information, as of September 28, 1999,
with respect to the beneficial ownership of Loraca Common Stock by (i) all
persons known by Loraca to be the beneficial owners of more than five percent of
the outstanding Loraca Common Stock, (ii) each director of Loraca, (iii) each
executive officer of Loraca named in the Summary Compensation Table and (iv) all
other executive officers of Loraca.
<TABLE>
<CAPTION>
Shares that
May be
Acquired
within 60
days of
Name and Address of Percentage of September
Beneficial Owners Shares Owned Class (2) 28, 1999
- -------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Ronald R. Baca (1) 1,595,402 22.79%
Bernard A. Guy (2) 0 0%
Thomas G. Bowser (2) 0 0%
John Trombello (1) 0 0%
Harrison Gentry (1) 0 0%
Amber Global Ltd. (3) 583,310 8.33%
Aragon Agents Ltd. (4) 584,720 8.35%
Chelsea International Ltd. (5) 569,000 8.13%
Katori Consultants Ltd. (6) 585,700 8.36%
New Age Publications (7) 582,300 8.32%
PT Pasifika Pratama Investindo (8) 569,000 8.13%
Sandford Enterprises Limited (9) 500,000 7.14%
Shang Holdings (10) 584,900 8.35%
Executive Officers and Directors as a 1,595,402 22.79%
group (5 persons)......................
</TABLE>
- ---------------------------------
29
<PAGE>
(1) The address of Mr. Baca, Mr. Trombello and Mr. Gentry is 5600 Wyoming Blvd
NE, Suite 150, Albuquerque, NM 87109.
(2) The address of Mr. Guy and Mr. Bowser is 6 Centrepointe Drive, Suite 360,
Lake Oswego, OR, 97035.
(3) Amber Global Ltd.'s address is Unit No A 12th Fl, 1st Pacific Bank Center,
No 56 Gloucester Rd, Hong Kong.
(4) Aragon Agents Ltd.'s address is Bldg. PT1-07, 1961 Area, Philexcel
Compound, Clark Spec Economic, Pampango, Philippines.
(5) Chelsea International Ltd.'s address is #1 Queens Row, Central Hong Kong.
(6) The address of Katori Consultants Ltd. is P.O. Box 957, Offshore
Incorporations Centre, Road Town Tortola, British Virgin Islands.
(7) The address of New Age Publications is Bldg. 8584 Boton Wharf, Subic Bay,
Freeport Zone, Olongapo City, 2222, Philippines.
(8) The address of PT Pasifika Pratama Investindo is the Ascot Jakarta, #2
Jalan Kebon Raya, Jakarta, 10230, Indonesia.
(9) The address of Sandford Enterprises Limited is Suite 1-3 16, F Kinwick
Centre, 32 Hollywood Road, Central Hong Kong. The sole shareholder of
Sandford Enterprises Limited is Nicola P. Ontiveros, Secretary of Loraca.
(10) The address of Shang Holdings is P.O. Box 107, Oceanic House, Duke Street,
Grand Turk, Turks & Caicos Islands.
Item 5. Directors and Executive Officers.
--------------------------------
<TABLE>
<CAPTION>
Name Age Position(s)
---- ---- -----------
<S> <C> <C>
Ronald R. Baca 45 Chairman of the Board, Chief Executive
Officer and Director of Loraca; Chairman of
the Board of NMMC
Bernard A. Guy 43 President and Director of Loraca; Chief
Executive Officer and Director of NMMC
D. Harrison Gentry 60 Director of Loraca and NMMC
John S. Trombello 75 Director of Loraca and NMMC
Thomas G Bowser 45 President and Director of NMMC
</TABLE>
Ronald R. Baca has served as the Chief Executive Officer and Chairman of the
Board of Directors of Loraca since February 1998, and as the Chairman of the
Board of NMMC since January 1991. Mr. Baca also served as the President of
Loraca from February 1998 through September 1999, and as President of NMMC from
January 1991 to November 1998. Mr. Baca is also the President and Chairman of
the Board of Directors of Heartland Insurance Company of America, an Illinois-
domiciled insurance company, positions he has held since 1996. In addition, Mr.
Baca serves as the President and a Director of the Raeaca Corporation, New
Mexico Consumer Finance, Home Credit Corporation, and Addaca, Inc., all of which
are private corporations that are currently inactive.
30
<PAGE>
Bernard A. Guy has served as the President and a Director of Loraca since
September 1999, and as Chief Executive Officer and Director of NMMC since March
1999. Prior to joining the Company, Mr. Guy was the President, Chief Operating
Officer and a Director of Southern Pacific Funding Corporation from October 1997
to September 1998, and Executive Vice President and a Director of Southern
Pacific Funding Corporation from April 1995 to October 1997. Southern Pacific
Funding Corporation filed for bankruptcy protection in October 1998. From
January 1994 to April 1995, he was Senior Vice President of Southern Pacific
Thrift and Loan Association's Residential Lending Division and from December
1992 to January 1994 he was Vice President of the same division. From June 1989
to December 1992, Mr. Guy was Senior Vice President of Preferred Financial
Funding Corp., an independent retail mortgage banking company specializing in
non-conforming credit loans. From June 1984 to June 1989, Mr. Guy was Vice
President/Controller for United First Funding.
D. Harrison Gentry has been a Director of Loraca and NMMC since February 1998.
Since January 1995, Mr. Gentry has also served as a member and consultant of
Westpac Consultants, L.L.C., a real estate investment banking firm. In
addition, Mr. Gentry currently serves as a director of Dysart Mortgage, G.B.F.
Properties, and Emerald River Development, Inc.
John S. Trombello has been a Director of Loraca and NMMC since February 1998.
In addition, he is currently the President and a director of Trinity Mortgage
Company of Dallas, positions that he has held since March 1990. Mr. Trombello
has worked in the mortgage business in various capacities for more than forty
years.
Thomas G. Bowser has served as President and a Director of NMMC since March
1999. Prior to joining NMMC, Mr. Bowser served in various capacities with
Southern Pacific Funding Corporation, including as Executive Vice President-
Production from 1997 to September 1998, as Senior Vice President-Wholesale
Production from 1995 to 1997, and as Regional Vice President-Production from
1993 to 1995. Southern Pacific Funding Corporation filed for bankruptcy
protection in October 1998. Mr. Bowser has worked in the mortgage industry,
holding various positions, since 1977.
Item 6. Executive Compensation.
----------------------
The following table summarizes the compensation paid to or earned by the Chief
Executive Officer of Loraca and the next four most highly compensated executive
officers of the Company (the "Named Executive Officers") who were paid more than
$100,000 for services rendered to the Company in all capacities during the
fiscal year ended December 31, 1998 (rounded to nearest thousand):
31
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
1998 Annual Long Term
------------ Compensation
Compensation Awards
------------- ------
Securities
Underlying Other
Name and Principal Salary Bonus Options Compensation
- ------------------ ----------- ----------- ---------- ------------
Position
- --------
<S> <C> <C> <C> <C>
Ronald R. Baca (1)......... $ 100,000 - - -
Chief Executive Officer
Bernard A. Guy (2)......... - - - -
President
Thomas G. Bowser (2)....... - - - -
President of NMMC
</TABLE>
(1) Mr. Baca was elected as Chief Executive Officer and President of Loraca on
February 25, 1998. In September 1999, Mr. Baca resigned as President of
Loraca, and Mr. Guy was elected President of Loraca at that time.
(2) Neither Mr. Guy nor Mr. Bowser was employed by Loraca or NMMC during the
fiscal year ended December 31, 1998.
Option Grants and Exercises in Last Fiscal Year
During the period from its inception until December 31, 1998, the Company had
granted no options to purchase its capital stock. On April 16, 1999, the
Company granted Mr. Baca an option to purchase 200,000 shares of Common Stock
with an exercise price of $5.00 per share. In addition, on September 3, 1999,
the Company granted to each of Mr. Guy and Mr. Bowser, options to purchase
112,500 shares of Common Stock with an exercise price of $5.5625 per share. The
options granted to Messrs. Baca, Guy and Bowser vest over a four year period.
Employment Agreements and Termination of Employment and Change of Control
Arrangements
Loraca has entered into an executive employment agreement with Mr. Baca
effective as of January 1, 1999 (the "Baca Agreement"). The Baca Agreement is
for a five year term commencing on January 1, 1999. On completion of the
initial term, the Baca Agreement will automatically renew for subsequent one-
year terms unless either party to the agreement provides three months advance
written notice. The Baca Agreement provides for a base salary of $240,000 per
year, as well as (i) an annual review and a six percent increase on each
anniversary date, (ii) incentive compensation based on the Company's attainment
of specified levels of earnings before interest, taxes, depreciation and
amortization and (iii) other fringe benefits. Under the Baca Agreement, if Mr.
Baca is terminated without cause or within 12 months of a change of control, he
is entitled to receive a separation payment equal to two times the base salary
if the termination occurs during the initial term, or a severance payment equal
to three times the base salary then in effect if the termination occurs after
the initial term.
32
<PAGE>
NMMC has entered into executive employment agreements with Mr. Guy and Mr.
Bowser effective as of June 1, 1999 (the "Executive Agreements"). The Executive
Agreements are for a term of three years, commencing on June 1, 1999. On
completion of the initial term, the Executive Agreements will automatically
renew for subsequent one-year terms unless either party to the agreement
provides three months advance written notice. The Executive Agreements provide
for a base salary of $150,000 per year for both Mr. Guy and Mr. Bowser, as well
as (i) incentive compensation based on NMMC's attainment of specified levels of
earnings before taxes and a minimum return on average equity; and (ii) other
fringe benefits. Under the Executive Employment Agreements, if either Mr. Guy or
Mr. Bowser is terminated without cause, he is entitled to receive a separation
package which includes (i) the base salary for the term remaining under the term
of employment then in effect; (ii) a lump sum payment equal to his average bonus
payment for the four most recently completed quarters multiplied by the number
of quarters remaining under the term of employment then in effect; (iii) payment
of health insurance premiums for coverage elected pursuant to the Consolidated
Budget Reconciliation Act of 1985 ("COBRA") and (iv) accelerated vesting of his
outstanding options.
Benefit Plans
Loraca 1999 Stock Option Plan
The Board of Directors of Loraca has reserved a total of 1,000,000 shares of
Common Stock for issuance under the Loraca 1999 Stock Option Plan (the "Plan").
The purpose of the Plan is to attract, retain and reward persons providing
services to Loraca and to motivate such persons to contribute to the growth and
profitability of Loraca. The Plan permits the grant of options intended to
qualify as incentive stock options ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, as well as non-qualified stock
options. As of September 30, 1999, 425,000 shares of Common Stock were subject
to outstanding options at a weighted average exercise price of $5.2978 per
share, and 575,000 shares remained available for future grant under the Plan.
Options may be granted to employees (including officers and directors who are
also employees), consultants and directors and prospective employees,
consultants and directors, although only employees (including officers and
directors who are also employees) may receive ISOs. The exercise price per
share of a non-qualified stock option must equal at least 85% of the fair market
value of a share of Common Stock on the date of grant, and in the case of ISOs
must be no less than the fair market value on the date of the grant. In
addition, the exercise price for any option granted to an optionee who owns 10%
or more of the total combined voting power of Loraca or any parent or subsidiary
of Loraca must equal at least 110% of the fair market value of a share of Common
Stock on the date of grant. Generally, options granted under the Plan are
immediately exercisable and must be exercised within ten years, and shares
subject to an option generally will vest over four years from the date of grant.
In the event of certain "change in control" transactions involving Loraca,
shares subject to options granted under the Plan will become fully vested and
exercisable. In addition, an acquiring company may assume or substitute for
such outstanding options.
Item 7. Certain Relationships and Related Transactions.
----------------------------------------------
The following transactions involve Loraca, NMMC and certain executive
officers, directors and affiliates of Loraca and/or NMMC. Because of the
relationships between the parties to each transaction, there can be no assurance
that the transactions described below were on terms as favorable to Loraca
and/or NMMC as could have been obtained from unaffiliated third parties.
33
<PAGE>
Prior to the acquisition of the outstanding capital stock of NMMC (formerly
New Mexico Mortgage Company, Inc., and prior to that B.C. Trucking, Inc.) by
Loraca on February 23, 1998 (the "Acquisition Date"), the business currently
conducted by the Company was conducted by NMMC. From 1986 until the Acquisition
Date, NMMC elected to be treated as an S Corporation under Subchapter S of the
Internal Revenue Code of 1986, as amended, and comparable state tax laws. As a
result, until the Acquisition Date, the earnings of NMMC were attributable,
with certain exceptions, for federal and certain state income tax purposes to
its stockholders rather than to NMMC. No distributions were paid to NMMC's
stockholders in 1998.
On the Acquisition Date, Mr. Baca and his wife, Susan Baca, exchanged all of
the outstanding shares of capital stock of NMMC for 2,100,000 shares of the
Common Stock of Loraca. See, Item 10, Recent Sales of Unregistered Securities.
In June 1998, Mr. Baca purchased a bad debt account receivable from NMMC,
involving NMMC's failed attempt to acquire Aim Insurance Company, a California
domiciled insurance carrier which was conserved by the California Department of
Insurance in 1994 and is currently in liquidation. See Item 8, "Legal
Proceedings." As consideration for the purchase of the bad debt account
receivable from NMMC, Mr. Baca forgave a debt payable by NMMC to Mr. Baca in the
amount of $443,000.
From time to time, the Company's Chief Executive Officer, Ronald R. Baca, has
made loans to Loraca and NMMC in order to fund the Company's working capital
needs, including payroll and other office expenses. In consideration of Mr.
Baca's capital contributions, the Company issued to Mr. Baca an unsecured demand
promissory note dated as of December 31, 1998 in the amount of $701,737 and
bearing interest at the rate of 8% per annum. During the first and second
quarters of 1999, the Company made net advances to Mr. Baca in the amount of
$919,299, including the transfer to Mr. Baca in May 1999 of 41,000 shares of the
common stock of ZiaSun Technologies, Inc., a publicly traded corporation
("ZiaSun"), with a market value of $645,750. As of June 30, 1999, all
outstanding principal and interest on the note had been fully repaid by the
Company and Mr. Baca owed the Company $217,562.
In addition, pursuant to an Asset Purchase Agreement entered into as of
December 30, 1998, the Raeaca Corporation, an affiliate of Mr. Baca, purchased
certain receivables from NMMC with a mortgage backed security at a carrying
value of $519,163. The Company participated in no other transactions with the
Raeaca Corporation during its fiscal year 1998 and does not intend to
participate in any further transactions with the Raeaca Corporation during its
fiscal year 1999.
The Company intends to enter into indemnification agreements with its
directors and various executive officers containing provisions which may require
it, among other things, to indemnify its officers and directors against
liabilities that may arise by reason of their status or service as officers or
directors and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. In addition, the Company
intends to execute such agreements with its future directors and executive
officers.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
To date, the Company has had no compensation committee or other committee
performing an equivalent function. No officer or employee of the Company has
participated in deliberations by the Company's Board of Directors concerning
executive officer compensation, except that Mr. Baca participated in the
determination of Mr. Guy's compensation at the time he was hired by the Company.
34
<PAGE>
Item 8. Legal Proceedings.
-----------------
Regional Investors, Inc. v. NMMC, Inc., Dist. of New Mexico No. CIV-99 07120.
A lawsuit was filed on July 15, 1999, in the United States District Court for
the District of New Mexico against NMMC by Regional Investors, Inc.
("Regional"). The complaint alleges that, in connection with a residential
mortgage loan sold by NMMC to Regional, NMMC failed to repurchase a mortgage
upon demand as required by Regional's Correspondent Agreement with NMMC.
Regional is seeking monetary relief in the approximate amount of $43,362. The
Company believes that Regional's claims are without merit and intends to defend
vigorously against the action.
Gray Cary Ware & Freidenrich LLP v. Ronald Baca, et al., San Diego Superior
Court Case No. GIC732677.
On July 16, 1999, Gray Cary Ware & Freidenrich LLP, the Company's corporate
legal counsel ("Gray Cary"), instituted an interpleader action against NMMC,
Ronald R. Baca and Aguilar & Sebastinelli, a Professional Law Corporation
("A&S"). Gray Cary has interpled approximately $81,250, a portion of the
settlement proceeds recovered by NMMC and Mr. Baca in the liquidation
proceedings of Aim Insurance Company, an insolvent California insurer conserved
by the California Department of Insurance (Orange County Superior Court Case No.
72577). The interpled funds were received in trust by Gray Cary on behalf of
NMMC and Mr. Baca. A&S claims that it is entitled to the funds as a result of
an alleged representation by, and contingency fee agreement with, NMMC and Mr.
Baca relating to the liquidation proceedings. NMMC and Mr. Baca claim that they
are entitled to the funds held in trust and deny that A&S has any rights, title
or interest in such funds, and NMMC intends to vigorously defend its rights in
the lawsuit. Gray Cary claims no interest in the interpled funds.
Aguilar & Sebastinelli, a Professional Law Corporation v. Ronald R. Baca, et
al., San Francisco Superior Court Case No. 306684.
NMMC and Mr. Baca are informed that on September 23, 1999, A&S filed an action
for breach of contract, constructive trust, money had and received, breach of
promissory note and declaratory relief against NMMC, Mr. Baca and others in San
Francisco Superior Court. NMMC and Mr. Baca believe that the allegations in the
complaint relate to alleged outstanding attorneys' fees owed by NMMC and Mr.
Baca as a result of A&S's alleged prior representation of NMMC and Mr. Baca in
the liquidation proceedings of Aim Insurance Company in Orange County. A&S
alleges monetary damages in the aggregate amount of $171,278. A&S has not yet
served the complaint on either NMMC or Mr. Baca. NMMC and Mr. Baca believe that
A&S's claims are without merit and once the complaint is served, if ever, NMMC
intends to vigorously defend such action.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
-------------------------------------------------------------------
Related Stockholder Matters.
- ---------------------------
The Common Stock of Loraca is currently traded on the OTC Bulletin Board under
the ticker symbol "LCAI." The Company is contemplating applying to Nasdaq for
listing on The Nasdaq SmallCap Market. Because the Common Stock is not listed on
any securities exchanges or quoted on the Nasdaq, a limited trading market for
the Common Stock exists. The average weekly trading volume of the Common Stock
during the quarter ended June 30, 1999, is estimated at approximately 26,531
shares, based on a report from Nasdaq Historical Research.
35
<PAGE>
The price information contained in the following table sets forth the high and
low closing bid prices per share of the Common Stock as reported by Nasdaq
Historical Research. The high and low bid prices of the Common Stock reflect
inter-dealer prices which do not include retail markups, mark-downs or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
High Low
---- ---
- --------------------------------------------------------------------------------------------
<S> <C> <C>
1997 (1)
First Quarter - -
- --------------------------------------------------------------------------------------------
Second Quarter - -
- --------------------------------------------------------------------------------------------
Third Quarter - -
- --------------------------------------------------------------------------------------------
Fourth Quarter - -
- --------------------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------------------
First Quarter $5.750 5.6250
- --------------------------------------------------------------------------------------------
Second Quarter 6.250 5.1250
- --------------------------------------------------------------------------------------------
Third Quarter 6.125 3.0000
- --------------------------------------------------------------------------------------------
Fourth Quarter 4.125 3.4375
- --------------------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------------------
First Quarter 2.000 1.125
- --------------------------------------------------------------------------------------------
Second Quarter 8.000 2.5000
- --------------------------------------------------------------------------------------------
Third Quarter 5.750 5.0625
- --------------------------------------------------------------------------------------------
</TABLE>
(1) While the Company's Common Stock was eligible to be traded over-the-counter
starting June 30, 1997, Market Makers did not start quoting the security
until January 1998.
On September 30, 1999, the last sale price of the Common Stock, according to
Nasdaq Historical Research was $5.375 per share, and there were approximately
7,000,000 shares of Common Stock outstanding held by 97 stockholders of record.
Of the shares of Common Stock outstanding on September 30, 1999, approximately
(i) 800,000 shares are freely tradable without restriction under the Securities
Act; (ii) 2,100,000 shares (owned by Mr. Baca) will not be tradable pursuant to
Rule 144 under the Securities Act until February 2000; and (iii) 4,100,000 may
be traded in compliance with Rule 144 or pursuant to other exemptions from
registration under the Securities Act. In addition, Loraca has granted options
to purchase 425,000 shares of its Common Stock (vesting over a four-year period)
to officers of the Company pursuant to its 1999 Stock Option Plan with a
weighted average exercise price of $5.2978.
The Company anticipates that all earnings subsequent to the filing of this
Form 10, if any, will be retained to finance the growth and development of the
business and, therefore, the Company does not anticipate paying cash dividends
on its Common Stock in the foreseeable future. Future dividends, if any, will
be determined by the Company's Board of Directors. Prior to its acquisition by
Loraca, NMMC paid dividends to its S Corporation stockholders.
Item 10. Recent Sales of Unregistered Securities.
---------------------------------------
From its inception in March 1996, Loraca has issued 7,000,000 shares of its
Common Stock, $0.001 par value per share. Approximately 800,000 of such shares
were issued in a private placement in February 1997 in reliance upon Rule 504 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). The shares were issued for nominal cash consideration ($0.10
per share and $80,000 in aggregate) in order to fund the incorporation expenses
and initial operations of Loraca, including 50,000 shares issued to Loraca's
sole incorporator, David Spencer. All investors had
36
<PAGE>
access to all relevant information regarding Loraca that was necessary to make
an informed investment decision.
On February 23, 1998, Loraca acquired all of the issued and outstanding shares
of common stock of NMMC (formerly New Mexico Mortgage Company, Inc.) pursuant to
an Agreement and Plan of Reorganization. Loraca was organized on March 11,
1996, and had no revenues or operations prior to the merger with NMMC. The
acquisition was a transaction by an issuer not involving any public offering.
The investment decision by Loraca was made by investors who were provided with
access to information regarding Loraca and NMMC necessary to make an informed
investment decision. In connection with its acquisition of NMMC, Loraca issued
an additional 6,200,000 shares of Common Stock. Of such shares, 2,100,000 were
issued pursuant to Section 4(2) of the Securities Act to Mr. Baca, an accredited
investor, in exchange for all of the outstanding shares of NMMC held by Mr. Baca
and his wife, Susan Baca. The remaining 4,100,000 shares were sold to offshore
investors pursuant to Regulation S under the Securities Act. The shares were
issued at the effective price of $0.5183 per share, or $3,213,415 in the
aggregate.
From inception until September 30, 1999, Loraca has granted options to
purchase 425,000 shares of Common Stock. The option grants were all to employees
in transactions exempt from registration pursuant to Rule 701 promulgated under
the Securities Act.
Pursuant to the Company's contract with its technology developer, J. A. Young
& Co., the Company has agreed to issue shares of Common Stock with a market
value equal to 40% of J. A. Young & Co.'s monthly invoice to the Company. J. A.
Young & Co. is an accredited investor as defined under Rule 501(a) under the
Securities Act, and the Company contemplates issuing Common Stock to J. A. Young
& Co. pursuant to Section 4(2) of the Securities Act.
Item 11. Description of Registrant's Securities to be Registered.
-------------------------------------------------------
The authorized capital stock of Loraca consists of 50,000,000 shares of Common
Stock. The following summary of certain provisions of the Common Stock of
Loraca does not purport to be complete and is subject to, and qualified in its
entirety by, the Articles of Incorporation and Bylaws of Loraca, as amended to
date, that are included as exhibits to this Form 10 (and incorporated herein by
reference) and by the provisions of applicable law.
As of September 28, 1999, there were approximately 7,000,000 shares of Common
Stock outstanding held of record by 97 stockholders. The holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the holders of Common Stock. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive or subscription rights,
and there are no redemption or conversion rights with respect to such shares.
The transfer agent and registrar for the Common Stock is Atlas Stock Transfer
Corporation.
Item 12. Indemnification of Directors and Officers.
-----------------------------------------
The General Corporation Law of Nevada ("Nevada Law") permits the
indemnification of officers, directors, and other corporate agents under certain
circumstances and subject to certain limitations. The Company's Bylaws provide
that the Company shall indemnify any person who
37
<PAGE>
is a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Company) by virtue of the fact that he is or was a
director or officer of the Company. The indemnification extends to all expenses
(including attorney's fees), judgements, fines and amounts paid in settlement
which are actually and reasonably incurred by such director or officer in
connection with such action , suit or proceeding, provided that he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The Company will maintain directors and officers insurance for the benefit
of its officers and directors and intends to enter into indemnity agreements
with each of its officers and directors pursuant to which the Company will
indemnify its officers and directors to the fullest extent allowed by law. At
present, there is no pending litigation or proceeding involving a director or
officer of the Company in which indemnification is being sought, nor is the
Company aware of any threatened litigation that may result in a claim for
indemnification by any director or officer of the Company.
Item 13. Financial Statements and Supplementary Data.
-------------------------------------------
The consolidated financial statements of the Company are set forth beginning
on page F-1.
Item 14. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- --------------------
In August 1999, the Company retained BDO Seidman, LLP as the Company's
independent accountants. In June 1999, the Company dismissed its former
accountants, Meyners + Co., LLC, Certified Public Accountants ("Meyners"). The
decision to change independent accountants was ratified by the Company's Board
of Directors. During the two most recent fiscal years audited by Meyners
through June 2, 1999, there were no disagreements with Meyners regarding any
matters with respect to accounting principles or practices, financial statement
disclosure or audit scope or procedure, which disagreements, if not resolved to
the satisfaction of the former accountants, would have caused Meyners to make
reference to the subject matter of the disagreement in connection with its
report. The former accountants' reports for the years and periods audited by
them are not part of the financial statements of the Company included in this
registration statement. Such reports did not contain an adverse opinion or
disclaimer of opinion or qualifications or modifications as to uncertainty,
audit scope or accounting principles. Prior to retaining BDO Seidman, LLP, the
Company had not consulted with BDO Seidman, LLP regarding the application of
accounting principles or the type of audit opinion that might be rendered on the
Company's financial statements.
38
<PAGE>
Item 15. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
The information required by this item is contained under the section "Index
to Financial Statements" and such section is incorporated herein by reference.
(b) Exhibits:
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization by and between Loraca International, Inc. and NMMC, Inc.
dated as of February 23, 1998.
3.1 Articles of Incorporation of Loraca International, Inc., as amended.
3.2 Amended and Restated Bylaws of Loraca International, Inc.
4.1 Specimen Common Stock Certificate.
10.1 1999 Stock Option Plan, and form of Stock Option Agreement thereunder.
10.2 Executive Employment Agreement dated as of January 1, 1999, between Loraca
International, Inc. and Ronald R. Baca.
10.3 Form of Employment Agreement (between Loraca International, Inc. and Bernard A. Guy /
Thomas G. Bowser).
10.4 Master Agreement for Professional Services dated as of August 13, 1999, between Loraca
International, Inc./NMMC, Inc. and J.A. Young & Co.
10.5 Amended and Restated Warehouse Loan and Security Agreement dated as of August 2, 1999,
between NMMC, Inc. and The Provident Bank.
10.6 Participation Agreement dated as of July 7, 1999, between NMMC, Inc. and Sterling Bank
and Trust.
10.7 Lease dated as of July 18, 1997, between Loraca International, Inc. and G&P Resorts,
Inc., as amended.
10.8 Sublease dated as of June 14, 1999, between Loraca International Inc. and The Ryland
Group, Inc.
10.9 Asset Purchase Agreement dated as of December 30, 1998, between NMMC, Inc. and Raeaca Corp.
10.10 Demand Promissory Note dated December 31, 1998 in favor of Ronald R. Baca.
21.1 List of Subsidiaries.
27.1 Financial Data Schedule.
</TABLE>
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
LORACA INTERNATIONAL, INC.
-----------------------------
(Registrant)
Date October 7, 1999 By /s/ Ronald R. Baca
-------------------------- -----------------------------
Ronald R. Baca
Chief Executive Officer
40
<PAGE>
LORACA INTERNATIONAL, INC.
INDEX
Page
----
Financial Statements:
Consolidated Financial Statements -December 31, 1996, 1997 and 1998:
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations and Comprehensive Loss F-4
Consolidated Statements of Stockholders' (Deficit) Equity F-5
Consolidated Statements of Cash Flows F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-18
Consolidated Financial Statements (Unaudited) - June 30, 1998 and 1999:
Consolidated Balance Sheets (Unaudited) F-19
Consolidated Statements of Operations and Comprehensive
Income (Loss) (Unaudited) F-20
Consolidated Statements of Stockholders' Equity (Unaudited) F-21
Consolidated Statements of Cash Flows (Unaudited) F-22 - F-23
Notes to Consolidated Financial Statements (Unaudited) F-24
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Loraca International, Inc.
We have audited the accompanying consolidated balance sheets of Loraca
International, Inc. as of December 31, 1998 and 1997, and the related
consolidated statement of operations and comprehensive loss, shareholders'
(deficit) equity, and cash flows for each of the years in the two-year period
ended December 31, 1998, and for the period from March 11, 1996 (date of
inception) through December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
positions of Loraca International, Inc. as of December 31, 1998, and 1997, and
the consolidated results of operations and cash flows for each of the years in
the two-year period ended December 31, 1998, and for the period from March 11,
1996 (date of inception) through December 31, 1996 in conformity with generally
accepted accounting principles.
/s/BDO SEIDMAN, LLP
Los Angeles, California
September 30, 1999
F-2
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1998
-----------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 4) $ 69,253 $ 35,895
Marketable securities (Notes 2 and 11) - 2,682,316
Loan receivables held for sale, net (Notes 4 and 7) - 1,798,514
Receivables, other (Note 4) - 49,673
Prepaid expenses - 24,932
Property and equipment, net - 64,968
Capitalized leased assets, net (Note 3) - 10,853
Goodwill, net of amortization of $0 and $25,602 (Note 9) - 435,234
-----------------------------------
Total assets $ 69,253 $ 5,102,385
===================================
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Warehouse lines of credit (Note 4) $ - $ 1,790,960
Other borrowings (Notes 3 and 5) 79,194 67,756
Accounts payable - 152,569
Accrued liabilities - 53,318
Note payable to stockholder (Note 11) - 701,737
Escrow deposits - 12,714
-------------- --------------
Total liabilities 79,194 2,779,054
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 6, 7, 10 and 12)
STOCKHOLDERS' (DEFICIT) EQUITY (Notes 8 and 12)
Common stock:
Par value - $.001 per share; 50,000,000 shares 800 7,000
authorized; 800,000 shares issued and outstanding
as of December 31, 1997 and 7,000,000 shares
issued and outstanding as of December 31, 1998
Additional paid-in-capital 69,200 3,276,415
Other accumulated comprehensive income (Note 2) - 252,371
Accumulated deficit (79,941) (1,212,455)
-----------------------------------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (9,941) 2,323,331
-----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 69,253 $ 5,102,385
===================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
From Inception on
March 11, 1996
through Years Ended December 31,
December 31, -------------------------------
1996 1997 1998
----------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gains on sales of loans $ - $ - $ 285,843
Interest income - - 351,496
----------------------------------------------------------
Total revenue - - 637,339
----------------------------------------------------------
Expenses
Interest expense - - 452,513
Personnel and commission expense - 64,291 579,336
General and administrative expense 280 15,370 782,534
----------------------------------------------------------
Total expenses 280 79,661 1,814,383
----------------------------------------------------------
LOSS FROM OPERATIONS (280) (79,661) (1,177,044)
----------------------------------------------------------
Other income
Dividends - - 3,423
Gain on sale of investments - - 41,107
----------------------------------------------------------
Total other income - - 44,530
----------------------------------------------------------
Net loss (280) (79,661) (1,132,514)
----------------------------------------------------------
Other comprehensive income (Note 2):
Unrealized holding gains arising during period - - 317,841
Less reclassification adjustment for losses included - - (65,470)
in net loss
----------------------------------------------------------
Other comprehensive income - - 252,371
----------------------------------------------------------
Comprehensive loss $ (280) $ (79,661) $ (880,143)
==========================================================
Basic and diluted net loss per share $ (0.01) $ (0.12) $ (0.19)
==========================================================
Weighted average number of shares outstanding 50,000 681,000 5,967,000
==========================================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
From inception on March 11, 1996 through December 31, 1996 and for each of the
years in the two-year period ended December 31, 1998:
<TABLE>
<CAPTION>
Common Stock
----------------------------
Number Additional Accumulated
of Paid-in Comprehensive Accumulated
Shares Amount Capital Income Deficit Totals
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Inception, March 11, 1996 - $ - $ - $ - $ - $ -
Common stock issued to
incorporators for cash
at $.10 per share 50,000 50 4,950 - - 5,000
Net loss - - - - (280) (280)
---------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 50,000 50 4,950 - (280) 4,720
Common stock issued to
public for cash at $.10
per share 750,000 750 74,250 - - 75,000
Stock offering costs - - (10,000) - - (10,000)
Net loss - - - - (79,661) (79,661)
---------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 800,000 800 69,200 - (79,941) (9,941)
Common stock issued
(Note 8) 6,200,000 6,200 3,207,215 - - 3,213,415
Net unrealized holding
gains on marketable
securities - - - 252,371 - 252,371
Net loss - - - - (1,132,514) (1,132,514)
---------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 7,000,000 $ 7,000 $ 3,276,415 $ 252,371 $ (1,212,455) 2,323,331
---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception on
March 11, 1996
through Years Ended December 31,
December 31, ----------------------------------
1996 1997 1998
-------------------------------------------------------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss $ (280) $ (79,661) $ (1,132,514)
Adjustments to reconcile net loss to net cash
provided used by operating activities:
Allowance for loan losses - - 100,057
Depreciation and amortization - - 71,276
Gain on disposition of investments - - (65,470)
Cash balances acquired from NMMC, Inc. - - 173,848
Decrease (increase) in assets and liabilities,
net of effects from purchase of NMMC, Inc.:
Proceeds from sale of loans originated - - 21,745,141
for sale
Originations of loans held for sale - - (16,798,386)
Receivables - - 329,923
Related party receivables - - (32,083)
Prepaid expenses - - 3,444
Increase (decrease) in:
Accounts payable 185 (185) (233,313)
Accrued liabilities - - 53,318
Escrow deposits - - 12,714
Amount due to NMMC, Inc. - 79,194 (79,194)
-------------------------------------------------------------
Total adjustments 185 79,009 5,281,275
-------------------------------------------------------------
Net cash provided (used) by operating activities (95) (652) 4,148,761
-------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of marketable securities - - 762,945
Purchase of property and equipment - - (20,097)
-------------------------------------------------------------
Net cash provided by investing activities - - 742,848
-------------------------------------------------------------
Cash flows from financing activities:
Warehouse lines of credit, and other - - (4,928,997)
borrowings, net
Net proceeds on stockholder's note payable - - 222,911
Principal payments on other borrowings - - (218,881)
Net proceeds on sale of securities 4,711 65,289 -
-------------------------------------------------------------
Net cash provided (used) by financing activities 4,711 65,289 (4,924,967)
-------------------------------------------------------------
Net increase (decrease) in cash 4,616 64,637 (33,358)
Cash and cash equivalents, beginning of period - 4,616 69,253
-------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,616 $ 69,253 $ 35,895
=============================================================
</TABLE>
F-6
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In February 1998, Loraca International, Inc. ("Loraca") issued 2,100,000
shares of its common stock for 100 percent of NMMC, Inc.'s outstanding shares of
common stock valued at $1,088,415. Assets acquired and liabilities assumed
consisted of the following:
Amount
---------------
Cash $ 173,848
Marketable securities 483,257
Receivables 379,596
Loan receivables held for sale 6,845,326
Prepaid expenses 28,376
Property and equipment 101,398
Other assets 487,080
Goodwill 460,836
Warehouse lines of credit 6,719,956
Other borrowings 104,555
Accounts payable 385,882
Capital lease obligations 15,802
Stockholder note payable 478,826
Debt 166,281
===============
In February 1998, 1,000,000 shares of common stock in a publicly traded
corporation with an estimated fair market value of approximately $2,125,000 were
received in exchange for 4,100,000 shares of common stock of Loraca.
In December 1998, the Company's president purchased certain receivables from
NMMC, Inc. in exchange for a mortgage backed security at a carrying value of
$519,163.
Interest paid in 1998 totaled $530,577.
See notes to consolidated financial statements.
F-7
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Loraca International, Inc. was incorporated on March 11, 1996 in Nevada. In
May 1998, Laraca International, Inc. changed its name to Loraca International,
Inc. ("Loraca"). Loraca was formed to engage in the creation and acquisition of
financial services companies. Loraca was considered a development stage company
as defined under the Statement of Financial Accounting Standards (SFAS) No. 7
until February 23, 1998 when it acquired NMMC, Inc., formerly New Mexico
Mortgage Company, Inc., a wholly owned subsidiary. NMMC, Inc. originates and
sells traditional, as well as non-traditional mortgage products on a wholesale
and retail basis primarily throughout the western United States.
CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of
Loraca and its wholly owned subsidiary, NMMC, Inc. (the "Company").
Intercompany transactions and balances have been eliminated in consolidation.
BASIS OF ACCOUNTING
The Company's financial statements have been prepared on the accrual basis of
accounting.
CASH AND CASH EQUIVALENTS
For purpose of reporting cash flows, the Company considers all highly liquid
debt instruments purchased with an initial maturity of three months or less to
be cash equivalents.
INVESTMENTS
Investments in equity securities have been classified as available-for-sale
securities and are reported at fair value. Unrealized holding gains and losses
are excluded from earnings and reported as a separate component of stockholders'
equity. Realized gains and losses are reported in earnings based on the
historical cost on a first-in first-out basis of the specific security sold.
DERIVATIVES
The Company holds derivative financial instruments comprised of a subordinated
mortgage backed certificate. The fair value of the certificate is determined by
computing the present value of the excess of the weighted average coupon on the
loans sold over the coupon on the senior interests, the servicing fees paid to
the loan servicer, and fees payable to the trustee. Prepayment assumptions used
in the present value computation are based on a sample of historical prepayment
speed of 22 percent. The cash flows expected to be received by the Company, not
considering the expected losses, are discounted at an interest rate that the
Company believes an unaffiliated third-party purchaser would require as a rate
of return on such a financial instrument. Expected losses are discounted using
a rate based on the underlying underwriting guidelines, actual life losses to
date, and current delinquency, foreclosure and real estate owned (REO)
information. To the extent that actual future excess cash flows are different
from estimated excess cash flows, the fair value of the Company's certificate
will be adjusted, with corresponding adjustments made to operations in that
period.
F-8
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The mortgage backed certificate is classified as an available for sale
investment. As such, the investment is reported at its amortized cost in the
accompanying consolidated financial statements.
LOAN RECEIVABLES HELD FOR SALE
Mortgage loans held for sale are reported at the lower of amortized cost or
market value as determined by outstanding commitments from investors or current
investor-yield requirements on an individual loan basis reduced or increased by
the net deferred fees or costs associated with originating the loan.
ALLOWANCE FOR LOSSES
The allowance for losses is based on management's periodic evaluation of the
potential loss exposure associated with the portfolio of mortgage loans held for
sale and the costs to be incurred due to the repurchase of mortgage loans or
indemnification of losses based on alleged violations of representations and
warranties customary to the mortgage banking industry, and reflects an amount
that, in management's opinion, is adequate to absorb such estimated losses. In
evaluating the potential exposure, management takes into consideration numerous
factors, including current economic conditions, prior loss experience,
underlying collateral value, the provisions of loan sale agreements and the
composition of the portfolio of mortgage loans held for sale or previously sold.
RECEIVABLES
Management believes other receivables to be fully collectible. Accordingly,
no allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization on
assets are computed using accelerated depreciation methods over the estimated
useful lives of the assets, which range from three to seven years.
LONG-TERM ASSETS
The Company applies SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets". Under SFAS No. 121, long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used are
reported at the lower of the carrying amount or their estimated fair market
value. Long-lived assets and certain identifiable intangibles to be disposed of
are reported at the lower of the carrying amount or their estimated fair market
value less costs to sell.
Identifiable intangible assets not covered by FAS No. 121 and goodwill not
identified with assets that are subject to an impairment loss under FAS No. 121
are accounted for in accordance with Accounting Principal Board ("APB") Opinion
No. 17. Under APB No. 17, the amortization periods of identifiable assets and
goodwill are continually evaluated to determine if the useful lives should be
revised. If the useful lives are changed, the unamortized cost would be
allocated to the remaining periods in the revised useful lives. In addition,
the Company periodically reviews the carrying values of its identifiable
intangible assets and goodwill by comparing them to their estimated fair market
value and expected future benefits of the assets to determine if an impairment
exists under APB No. 17.
F-9
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company's revenues are derived from both the origination and sale of
mortgage loans. As a wholesale mortgage banker, the Company generates income
through discount points, fee charges for processing, documentation preparation,
underwriting and other miscellaneous fees. With respect to the loans that it
sells, the Company generates revenues from net premium income and interest
income. Net premium income consists of the net gain on the sale of mortgage
loans and mortgage servicing rights. This net gain is recognized at the time of
receipt of funds based on the difference of the loans and their related
servicing rights value minus the carrying value of the mortgage loans sold.
Interest income consists of the interest the Company receives on the mortgage
during the period to sale.
LOAN ORIGINATION FEES AND COSTS
Loan fees, discount points and certain direct origination costs are recorded
as an adjustment of the cost of the loan and are recorded in earnings when the
loan is sold. The Company sells whole loans including servicing rights.
In 1997, the Company adopted SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. Under SFAS No.
125, a transfer of financial assets in which control is surrendered is accounted
for as a sale to the extent that consideration other than beneficial interests
in the transferred assets is received in the exchange. Liabilities and
derivatives incurred or obtained by the transfer of financial assets are
required to be measured at fair value, if practicable. Also, servicing assets
and other retained interests in the transferred assets must be measured by
allocating the previous carrying value between the assets sold and the interest
retained, if any, based on their relative fair values at the date of the
transfer.
There was no material impact on the Company's consolidated financial
statements as a result of the adoption of SFAS No. 125.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1998, the fair value of cash, loan receivables held for
sale, accounts receivable, warehouse lines of credit, other borrowings, and
accounts payable, including amounts due to and from related parties,
approximates carrying values because of the short-term maturity of these
instruments.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of the
net assets acquired of NMMC, Inc., is amortized on a straight-line basis over
the expected period to be benefited of 15 years. The Company will assess the
recoverability of this goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through undiscounted
future cash flows of the acquired operation.
F-10
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
Advertising costs are expensed when incurred.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial statements, as
well as the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
INCOME TAXES
The Company provides for income taxes in accordance with the liability method.
Under this liability method, deferred taxes are determined based on the
temporary difference between the consolidated financial statements and tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. The principal differences relate
to items expensed for financial reporting purposes that are not currently
deductible for tax purposes, such as depreciation and net operating loss carry-
forwards.
NET INCOME (LOSS) PER SHARE
Loraca has adopted SFAS No. 128, which provides for the calculation of "Basic"
and "Diluted" earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income (loss) available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted earnings per
share.
COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income includes all changes in equity
except those resulting from investments by owners and distribution to owners.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS 133 was originally
to be effective for fiscal years beginning after June 15, 1999. SFAS No. 137
has deferred the effective date of SFAS 133 to all fiscal quarters of fiscal
years beginning after June 15, 2000. Management believes the adoption of this
statement will not have a material impact on the Company's financial statements.
F-11
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained After the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise", which effectively changes the way
mortgage banking firms account for certain securities and other interests they
retain after securitizing mortgage loans that were held for sale. The adoption
of SFAS 134 had no impact on the Company's financial position.
NOTE 2 -- MARKETABLE SECURITIES
Investments at December 31, 1998, were as follows:
Amount
---------------
Available for sale:
Equity securities, at cost $ 1,910,782
Unrealized gains on equity securities 252,371
---------------
2,163,153
Mortgage-backed security, at amortized cost which
approximates fair market value 519,163
---------------
$ 2,682,316
===============
NOTE 3 -- LEASES
The Company leases a building under an operating lease that expires in 2002
with a five-year renewal option. The Company also leases equipment under
capital leases that expire in various years through 1999. Generally, the
Company is required to pay executory costs, such as property taxes and
insurance, on the capital leases. Total rental expense was $85,688 for 1998
(1997: $60,059).
Capitalized leased assets at December 31, 1998, consisted of the following:
Amount
---------------
Office equipment $ 38,529
Less accumulated amortization 27,676
---------------
$ 10,853
===============
F-12
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- LEASES (CONTINUED)
The following is a schedule of future minimum lease payments required under
the operating and capital lease obligations, together with the present value of
future minimum lease payments:
<TABLE>
<CAPTION>
Capital Operating
Years ending December 31, Leases Leases
- ---------------------------------------- --------------- ---------------
<S> <C> <C>
1999 $ 6,520 $ 65,640
2000 - 67,556
2001 - 69,474
2002 - 53,183
--------------- ---------------
Total minimum lease payments 6,520 $ 255,853
===============
Less imputed interest (35)
---------------
Present value of minimum lease payments $ 6,485
===============
</TABLE>
NOTE 4 -- WAREHOUSE LINES OF CREDIT
At December 31, 1998, the Company had $1,790,960 outstanding under a $5,000,000
bank line of credit agreement bearing interest at LIBOR index plus 2.50% (7.62%
at December 31, 1998), collateralized by all pledged loans, all cash deposited
in the collateral account, all purchase commitments and the proceeds resulting
from sales, all notes, deeds of trust, mortgages, assignments, security
agreements, financing statements, guarantees and other documents and instruments
relating to pledged loans, any existing servicing contracts, and all proceeds,
products and profits of any loan. The unused portion of the line of credit as of
December 31, 1998, is $3,209,040 (see Note 13)
The loan agreements relating to the bank line of credit contain various
covenants. The covenants of this agreement include the following provisions,
among others:
A. NMMC, Inc. is required to maintain certain financial ratios.
B. NMMC, Inc. cannot have more than two consecutive calendar quarters
of net operating losses.
C. NMMC, Inc. shall maintain a positive cash flow during each month.
D. NMMC, Inc. cannot make any capital expenditures or incur any
capitalized lease obligation in excess of $50,000 per annum.
E. NMMC, Inc. cannot undertake any additional secured borrowing,
incur any other secured indebtedness, guaranty any indebtedness or
become contingently liable, in an aggregate amount in excess of
$50,000.
F. NMMC, Inc. cannot have an uninsured final nonappealable judgement,
the execution of which has not been stayed by any court, pursuant to
which damages, fines or other penalties are assessed against the
Company or any guarantor in excess of $100,000.
F-13
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the Company was in violation of the interest
coverage ratio requirements with respect to item A. and was also in violation of
items B. and C. above. The bank waived these loan covenant requirements at
December 31, 1998.
NOTE 5 -- OTHER BORROWINGS
<TABLE>
<S> <C>
Bank revolving line of credit in the amount of $25,000 bearing
interest at Prime rate plus 3% (10.75% at December 31, 1998),
secured by a stockholder's real estate, payable in monthly
installments of .5% of the principal balance plus any finance
charge accrued or $50, whichever is greater, no specified due date $ 20,908
Unsecured vendor note bearing interest at 8.25%, payable in monthly
principal and interest installments of $8,778, due April 1999 34,517
Bank note bearing interest at Prime rate plus 3.5% (11.25% at
December 31, 1998), collateralized by a vehicle, payable in
monthly principal and interest installments of $931, due April 1999 3,684
Unsecured bank note bearing interest at 13.25%, payable in monthly
principal and interest installments of $535 due June 1999 2,162
Capitalized lease obligation 6,485
---------------
$ 67,756
===============
</TABLE>
NOTE 6 -- PROFIT SHARING PLAN
Effective January 1, 1993, NMMC, Inc. adopted a 401(k) defined contribution
profit sharing plan. Substantially all employees who have attained age 18 and
completed one year of service are eligible. Employee contributions can be made
through a salary reduction arrangement, and the Company may, at its discretion,
make contributions up to maximum allowable amounts. No employer contributions
were made to the plan during 1998.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
LOAN COMMITMENTS
At December 31, 1998, the Company had committed to but not yet funded
approximately $263,450 of loans.
ALLOWANCE FOR UNSOLD AND REPURCHASE LOSSES ON LOANS
At December 31, 1998, an allowance of $92,417 for losses and for costs on
unsold loans incurred was recorded. The Company has not experienced significant
repurchase losses or indemnification of losses based on alleged violations of
representations and warranties customary to the mortgage banking industry.
F-14
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
OFF BALANCE SHEET RISK
Interest rate movements significantly impact the Company's volume of closed
mortgage loans and represent the primary market risk to the Company. In a
higher interest rate environment, consumer demand for mortgage loans,
particularly refinancing of existing mortgage loans, declines. Interest rate
movements affect the interest income earned on mortgage loans held for sale,
interest expense on the warehouse lines of credit payable, the value of mortgage
loans held for sale and ultimately the gain on sale of mortgage loans. In
addition, in an increasing interest rate environment, the Company's mortgage
loan brokerage volume is adversely affected.
The Company originates mortgage loans and manages the market risk related to
these mortgage loans by pre-selling them on a best-effort basis at the time that
the Company establishes the borrower's interest rate. The Company currently
does not maintain a trading portfolio of mortgage loans and/or mortgage
securities. As a result, the Company is not exposed to market risk as it
relates to trading activities. The majority of the Company's portfolio is held
for sale which requires it to perform market valuations of its pipeline, its
mortgage loan portfolio held for sale and related forward sale commitments in
order to properly record the portfolio and the pipeline at lower of cost or
market. Therefore, the Company monitors the interest rates of its loan
portfolio as compared to prevailing interest rates in the market. Because the
Company pre-sells its mortgage loan commitments forward, it believes that a
1.00% increase or decrease would not have a significant adverse affect on the
Company's earnings from its interest rate sensitive assets. The Company pays-
off the warehouse lines payable when the mortgage loan is sold and consequently
would not be expected to incur significant losses from an increase in interest
rates on the warehouse line of credit due to the short time frame that the
warehouse line is drawn down. In the future, if the Company does not pre-sell
the mortgage loan commitments, its market risk could change significantly.
LITIGATION
Gray Cary Ware & Freidenrich LLP v. Ronald Baca, et al., San Diego Superior
---------------------------------------------------------------------------
Court Case No. GIC732677.
- ------------------------
On July 16, 1999, Gray Cary Ware & Freidenrich LLP, the Company's corporate
legal counsel ("Gray Cary"), instituted an interpleader action against NMMC,
Inc., Ronald R. Baca (the Company's President) and Aguilar & Sebastinelli, a
Professional Law Corporation ("A&S"). Gray Cary has interpled approximately
$81,250, a portion of the settlement proceeds recovered by NMMC, Inc. and Mr.
Baca in the liquidation proceedings of Aim Insurance Company, an insolvent
California insurer conserved by the California Department of Insurance (Orange
County Superior Court Case No. 72577). The interpled funds were received in
trust by Gray Cary on behalf of NMMC, Inc. and Mr. Baca. A&S claims that it is
entitled to the funds as a result of an alleged representation by, and
contingency fee agreement with, NMMC, Inc. and Mr. Baca relating to the
liquidation proceedings. NMMC, Inc. and Mr. Baca claim that they are entitled
to the funds held in trust and deny that A&S has any rights, title or interest
in such funds, and NMMC, Inc. intends to vigorously defend its rights in the
lawsuit. Gray Cary claims no interest in the interpled funds.
F-15
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION (CONTINUED)
Aguilar & Sebastinelli, a Professional Law Corporation v. Ronald R. Baca, et
----------------------------------------------------------------------------
al., San Francisco Superior Court Case No. 306684.
- -------------------------------------------------
NMMC, Inc. and Mr. Baca are informed that on September 23, 1999, A&S filed an
action for breach of contract, constructive trust, money had and received,
breach of promissory note and declaratory relief against NMMC, Inc. Mr. Baca and
others in San Francisco Superior Court. NMMC, Inc. and Mr. Baca believe that
the allegations in the complaint relate to alleged outstanding attorneys' fees
owed by NMMC, Inc. and Mr. Baca as a result of A&S' alleged prior representation
of NMMC, Inc. and Mr. Baca in the liquidation proceedings of Aim Insurance
Company in Orange County. A&S alleges monetary damages in the aggregate amount
of $171,278. A&S has not yet served the complaint on either NMMC, Inc. or Mr.
Baca. NMMC, Inc. and Mr. Baca believe that A&S' claims are without merit and
once the complaint is served, if ever, NMMC, Inc. intends to vigorously defend
such action.
The Company is also a party to legal claims arising in the normal course of
business. In the opinion of management, based in part on discussions with legal
counsel, resolution of such matters will not have a material adverse effect on
the financial position and operating results of the Company.
NOTE 8 -- COMMON STOCK
On February 23, 1998, Loraca issued 2,100,000 shares of common stock for 100
percent of NMMC, Inc.'s outstanding shares of common stock valued at $1,088,415.
In addition, on February 23, 1998, 1,000,000 shares of common stock in a
publicly traded corporation with an estimated fair market value of approximately
$2,125,000 were received in exchange for 4,100,000 shares of Loraca's common
stock.
NOTE 9 -- ACQUISITION
On February 23, 1998, Loraca issued 2,100,000 shares of common stock for 100
percent of NMMC, Inc.'s outstanding shares of common stock valued at $1,088,415
in a business combination accounted for as a purchase. NMMC, Inc. primarily
engages in mortgage broker services relating to single family residences in New
Mexico. The results of operations of NMMC, Inc. are included in the
accompanying consolidated financial statements since the date of acquisition.
The total cost of the acquisition was $1,088,415, which exceed the fair value of
the net assets of NMMC, Inc. by $460,836. The excess was recorded as goodwill
and is being amortized over 15 years on the straight-line basis.
Pro forma unaudited information assuming the acquisition of NMMC, Inc.
occurred at the beginning of the periods presented:
Years Ended
December 31,
1997 1998
------------------------------------
Revenues $ 1,028,968 $ 654,017
Net income (loss) $ 150,721 $ (1,050,827)
Earnings (loss) per share $ 0.05 $ (0.18)
F-16
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- ACQUISITION (CONTINUED)
The unaudited pro forma information is not indicative of the results which may
have been obtained had the transactions occurred on January 1, 1997 or of future
results.
NOTE 10 -- INCOME TAXES
At December 31, 1998, there are $643,000 of unused net operating loss
carryforwards that may be applied against future Federal taxable income and
expires in 2019. The Company also has $516,000 of capital loss carryforwards
that may be applied against future capital gains and expires in 2004. Any
benefit for the tax carryforwards has been fully reserved because management is
unable to determine if it is more likely than not that these net operating
losses will be realized.
NOTE 11 -- RELATED PARTY TRANSACTIONS
In June 1998, the Company's President, Ronald R. Baca purchased a bad debt
account receivable from NMMC, Inc. involving NMMC, Inc.'s failed attempt to
acquire Aim Insurance Company, a California domiciled insurance carrier, which
was conserved by the California Department of Insurance in 1994 and is currently
in liquidation (Note 7). As consideration for the purchase of the bad debt
account receivable from NMMC, Inc., Mr. Baca forgave a debt payable by NMMC,
Inc. to Mr. Baca in the amount of $443,000.
From time to time, Mr. Baca has made loans to Loraca and NMMC, Inc. in order
to fund the Company's working capital needs, including payroll and other office
expenses. In consideration of Mr. Baca' capital contributions, the Company
issued to Mr. Baca an unsecured demand promissory note dated as of December 31,
1998 in the amount of $701,737 and bearing interest at the rate of 8% per annum.
Interest expense related to this note was $0 in 1998.
Effective December 31, 1998, Mr. Baca purchased certain receivables from NMMC,
Inc. in exchange for a mortgage backed security at a carrying value of $519,163.
Management believes that the value of the mortgage backed security equals or
exceeds the value of the receivables sold.
NOTE 12 -- SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company closed its California and New
Mexico sales and processing branches. The Company is now originating and
selling specialty mortgage products in selected states from its offices in
Oregon.
On January 1, 1999, the Company entered into an employment agreement with its
President and Chief Executive Officer. The initial term of the employment
relationship pursuant to this agreement is for a period of five years following
such date, unless sooner terminated. On completion of the initial term, the
agreement will automatically renew for subsequent one-year terms unless either
party provides three months advance written notes. The agreement provides for a
base salary subject to an annual review and a six percent increase on each
anniversary date, incentives based on the Company's attainment of specified
levels of earnings before interest, taxes, depreciation and amortization, and
other fringe benefits. If the Company terminates this agreement without cause,
the Company will pay the remainder of the base salary
F-17
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 -- SUBSEQUENT EVENTS (CONTINUED)
then in effect for the balance of either the initial term or any subsequent one-
year term. In addition, the Chief Executive Officer also receives a "separation
package," which includes a severance payment equal to two times the base salary
if the termination occurs during the initial term, or a severance payment equal
to three times the base salary then in effect if the termination occurs after
the initial term. The separation package will be paid provided that the Chief
Executive Officer agrees to act as a consultant for the Company without further
compensation for six months following the termination of the employment
relationship, if requested to do so by the Company, and refrains from
competition with the Company.
On March 29, 1999, the Company entered into a $5,000,000 Warehouse Loan
Agreement with Provident Bank. Pursuant to this agreement, Provident Bank may
agree to fund certain loans evidenced by promissory notes and secured by
mortgages, deeds of trust, or deeds to secure debt conveying interests in real
estate.
On April 14, 1999, the Company adopted a Stock Option Plan under which options
may be granted to prospective and existing employees, consultants, and directors
of the Company and its subsidiary to purchase common shares at a price equal to
the fair market value at the date of grant. The maximum aggregate number of
shares, that may be issued under the Plan shall be one million (1,000,000) and
shall consist of authorized but unissued or reacquired shares of stock or any
combination thereof.
On April 16, 1999, the President and Chief Executive Officer of the Company
was granted an option to purchase 200,000 shares of common stock of the Company
at an exercise price of $5.00 per share.
The Company did not renew its $5,000,000 line of credit after May 31, 1999.
NMMC, Inc. has entered into executive employment agreements with Mr. Barney
Guy and Mr. Thomas Bowser effective as of June 1, 1999 (the "Executive
Agreements"). The Executive Agreements are for a term of three years,
commencing on June 1, 1999.
On September 3, 1999, the Company granted to each, Mr. Barney Guy and Mr.
Thomas Bowser, an option to purchase 112,500 shares of Common Stock at a per
share option price of $5.5625.
Pursuant to the Company's contract with its technology developer, J. A. Young
& Co., the Company has agreed to issue shares of Common Stock with a market
value equal to 40% of J. A. Young & Co.'s monthly invoice to the Company. J. A.
Young & Co. is an accredited investor as defined under Rule 501(a) under the
Securities Act, and the Company contemplates issuing Common Stock to J. A. Young
& Co. pursuant to Section 4(2) of the Securities Act.
F-18
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,
1999
--------------
<S> <C>
ASSETS
Cash and cash equivalents $ 8,826
Marketable securities 4,165,365
Loan receivables held for sale, net 277,030
Receivable from stockholder 217,562
Receivables, other 18,576
Mortgage backed security 519,163
Prepaid expenses 39,027
Property and equipment, net 66,233
Capitalized leased assets, net 4,824
Goodwill, net of amortization of $40,963 419,873
--------------
Total assets $ 5,736,479
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse lines of credit $ 276,910
Other borrowings 23,893
Accounts payable 83,861
Accrued liabilities 299
Escrow deposits 5,692
--------------
Total liabilities 390,655
--------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 6, 7, 10 and 12)
STOCKHOLDERS' EQUITY
Common stock:
Par value - $.001 per share; 50,000,000 shares authorized; 7,000
7,000,000 shares issued and outstanding as of June 30, 1999
Additional paid-in-capital 3,276,415
Other accumulated comprehensive income 2,120,648
Accumulated deficit (58,239)
--------------
TOTAL STOCKHOLDERS' EQUITY 5,345,824
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,736,479
==============
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------
1998 1999
--------------------------------------
<S> <C> <C>
REVENUES
Gains on sales of loans $ 207,526 $ 78,934
Interest income 198,230 36,672
--------------------------------------
Total revenue 405,756 115,606
--------------------------------------
EXPENSES
Interest expense 254,869 52,758
Personnel and commission expense 175,256 609,267
General and administrative expense 314,136 691,190
Total expenses 744,261 1,353,215
--------------------------------------
LOSS FROM OPERATIONS (338,505) (1,237,609)
--------------------------------------
OTHER INCOME (EXPENSE)
Dividends 1,095 4,702
Gain on sale of investments 20,915 2,387,123
Bad debt expense (7,727) -
--------------------------------------
Total other income (expense) 14,283 2,391,825
--------------------------------------
NET INCOME (LOSS) (324,222) 1,154,216
Other comprehensive income:
Unrealized holding gains (loss) during period (695,444) 1,868,277
--------------------------------------
Comprehensive income (loss) (1,019,666) 3,022,493
======================================
Basic and diluted net income (loss) per share $ (0.07) 0.16
======================================
Weighted average number of shares outstanding $ 4,933,000 $ 7,000,000
======================================
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
From January 1,1998 and for each of the six months period ended June 30, 1999:
<TABLE>
<CAPTION>
Other
Number Additional Accumulated
of Paid-in Comprehensive Accumulated
Shares Amount Capital Income (loss) Deficit Totals
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 800,000 $ 800 $ 69,200 $ - $ (79,941) $ (9,941)
Common stock issued 6,200,000 6,200 3,207,215 - - 3,213,415
Net unrealized holding
loss on marketable
securities - - - (695,444) - (695,444)
Net loss - - - - (324,222) (324,222)
--------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 7,000,000 7,000 3,276,415 (695,444) (404,163) 2,183,808
Net unrealized holding
gains on marketable
securities - - - 947,815 - 947,815
Net loss - - - - (808,292) (808,292)
--------------------------------------------------------------------------------------------------------
Balance, January 1, 1999 7,000,000 7,000 3,276,415 252,371 (1,212,455) 2,323,331
Net unrealized holding
gains on marketable
securities (unaudited) - - - 1,868,277 - 1,868,277
Net income (unaudited) - - - - 1,154,216 1,154,216
--------------------------------------------------------------------------------------------------------
Balance, June 30, 1999
(unaudited) 7,000,000 $ 7,000 $ 3,276,415 $ 2,120,648 $ (58,239) 5,345,824
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
1998 1999
-----------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) $ (324,222) $ 1,154,216
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Allowance for loan losses 100,057 -
Depreciation and amortization 37,231 42,187
Gain on disposition of investment (65,470) (2,387,123)
Cash balances acquired from NMMC, Inc. 173,848 -
Decrease (increase) in assets and liabilities,
net of effects from purchase of NMMC, Inc.:
Proceeds from sale of loans originated
for sale 11,031,623 7,912,343
Originations of loans held for sale (9,232,685) (6,390,860)
Receivables 466,003 31,097
Related party receivables (32,083) -
Prepaid expenses (16,989) (14,095)
Increase (decrease) in:
Accounts payable (232,665) (68,707)
Accrued liabilities 75,873 (53,020)
Escrow deposits 22,944 (7,022)
Amount due to NMMC, Inc. (79,194) -
-----------------------------------------
Total adjustments 2,248,493 (935,200)
-----------------------------------------
Net cash provided (used) by operating activities 1,924,271 219,016
-----------------------------------------
Cash flows from investing activities:
Purchase of marketable securities - (715,125)
Proceeds from sale of marketable securities 434,186 2,322,562
Purchase of property and equipment (7,402) (22,059)
-----------------------------------------
Net cash provided (used) by investing activities 426,784 1,585,378
-----------------------------------------
Cash flows from financing activities:
Warehouse lines of credit and other
borrowings, net (2,031,773) (1,514,050)
Payments on stockholder's note payable, net (15,423) (273,549)
Principal payments other borrowings, net 24,397 (43,864)
-----------------------------------------
Net cash used by financing activities (2,022,799) (1,831,463)
-----------------------------------------
Net increase (decrease) in cash 328,256 (27,069)
Cash and cash equivalents, beginning of period 69,253 35,895
-----------------------------------------
Cash and cash equivalents, end of period $ 397,509 $ 8,826
=========================================
</TABLE>
F-22
<PAGE>
LORACA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In February 1998, Loraca International, Inc. ("Loraca") issued 2,100,000
shares of its common stock for 100 percent of NMMC, Inc.'s outstanding shares of
common stock valued at $1,088,415. Assets acquired and liabilities assumed
consisted of the following:
Amount
---------------
Cash $ 173,848
Marketable securities 483,257
Receivables 379,596
Loan receivables held for sale 6,845,326
Prepaid expenses 28,376
Property and equipment 101,398
Other assets 487,080
Goodwill 460,836
Warehouse lines of credit 6,719,956
Other borrowings 104,555
Accounts payable 385,882
Capital lease obligations 15,802
Stockholder note payable 478,826
Debt 166,281
===============
In February 1998, 1,000,000 shares of common stock in a publicly traded
corporation with an estimated fair market value of approximately $2,125,000 were
received in exchange for 4,100,000 shares of common stock of Loraca.
Interest paid in 1999 and 1998 totaled $25,953 and $338,731.
See notes to consolidated financial statements.
F-23
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- FINANCIAL STATEMENT PRESENTATION
The consolidated balance sheet as of June 30, 1999, the consolidated
statements of operations and comprehensive income for the six months ended June
30, 1999 and 1998, and the consolidated statements of cash flows for the six
months ended June 30, 1999 and 1998 are unaudited and have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is recommended that these financial statements be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's financial statements for the fiscal year ended
December 31, 1998.
The accompanying consolidated financial statements reflect all adjustments
that are, in the opinion of management, necessary to present fairly the
financial position as of June 30, 1999, the results of operations for the six
months ended June 30, 1999 and 1998, and cash flows for the six months ended
June 30, 1999 and 1998. All such adjustments are of a normal and recurring
nature. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year. Certain
reclassifications have been made to the prior year financial statements to
conform with the current year presentation.
F-24
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization is entered into effective as of
this 23rd day of February, 1998, by and among Laraca International, Inc., a
Nevada corporation, (hereinafter "Acquiror") . New Mexico Mortgage Company,
Inc., a New Mexico corporation (hereinafter "Acquiree"); and all of
the shareholders (hereinafter referred to as "Acquiree Stockholders").
RECITAL:
Acquiree Stockholders own all of the issued and outstanding capital stock
of Acquiree. Acquiror desires to acquire all (but not less than 80%) of the
---
issued and outstanding common voting stock of Acquiree, making Acquiree a
wholly-owned subsidiary of Acquiror, and Acquiree Stockholders desire to make an
exchange of all of their common voting shares of Acquiree solely for voting
--- ------
shares of Acquiror's common stock to be exchanged as set out herein with said
Acquiree Stockholders.
NOW, THEREFORE, for the mutual consideration set out herein, the parties
agree as follows:
AGREEMENT
1. Plan of Reorganization. Acquiree Stockholders are the owners of all
----------------------
of the issued and outstanding common voting stock of Acquiree. A list of
Acquiree stockholders and their ownership of Acquiree Shares is attached hereto
as Exhibit "A". It is the intention of the parties hereto that all (but not less
---
than 80%)
<PAGE>
of the issued and outstanding shares of common voting stock of Acquiree
("Acquiree Shares") shall be acquired by Acquiror in exchange solely for
Acquiror voting common stock. It is the intention of the parties hereto that
this transaction qualify as a tax-free reorganization under Section 368(a)(1)(B)
of the Internal Revenue Code of 1986, as amended, and related sections
thereunder.
2. Exchange of Shares. Acquiror and Acquiree Stockholders agree that all
------------------ ---
(but not less than 80%) of the issued and outstanding Acquiree Shares shall be
exchanged with Acquiror for 2,100,000 shares of voting common stock as described
on Exhibit "A" attached hereto ("Acquiror Shares"). Acquiror Shares will, on the
Closing Date, as hereafter defined, be delivered to Acquiree Stockholders in
exchange for their Acquiree Shares. Acquiree Stockholders agree that they will
hold the Acquiror Shares for investment purposes and not for further public
distribution without registration under applicable securities laws or pursuant
to an available exemption therefrom.
3. Delivery of Shares. On the Closing Date, Acquiree Stockholders will
------------------
deliver certificates representing their Acquiree Shares duly endorsed so as to
make Acquiror the sole owner thereof, free and clear of all claims and
encumbrances; and on such Closing Date, delivery of the Acquiror Shares, which
will
<PAGE>
be appropriately restricted as to transfer, will be made to Acquiree
Stockholders as set forth herein.
4. Representations of Acquiree. Acquiree hereby represents and warrants
---------------------------
that, effective this date and the Closing Date, the representations listed below
are true and correct.
(a) Acquiree Stockholders are the sole record and beneficial owners of
the issued and outstanding shares of common stock of Acquiree;
(b) The Acquiree Shares constitute validly authorized and issued
common voting shares of Acquiree common stock, fully-paid and
nonassessable.
(c) Audited financial statements dated as of December 31, 1996 of
Acquiree together with unaudited financial statements dated as of October
31, 1997 of Acquiree ("Acquiree Financial Statements") as delivered or to
be delivered to Acquiror, are complete, accurate and fairly present the
financial condition of Acquiree as of the date(s) thereof and the results
of its operations for the period(s) covered.
At Closing there shall be no material liabilities, either fixed or
contingent, not reflected in the Acquiree Financial Statements other than
contracts or obligations in the ordinary and usual course of business; and
no such contracts or obligations in the usual course of business
<PAGE>
constitute liens or other liabilities which, if disclosed, would materially
alter the financial condition of Acquiree as reflected in such financial
statements unless otherwise disclosed in writing to Acquiror.
(d) Acquiree is not involved in any pending litigation or governmental
investigation or proceeding not reflected in such Acquiree Financial Statements,
or otherwise previously disclosed in writing to Acquiror and, to the best
knowledge of Acquiree, no litigation, claims, assessments, or governmental
investigation or proceeding is threatened against Acquiree.
(e) As of the Closing Date, Acquiree will be in good standing in its state
of incorporation, and will be in good standing and duly qualified to do business
in each state where required to be so qualified except where the failure to so
qualify would not have a material adverse effect on the business of Acquiree.
(f) Acquiree has filed all governmental, tax or related returns and reports
due or required to be filed and has paid or accrued all taxes or assessments
which have become due as of closing or has filed extensions with regard thereto.
<PAGE>
(g) Except as disclosed on any Exhibit, Acquiree has not materially
breached any agreement to which it is a party.
(h) Acquiree has no subsidiary corporations other than as previously
disclosed in writing to Acquiror.
(i) The corporate financial records, minute books, and other corporate
documents and records of Acquiree are to be reasonably available to present
management of Acquiror prior to the Closing Date.
(j) The execution of this Agreement will not materially violate or breach
any agreement, contract, or commitment to which Acquiree or Acquiree
Stockholders are a party and has been duly authorized by all appropriate and
necessary action.
(k) The authorized capitalization of Acquiree is as set forth in the
Acquiree Financial Statements. Acquiree has only the capital stock authorized as
set forth in said Acquiree Financial Statements and all outstanding shares have
been duly authorized, validly issued and are fully paid and nonassessable with
no personal liability attaching to the ownership thereof. There are no
outstanding convertible securities, warrants or options which may cause
authorized but unissued shares to be issued to any person.
5. Representations of Acquiree Stockholders.
----------------------------------------
<PAGE>
(a) Acquiree Stockholders hereby represent and warrant that the
Acquiree Shares are presently (and will be at the Closing) free from
claims, liens, or other encumbrances, and at the Closing Date, Acquiree
Stockholders will have good title and the unqualified right to transfer and
dispose of Acquiree Shares.
(b) Acquiree Stockholders hereby represent that all representations
and warranties made herein by Acquiree are true to the best knowledge and
information of said Acquiree Stockholders.
6. Representations of Acquiror. Acquiror hereby represents and warrants
---------------------------
as follows:
(a) As of the Closing Date, the Acquiror shares to be delivered to the
Acquiree Stockholders will be duly authorized and will constitute valid and
legally issued shares of common stock of Acquiror, fully-paid and
nonassessable, and the common stock will be legally equivalent in all
respects to the common stock of Acquiror issued and outstanding as of the
date hereof.
(b) The officers of Acquiror are duly authorized to execute this
Agreement and have taken all action required by law, applicable agreements
and governing corporate instruments to properly and legally execute this
Agreement. The execution hereof and performance hereunder will not
<PAGE>
violate the provisions of Acquiror's Articles of Incorporation or By-laws
and will not constitute a material breach of any agreement to which
Acquiror is a party.
(c) Acquiror has delivered its audited April 30, 1997 financial
statements, ("Acquiror Financial Statements"), and at closing shall deliver
all of its financial records to persons appointed as new management of
Acquiror. Acquiror Financial Statements, are presently and at closing shall
be, true, correct, complete and accurate; there are not presently and at
closing there shall be no liabilities, either fixed or contingent, not
reflected in such financial statements. Acquiror Financial Statements
fairly and accurately reflect the financial condition of the Acquiror as of
the dates thereof and the results of operations for the periods reflected
therein, except as otherwise disclosed herein. Such statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, except as otherwise stated therein.
(d) Since the date of the Acquiror Financial Statements there shall
not have been, and as of the Closing Date there shall not be, any material
adverse changes in the financial position of Acquiror, except changes
arising in the ordinary course of business, which changes shall in no event
materially and adversely affect the financial
<PAGE>
condition of the Acquiror. However, the financial position of Acquiror
shall change to the extent there are costs incurred by Acquiror in
connection with this reorganization and the closing thereof. Acquiror shall
have no liabilities or debts as of the Closing Date.
(e) Acquiror is not involved in any pending litigation, claims, or
governmental investigation or proceeding not reflected in such financial
statements or otherwise disclosed in writing to Acquiree and Acquiree
Stockholders and there are no lawsuits, claims, assessments,
investigations, or similar matters, to the best knowledge of Acquiror,
threatened or contemplated against Acquiror or its assets.
(f) As of the Closing Date and the date hereof Acquiror is duly
organized, validly existing and in good standing under the laws of the
State of Nevada. It has the corporate power to own its property and to
carry on its business as now being conducted and is duly qualified to do
business in any jurisdiction where so required except where the failure to
so qualify would not have a material adverse effect on the business of
Acquiree.
(g) Acquiror has filed all federal, state, county and local income,
excise, property and other tax returns, forms, or reports, which are due or
required to be filed by it
<PAGE>
prior to the date hereof and has paid or made adequate provision for the
payment of all taxes, fees, or assessments which have or may become due
pursuant to such returns or pursuant to any assessments received.
(h) Acquiror has not breached, nor is there any pending or threatened
claims that Acquiror has breached, any of the terms or conditions of any
agreements, contracts or commitments to which it is a party or is bound and
the execution and performance hereof will not violate any provisions of
applicable law of any agreement to which Acquiror is subject.
(i) As of the Closing Date, the authorized capitalization of Acquiror
shall be as disclosed in Acquiror Financial Statements, except as otherwise
disclosed or provided for herein.
All outstanding shares of Acquiror have been duly authorized, validly
issued, and fully-paid and there are no outstanding or presently authorized
securities, warrants, options or related commitments on behalf of the
Acquiror, of any nature not reflected in Acquiror Financial Statements or
described herein.
(j) Since the date of the Acquiror Financial Statements, Acquiror has
agreed to issue a total of 4,100,000 shares of its common stock to several
investors in
<PAGE>
consideration for the aggregate payment of the investors of approximately
$2,000,000 in securities recently received by Acquiror. Upon issuance of
the 4,100,000 shares, Acquiror will then have 4,900,000 shares of its
common stock issued and outstanding (prior to and without giving effect to
the additional 2,100,000 shares to be issued to Acquiree shareholders
pursuant to this Agreement).
(k) Acquiror has no subsidiary corporation.
(l) The shares of restricted Acquiror Shares to be issued to Acquiree
Stockholders at the time of Closing will be validly issued, nonassessable
and fully-paid under Nevada corporation law and will be issued in a
nonpublic or private offering transaction in compliance with all federal
and state securities laws.
(m) At the date of this Agreement, Acquiror has, and at the Closing
Date it will have, disclosed all events, conditions and facts materially
affecting the business of Acquiror. Acquiror has not now and will not have,
at the Closing Date, withheld disclosure of any such events, conditions,
and facts which it has knowledge of, or has reasonable grounds to know, may
materially affect the business of Acquiror.
(n) The corporate financial records, minute books, and other documents
and records of Acquiror are to be available
<PAGE>
to Acquiree prior to the closing Date and turned over to newly appointed
Management in their entirety at Closing.
(o) Acquiror is a public company and represents that it has no
existing or threatened liabilities, claims, lawsuits, or, to the best
knowledge of Acquiror, basis for the same, with respect to its original
stock issuance to its founders, its public offering, or any other dealings
with its Stockholders, the public, brokers, the Securities and Exchange
Commission, state agencies or other persons. This includes matters relating
to state or federal securities laws as well as general common law or state
corporation law principles.
(p) This Agreement is enforceable in accordance with its terms.
7. Closing Date. The Closing Date herein referred to shall be upon such
------------
date as the parties hereto may mutually agree upon but shall be held on or prior
to March 6, 1998 unless mutually agreed to be held at a later date. At the
Closing, Acquiree Stockholders will be deemed to have accepted delivery of the
certificates of Acquiror Shares issued in their respective names, and in
connection therewith will make delivery of their Acquiree Shares to Acquiror.
Certain exhibits, etc. may be delivered subsequent to the Closing Date upon the
mutual agreement of the parties hereto.
<PAGE>
8. Conditions Precedent to the Obligations of Acquiree and Acquiree
----------------------------------------------------------------
Stockholders. All obligations of Acquiree and Acquiree Stockholders under this
- --------------
Agreement are subject to the fulfillment, prior to or as of the Closing Date, of
each of the following conditions:
(a) The representations and warranties by or on behalf of Acquiror
contained in this Agreement or in any certificate or document delivered to
Acquiree and Acquiree Stockholders pursuant to the provisions hereof shall
be true in all material respects at and as of the time of Closing as though
such representations and warranties were made at and as of such time.
(b) Acquiror shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing on the Closing Date.
(c) The present Directors of Acquiror shall cause the appointment of
the following Acquiree Stockholder's nominees to the Board of Directors of
Acquiror: Ron Baca, Harrison Gentry, Harry Myers, John Trombello, William
Moffatt, Mark Harris and Nicola Ontiveros. Acquiror Management,
constituting all officers and directors of Acquiror, shall resign as the
existing officers and directors of Acquiror, as of the Closing.
<PAGE>
(d) All instruments and documents delivered to Acquiree Stockholders
pursuant to the provisions hereof shall be reasonably satisfactory to legal
counsel for Acquiree Stockholders.
9. Conditions Precedent to the Obligations of Acquiror. All obligations
---------------------------------------------------
of Acquiror under this Agreement are subject to the fulfillment, prior to or at
the Closing on the Closing Date, of each of the following conditions:
(a) the representations and warranties by Acquiree and Acquiree
Stockholders contained in this Agreement or in any certificate or document
delivered to Acquiror pursuant to the provisions hereof shall be true at
and as of the time of Closing as though such representations and warranties
were made at and as of such time.
(b) Acquiree and Acquiree Stockholders shall have performed and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by them prior to or at the
Closing; including the delivery of the stock of Acquiree being acquired
hereunder.
(c) Acquiree Stockholders shall deliver to Acquiror a letter commonly
known as an "investment letter" agreeing that the Acquiror Shares are being
acquired for investment
<PAGE>
purposes. The form of said letter is attached hereto as Exhibit "B".
10. Indemnification. Within the period provided in paragraph 11 herein and
---------------
in accordance with the terms of that paragraph, Acquiree (together with Acquiree
shareholders) and Acquiror shall indemnify and hold harmless each other at all
times after the date of this Agreement against and in respect of any liability,
damage or deficiency, all actions, suits, proceedings, demands, assessments,
judgments, costs and expenses including attorney's fees incident to any of the
foregoing, resulting from any misrepresentations, breach of covenant or warranty
or nonfulfillment of any agreement on the part of such party under this
Agreement or from any misrepresentation in or omission from any certificate
furnished or to be furnished to a party hereunder.
11. Nature and Survival of Representations. All representations,
--------------------------------------
warranties and covenants made by any party in this Agreement shall survive the
Closing hereunder and the consummation of the transactions contemplated hereby
for two years from the date hereof. All of the parties hereto are executing and
carrying out the provisions of this Agreement in reliance solely on the
representations, warranties and covenants and agreements contained in this
Agreement or at the Closing of the transactions herein provided for and not upon
any
<PAGE>
investigation upon which it might have made or any representations, warranty,
agreement, promise or information, written or oral, made by the other party or
any other person other than as specifically set forth herein.
12. Documents at Closing. At the Closing, the following transactions shall
--------------------
occur, all of such transactions being deemed to occur simultaneously:
(a) Acquiree Stockholders will deliver, or cause to be delivered, to
Acquiror the following:
(1) stock certificates for the shares of Acquiree Stock being
exchanged hereunder, duly endorsed in blank.
(2) a certificate executed by certain principal Acquiree
Stockholders to the effect that all representations and warranties
made by Acquiree and Acquiree Stockholders under this Agreement are
true and correct as of the Closing, the same as though originally
given to Acquiror on said date;
(3) a certificate from the Secretary of State of its incorporation
dated at or about the date of the Closing to the effect that Acquiree
is in good standing under the laws of said State;
(4) an investment letter from the Acquiree Stockholders;
<PAGE>
(5) such other instruments, documents and certificates, if any, as
are required to be delivered pursuant to the provisions of this
Agreement.
(b) Acquiror will deliver or cause to be delivered:
(1) stock certificates representing 2,100,000 shares of Acquiror
Common Stock issued in full consideration of the exchange as described
herein:
(2) a certificate of the President and Secretary of Acquiror to
the effect that all representations and warranties of Acquiror made
under this Agreement are reaffirmed on the Closing Date, the same as
though originally given to Acquiree and Acquiree Stockholders on said
date;
(3) certified copies of resolutions by Acquiror's Board of
Directors, including resignations of the current Acquiror officers and
directors, and resolutions of Stockholders authorizing this
transaction;
(4) a Certificate from the Secretary of State of Acquiror's state
of incorporation dated at or about the date of Closing that Acquiror
is in good standing under the laws of said State;
(5) all corporate records of Acquiror:
<PAGE>
(6) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement, including the
turning over of control of corporate assets of Acquiror.
13. Miscellaneous.
-------------
(a) Further Assurances. At any time, and from time to time, after the
------------------
effective date, each party will execute such additional instruments and
take such action as may be reasonably requested by the other party to
confirm or perfect title to any property transferred hereunder or otherwise
to carry out the intent and purposes of this Agreement.
(b) Waiver. Any failure on the part of any party hereto to comply with
------
any of its obligations, agreements or conditions hereunder may be waived in
writing by the party to whom such compliance is owed.
(c) Brokers. Neither party has employed any brokers or finders with
-------
regard to this Agreement unless otherwise described in writing to all
parties hereto.
(d) Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been given if delivered in person or
sent by prepaid first class registered or certified mail, return receipt
requested.
<PAGE>
(e) Headings. The section and subsection headings in this Agreement
--------
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
(h) Entire Aqreement. This Agreement is the entire agreement of the
----------------
parties covering everything agreed upon or understood in the transaction.
There are no oral promises, conditions, representations, understandings,
interpretations or terms of any kind as conditions or inducements to the
execution hereof.
(i) Time. Time is of the essence.
----
(j) Severability. If any part of this Agreement is deemed to be
------------
unenforceable the balance of the Agreement shall remain in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
LARACA INTERNATIONAL, INC.
By /s/ David Spencer
-----------------------------
David Spencer, President
NEW MEXICO MORTGAGE COMPANY, INC.
By
------------------------------
Ron Baca, President
STOCKHOLDERS OF NEW MEXICO MORTGAGE
COMPANY, INC.
--------------------------------
Ron Baca
--------------------------------
Susan A. Baca
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
LARACA INTERNATIONAL, INC.
By
-----------------------------
David Spencer, President
NEW MEXICO MORTGAGE COMPANY, INC.
By /s/ Ron Baca
------------------------------
Ron Baca, President
STOCKHOLDERS OF NEW MEXICO MORTGAGE
COMPANY, INC.
/s/ Ron Baca
--------------------------------
Ron Baca
/s/ Susan A. Baca
--------------------------------
Susan A. Baca
<PAGE>
EXHIBIT "A"
LIST OF ACQUIREE SHAREHOLDERS
<TABLE>
<CAPTION>
Shares of
Shares of Acquiror
Acquiree To Be
Name and Address Owned Issued
- ---------------- --------- ----------
<S> <C> <C>
Ron Baca 1,000 2,097,902 Common
5600 Wyoming NE, Suite 150
Albuquerque, NM 87109
Susan A. Baca 1 2,098 Common
5600 Wyoming NE, Suite 150
Albuquerque, NM 87109
Total: 2,100,000
</TABLE>
<PAGE>
Exhibit "B"
INVESTMENT LETTER
TO THE BOARD OF DIRECTORS OF LARACA INTERNATIONAL, INC.
The undersigned hereby represents to the Laraca International, Inc. (the
"Company"), that (1) the shares of the Company's common stock (the "securities")
which are being acquired by the undersigned are being acquired for his own
account and for investment and not with a view to the public resale or
distribution thereof: (2) the undersigned will not sell, transfer or otherwise
dispose of the securities except in compliance with the Securities Act of 1933,
as amended (the "Act"); and (3) he is aware that the Securities are "restricted
securities" as that term is defined in Rule 144 or the General Rules and
Regulations under the Act.
The undersigned acknowledges that he has been furnished with disclosure
documents which, among other things, include the Company's Broker/Dealer
Information Statement pursuant to Rule 15c-2-11 (and all other exhibits thereto)
and audited financial statements of the Company as of April 30, 1997.
The undersigned further acknowledges that he has had an opportunity to ask
questions of and receive answers from duly designated representatives of the
Company concerning the terms and conditions pursuant to which the Securities are
being offered.
The undersigned acknowledges that he has been afforded an opportunity to
examine such documents and other information which he has requested for the
purpose of verifying the information set forth in the documents referred to
above.
The undersigned acknowledges and understands that the Securities are
unregistered and must be held indefinitely unless they are subsequently
registered under the Act or an exemption from such registration is available.
The undersigned further acknowledges that he is fully aware of the
applicable limitations on the resale of the Securities. These restrictions for
the most part are set forth in Rule 144. The Rule permits sales of "restricted
securities" upon compliance with the requirements of such Rule. If the Rule is
available to the undersigned, the undersigned may make only routine sales of
securities, in limited amounts, in accordance with the terms and conditions of
that Rule.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
LORACA INTERNATIONAL, INC.
THE UNDERSIGNED person, acting as sole incorporator under applicable
provisions of the Nevada Business Corporation Act, does hereby adopt the
following Articles of Incorporation for said corporation.
ARTICLE I
NAME
The name of the corporation is LORACA INTERNATIONAL, INC.
ARTICLE II
DURATION
The duration of the corporation is perpetual.
ARTICLE III
PURPOSES
The specific purpose for which the corporation is organized is to
acquire, operate, form, promote and develop mortgage companies operating in the
southwestern United States, to investigate existing companies meeting that
description with a view to identifying targets which present attractive business
opportunities, and to negotiate the acquisition thereof. The corporation shall
also have power
(a) To engage in any and all activities as may be reasonably related
to the
<PAGE>
foregoing and following purposes.
(b) To purchase, own and develop real and personal property, to enter
into leases, contracts and agreements, to open bank accounts and to conduct
financial transactions.
(c) To engage in any all other lawful purposes, activities and
pursuits, which are substantially similar to the foregoing, or which would
contribute to accomplishment of the expressed purposes of the corporation.
(d) To change its primary business purpose from time to time as may to
the Board of Directors seem appropriate.
(e) To engage in any other lawful business authorized by the laws of
Nevada or any other state or other jurisdiction in which the corporation may
be authorized to do business.
ARTICLE IV
CAPITAL
The corporation shall have authority to issue Fifty Million
(50,000,000) common shares of a par value of one mil ($.001) per share. There
shall be only one class of authorized shares, to wit: common voting stock. The
common stock shall have unlimited voting rights provided in the Nevada Business
Corporation Act.
None of the shares of the corporation shall carry with them the pre-
emptive
2
<PAGE>
right to acquire additional or other shares of the corporation. There shall be
no cumulative voting of shares.
ARTICLE V
INDEMNIFICATION OF DIRECTORS
No shareholders or directors of the corporation shall be individually
liable for the debts of the corporation or for monetary damages arising from the
conduct of the corporation.
ARTICLE VI
BY-LAWS
Provisions for the regulation of the internal affairs of the
corporation not provided for in these Articles of Incorporation shall be set
forth in the By-Laws.
ARTICLE VII
REGISTERED OFFICE AND AGENT
The address of the corporation's initial registered office shall be
3238 East Flamingo Road, Suite 156, Las Vegas, NV 89121. The corporation's
initial registered agent at such address shall be Gateway Enterprises, Inc.
Gateway Enterprises, Inc. hereby acknowledges and accepts
appointment as corporation registered agent:
3
<PAGE>
GATEWAY ENTERPRISES, INC.
By:__________________________
ARTICLE VIII
INCORPORATORS
The identity and address of the incorporator is:
David Spencer
4897 South Kings Row Circle
Salt Lake City, UT 84117
The aforesaid incorporator shall be the sole initial Director of the
corporation and shall act as such until the corporation shall have conducted its
organizational meeting or until one or more successors shall have been elected
and accepted their election as directors of the corporation.
Dated this 4th day of March, 1996.
---
/s/ David Spencer
_______________________________
David Spencer, Incorporator
4
<PAGE>
IN WITNESS WHEREOF I, David Spencer, have executed these Articles of
Incorporation in duplicate this 4th day of March, 1996, and say:
---
That I am the incorporator herein; that I have read the above and
foregoing Articles of Incorporation; that I know the contents thereof and that
statements contained therein are true to the best of my knowledge and belief,
excepting as to matters therein alleged on information and belief, and as to
those matters I believe them to be true.
/s/ David Spencer
________________________________
David Spencer
5
<PAGE>
AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
LORACA INTERNATIONAL, INC.
The undersigned, being the duly constituted officer of Loraca
International, Inc. acting pursuant to applicable provisions of the Nevada
Revised Business Corporation Act, do hereby adopt the following Articles of
Amendment to the Articles of Incorporation of Loraca International, Inc.
1. Article III of the original Articles of Incorporation is hereby
repealed in its entirety, and the following Article III is hereby substituted
therefore as if it had been set forth in the original Articles of Incorporation.
ARTICLE III
PURPOSES
The specific purpose for which the corporation is organized is to
evaluate a privately held company known a New Mexico Mortgage, Inc., whose
primary business is to provide innovative loan programs, designed to fit the
needs of any borrower with a possible view towards acquiring New Mexico
Mortgage, Inc.
(a) To engage in any and all activities as may be reasonably related
to the foregoing and following purposes.
(b) To enter into leases, contracts and agreements, to open bank accounts
and to conduct financial transactions.
(c) To engage in any all other lawful purposes, activities and pursuits,
which are substantially similar to the foregoing, or which would contribute to
accomplishment of the expressed purposes of the corporation.
<PAGE>
(d) To change its primary business purpose from time to time as may be
deemed advisable, by the Board of Directors.
(e) To engage in any other lawful business authorized by the laws of Nevada
or any other state or other jurisdiction in which the corporation may be
authorized to do business.
2. The foregoing amendment was duly adopted on February 28, 1997 by the
vote of the majority of the outstanding shares of the corporation.
3. On the date the amendment was adopted, there were (50,000) common shares
of the corporation outstanding each of which was entitled to vote one vote on
the amendment. Of these, (50,000), which represents 100% of the issued and
outstanding voted in favor of the Amendment. No shares were voted against.
4. The foregoing vote was sufficient under the Charter and Bylaws of the
corporation to adopt the aforesaid Amendment to the Articles of Incorporation of
the corporation.
IN WITNESS WHEREOF, I, David Spencer, have executed the Amended Articles of
Incorporation in duplicate this 1st day of March, 1997 and say:
That I am the President and sole director of the corporation; that I have
read the above and foregoing Amendment to the Articles of Incorporation thereof;
know the contents thereof
/s/ David Spencer
_________________________________
David Spencer (President)
Subscribed and sworn before me this 1st day of March, 1997 by David Spencer.
---
[SEAL OF NOTARY PUBLIC]
2
<PAGE>
SECOND AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
LARACA INTERNATIONAL, INC.
(to be known hereafter as LORACA INTERNATIONAL, INC.)
The undersigned, being the duly constituted officer of Laraca
International, Inc. acting pursuant to applicable provisions of the Nevada
Revised Business Corporation Act, do hereby adopt the following Second Amendment
to the Articles of Incorporation of Laraca International, Inc.
1. Article I of the original Articles of Incorporation is hereby repealed
in its entirety, and the following Article I is hereby substituted therefore as
if it had been set forth in the original Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation is Loraca International, Inc.
2. The foregoing amendment was duly adopted on May 29, 1998 by the written
consent of stockholders holding a majority of the outstanding shares of the
corporation, as permitted by N.R.S. (S)78.320.
3. On the date the amendment was adopted, there were Seven Million
(7,000,000) common shares of the corporation outstanding each of which was
entitled to one vote on the amendment. Of these, stockholders holding Three
Million Eight Hundred Forty Three Thousand and Three Hundred and Two (3,843,302)
shares, which
<PAGE>
represents 54.9% of the issued and outstanding common shares, consented in
writing to the Amendment.
4. The foregoing vote by written consent was sufficient under the Charter
and Bylaws of the corporation to adopt the aforesaid Second Amendment to the
Articles of Incorporation of the corporation.
IN WITNESS WHEREOF, I, Ronald R. Baca, have executed the Second Amendment
to the Articles of Incorporation in duplicate this 29th day of May, 1998, and
say:
That I am the President of the corporation; that I have read the above and
foregoing Second Amendment to the Articles of Incorporation thereof; that I know
the contents thereof and that statements contained therein are true to the best
of my knowledge and belief, excepting as to matters therein alleged on
information and belief, and as to those matters I believe them to be true.
/s/ Ronald Baca
__________________________
Ronald R. Baca
Subscribed and sworn to before me this 29th day of May, 1998 by Ronald R. Baca.
/s/ ^illegible signature
___________________________
Notary Public
Residing in Albuquerque, NM
My Commission Expires:
1/4/99
______________________
[NOTARY SEAL OF
NICOLA P. ONTIVEROS]
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
LORACA INTERNATIONAL, INC.
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
LORACA INTERNATIONAL, INC.
ARTICLE I - OFFICES
Section 1.1 The principal office of the corporation in the State of Utah
shall be at 4897 South Kingsrow Circle, Salt Lake City, Utah 84111. The officer
in charge thereof shall be David Spencer. The registered office of the
corporation in the State of Nevada shall be 3238 East Flaming Road, Suite 156,
Las Vegas, Nevada 89121. The corporation's registered agent at that address
shall be Gateway Enterprises, Inc.
Section 1.2 The corporation may have such other offices within or
without the state as the board of directors may from time to time designate.
ARTICLE II - STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders
--------------
shall be held at the corporate office on the third Friday of April of each year
beginning in 1996, at the hour of 10:00 a.m., or at such other time as may be
fixed by the board of directors, for the purpose of electing directors and for
the transaction of such other business as may come before the meeting. If the
election of directors shall not be held on the day designated herein for the
annual meeting or at any adjournment thereof, the board of directors shall cause
the election to be held at a special meeting of the stockholders as soon
thereafter as may be convenient.
Section 2.2 Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the president or by any director, and shall be called by the president
at the written request of fifteen percent of all outstanding shares of the
corporation entitled to vote at the meeting. Unless requested by stockholders
entitled to cast a majority or all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any meeting of stockholders held
during the preceding twelve months.
Section 2.3 Place of Meeting. The board of directors may designate any
----------------
place, either in the State of Nevada or elsewhere, as the place of any annual or
special meeting of stockholders.
Section 2.4 Notice of Meeting. Written notice stating the place, day
-----------------
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise prescribed by
statute, be delivered not less than ten nor more than fifty days before the
meeting, either personally or by mail, to each stockholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered ten
days after it has been deposited in the United States mail, addressed to the
stockholder at his address as it appears on the share registry of the
corporation, with postage thereon prepaid.
-2-
<PAGE>
Section 2.5 Closing of Transfer Books or Fixing of Record Date. For any
--------------------------------------------------
purpose requiring identification of shareholders, the record date shall be
established by the board of directors, and shall be not more than twenty days
from the date on which any such purpose is to be accomplished. Absent a
resolution establishing any such date, the record. date shall be deemed to be
the date on which any such action is accomplished.
Section 2.6 Voting List. The corporation shall maintain a stock
-----------
ledger which contains:
(a) The name and address of each stockholder.
(b) The number of shares of stock of each class which the
stockholder holds. The stock ledger shall be in written form and available for
visual inspection. The original or a duplicate of the stock ledger shall be kept
at the principal office of the corporation.
Section 2.7 Quorum. A majority of the outstanding shares of the
------
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be presented or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to reduce the number of stockholders present to less than
a quorum.
Section 2.8 Proxies. At all meetings of stockholders, a stockholder
-------
may vote in person or by proxy executed in writing by the stockholder or by his
duly authorized attorney in fact. Such proxy shall be filed with the secretary
of the corporation before or at the time of the meeting. A proxy shall be void
one year after it is executed unless it shall, prior to the expiration of one
year, have been renewed in writing. All proxies shall be revocable.
Section 2.9 Voting of Shares. Each outstanding share entitled to vote
----------------
shall be entitled to one vote upon each matter submitted to a vote at a meeting
of stockholders.
Section 2.10 Informal Action by Stockholders. Any action required or
-------------------------------
permitted to be taken at a meeting of the stockholders, except matters as to
which dissenting stockholders may hold a statutory right of appraisal, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by a majority of the stockholders entitled to vote with
respect to the subject matter thereof. Notice of any such action shall be
provided to stockholders in the manner set forth in Section 4 of these By-Laws,
within ten days of the effective date of the action.
Section 2.11 Cumulative Voting. There shall be no cumulative voting of
-----------------
shares.
Section 2.12 Removal of Directors. At a meeting called expressly for
--------------------
that purpose, directors may be removed with or without cause, by a vote of the
holders of a majority of the shares entitled to vote at an election of
directors.
-3-
<PAGE>
ARTICLE III - DIRECTORS
Section 3.1 The business affairs of this corporation shall be
managed by its Board of Directors, which may not be less than one nor more than
nine in number. The size of the Board of Directors shall be established by
resolution of the Board of Directors. The directors need not be residents of
this state or stockholder in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation. Each
director shall be elected for the term of one year, and until his successor
shall have been elected and accepted his election to the Board in writing.
Vacancies in the Board of Directors may be filled by appointment of new
directors by a majority vote of existing directors.
Section 3.2 The number of directors may be increased or decreased from
time to time by the vote of a majority of the outstanding shares of the
corporation.
Section 3.3 Regular Meetings. A regular meeting of the board of
----------------
directors shall be held without any notice other than this by-law immediately
after, and at the same place as, the annual meeting of stockholders. The board
of directors may provide, by resolution, the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.4 Special Meetings. Special meetings of the board of
----------------
directors may be called by or at the request of the president or any director.
The person or persons calling any such meeting may fix the time and place of the
meeting.
Section 3.5 Notice. Notice of any special meeting shall be given at
------
least two days prior thereto by written notice delivered personally, mailed or
delivered by fax to each director at his business address. Notices shall be
deemed to have been delivered when transmitted personally or by fax, and two
days after mailed. Any director may waive notice of any meeting so long as such
waiver is in writing. The business to be conducted at any special meeting need
not be specified in the notice.
Section 3.6 Quorum. A majority of the duly elected board shall
------
constitute a quorum of the board of directors for the transaction of business at
any meeting of the board of directors.
Section 3.7 Manner of Acting. The act of the majority of the directors
----------------
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 3.8 Informal Action by Directors. Action consented to a
----------------------------
majority of the board of directors without a meeting is nevertheless board
action so long as (a) a written consent to the action is signed by all the
directors of the corporation and (b) a certificate or resolution detailing the
action taken is filed with the minutes of the corporation. Any one or more
directors may participate in any meeting of the board of directors by means of
conference telephone or other similar communications device which permits all
directors to hear the comments made by the others at the meeting.
Section 3.9 Executive and Other Committees. The board of directors
------------------------------
may, from time to time, as the business of the corporation may demand, delegate
its authority to committees of the board of directors under such terms and
conditions as it may deem appropriate. The appointment of any such committee,
the delegation of authority to it or action by it under that authority does not
constitute of itself compliance by any director not a member of the committee
with the standard provided by statute for the performance of duties of
directors.
-4-
<PAGE>
Section 3.10 Compensation. By resolution of the board of directors, each
------------
director may be paid his expenses, if any, of attendance at each meeting of the
board of directors, and may be paid a stated salary as director or a fixed per
diem for attendance at each such meeting of the board of directors, or both. No
such payments shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
Section 3.11 Presumption of Assent. A director of the corporation who is
---------------------
present at a meeting of the board of directors at which action on any corporate
action is taken shall be presumed to have assented to the action taken unless he
shall announce his dissent at the meeting and his dissent is entered into the
minutes and he shall forward such dissent by registered mail to the secretary of
the corporation immediately after the adjournment of the meeting.
Section 3.12 Certificates of Resolution. At any such time as there
--------------------------
shall be only one duly elected and qualified director, actions of the
corporation may be manifest by the execution by such director of a Certificate
of Resolution specifying the corporate action taken and the effective date of
such action.
ARTICLE IV - OFFICERS
Section 4.1 Number. Officers of the corporation shall be a president
------
and a secretary, each of whom shall be elected by the board of directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the board of directors. Any two or more offices may be held by
the same person, except that no officer may act in more than one capacity where
action of two or more officers is required by law.
Section 4.2 Election and Term of Office. The officers of the
---------------------------
corporation shall be elected annually by the board of directors after each
annual meeting of the stockholders. Each officer shall hold office for a period
of one year and until his successor shall have been duly elected and shall have
accepted his election as an officer of the corporation in writing.
Section 4.3 Removal. Any officer or agent may be removed by the board
-------
of directors whenever in its judgment, the best interests of the corporation
will be served thereby. Election to an office in the corporation shall not
create any contractual right of any type or sort in the person elected.
Section 4.4 Vacancies. A vacancy in any office may be filled by the
---------
board of directors for the unexpired portion of the term.
Section 4.5 President. The president shall be a director of the
---------
corporation and shall be the principal executive officer of the corporation, and
subject to the control of the board of directors, shall in general supervise and
control all of the business and affairs of the corporation. The president shall
have authority to institute or defend legal proceedings when the directors are
deadlocked. He shall, when present, preside at all meetings of the stockholders
and of the board of directors. He may sign, with the secretary or any other
proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the board of directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be
-5-
<PAGE>
expressly delegated by the board of directors or by these by-laws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of president and such other duties as may be prescribed by the board of
directors from time to time.
Section 4.6 Secretary. The secretary shall: (a) keep the minutes of
---------
the proceedings of the stockholders and of the board of directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation, if any;
(d) keep a register of the post office address of each stockholder which shall
be furnished to the secretary by such stockholder; (e) sign, with the president,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the board of directors; (f) have general charge
of the stock registry of the corporation; (g) have charge and custody of and be
responsible for all funds and securities of the corporation; (h) receive and
give receipts for monies due and payable to the corporation and deposit all such
monies in the name of the corporation in such bank accounts as may be
established for that purpose; and (i) in general, perform all duties incident to
the office of secretary, as well as such duties as generally devolved upon
treasurers of corporations.
Section 4.7 Salaries. The salaries of the officers shall be fixed
--------
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
ARTICLE V - INDEMNIFICATION OF DIRECTORS
AND OFFICERS OF THE CORPORATION
Section 5.1 The corporation shall indemnify any person who was or is a
party or threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendre or its equivalent shall not, without more, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
ARTICLE VI - CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.1 Contracts. The board of directors may authorize any
---------
officer or officers or agents to enter into any contract or execute and deliver
any instrument, including loans,
-6-
<PAGE>
mortgages, checks, drafts, deposits, deeds and documents evidencing other
transactions, in the name of the corporation. Such authority may be general or
confined to specific instances.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 7.1 Certificate for Shares. Certificates representing shares
----------------------
of the corporation shall be in the form approved in the organizational
resolutions of the corporation. They shall be signed by the president and
secretary of the corporation. Each certificate shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on each certificate and on the stock registry of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except in
the case of a lost, destroyed or mutilated certificate, a new one may be issued
therefor upon such terms of indemnity to the corporation as the board of
directors may prescribe.
Section 7.2 Transfer of Shares. Transfer of shares of the corporation
------------------
shall be made only on the stock registry of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
ARTICLE VIII - FISCAL YEAR
Section 8.1 The fiscal year of the corporation shall begin on the first
day of January of each year and expire on the thirty-first day of December of
each year.
ARTICLE IX - CORPORATE SEAL
Section 9.1 Use of the corporate seal adopted by the board of directors
shall be optional with the officer or agent of the corporation signing any
document on behalf of the corporation. No duly executed corporate document shall
be void because it does not bear the imprint of a seal.
ARTICLE X - WAIVER OF NOTICE
Section 10.1 Whenever any notice is required to be given to any
stockholder or director of the corporation under these By-laws, by provisions of
the Articles of Incorporation, or by the statutes of the State of Nevada, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
-7-
<PAGE>
ARTICLE XI - AMENDMENTS
Section 11.1 The board of directors shall have the power to make, alter
and repeal by-laws; but by-laws made by the board may be altered or repealed, or
new by-laws made, by the stockholders.
ADOPTED by order of the sole director of the corporation on February 25,
1996.
<PAGE>
CERTIFICATE OF SECRETARY
OF
LORACA INTERNATIONAL, INC.
The undersigned does hereby certify that:
I am the Secretary of Loraca International, Inc.; and
The foregoing Amended and Restated Bylaws constitute the Bylaws of the
Corporation as of the date hereof.
Dated: October 6, 1999
/s/ Nicola Ontiveros,
----------------------------
Nicola Ontiveros, Secretary
<PAGE>
Exhibit 4.1
[LOGO OF LORACA INTERNATIONAL, INC.]
Loraca International, Inc.
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
<TABLE>
<S> <C>
Fully Paid & Non-Assessable Shares of LORACA INTERNATIONAL, INC. Common Stock
transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of thIS Certificate
properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
</TABLE>
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/S/ ???? /S/ ????
- -------------------------- [SEAL APPEARS HERE] --------------------------
SECRETARY PRESIDENT
<PAGE>
NOTICE: Signature must ^^^^
^^^^ ^^^^^
Additional abbreviations may ^^^^
For Value Received, __________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
- ------------------------------
- ------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________
-----------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
<PAGE>
Exhibit 10.1
LORACA INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
1. Establishment, Purpose and Term of Plan.
---------------------------------------
1.1. Establishment. The Loraca International, Inc. 1999 Stock Option Plan
(the "Plan") is hereby established effective as of April 14, 1999 (the
"Effective Date").
1.2. Purpose. The purpose of the Plan is to advance the interests of the
Participating Company Group and its shareholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3. Term of Plan. The Plan shall continue in effect until the earlier of
its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Options shall be granted, if at
all, within ten (10) years from the earlier of the date the Plan is adopted by
the Board or the date the Plan is duly approved by the shareholders of the
Company.
2. Definitions and Construction.
----------------------------
2.1. Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "Board"
also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended, and
any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other committee
of the Board duly appointed to administer the Plan and having such powers as
shall be specified by the Board. Unless the powers of the Committee have been
specifically limited, the Committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to amend or terminate
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
(d) "Company" means Loraca International, Inc., a Nevada
corporation, or any successor corporation thereto.
<PAGE>
(e) "Consultant" means any person, including an advisor, engaged by
a Participating Company to render services other than as an Employee or a
Director.
(f) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "Disability" means the inability of the Optionee, in the opinion
of a qualified physician acceptable to the Company, to perform the major duties
of the Optionee's position with the Participating Company Group because of the
sickness or injury of the Optionee.
(h) "Employee" means any person treated as an employee (including an
officer or a Director who is also treated as an employee) in the records of a
Participating Company and, with respect to any Incentive Stock Option granted to
such person, who is an employee for purposes of Section 422 of the Code;
provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of a share
of Stock or other property as determined by the Board, in its sole discretion,
or by the Company, in its sole discretion, if such determination is expressly
allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the Stock,
the Fair Market Value of a share of Stock shall be the closing sale price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
-------------------
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the Stock,
the Fair Market Value of a share of Stock shall be as determined by the Board
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
(k) "Incentive Stock Option" means an Option intended to be (as set
forth in the Option Agreement) and which qualifies as an incentive stock option
within the meaning of Section 422(b) of the Code.
(l) "Insider" means an officer or a Director of the Company or any
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
2
<PAGE>
(m) "Nonstatutory Stock Option" means an Option not intended to be
(as set forth in the Option Agreement) or which does not qualify as an Incentive
Stock Option.
(n) "Option" means a right to purchase Stock (subject to adjustment
as provided in Section 4.2) pursuant to the terms and conditions of the Plan. An
Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
(o) "Option Agreement" means a written agreement between the Company
and an Optionee setting forth the terms, conditions and restrictions of the
Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "Optionee" means a person who has been granted one or more
Options.
(q) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "Participating Company Group" means, at any point in time, all
corporations collectively which are then Participating Companies.
(t) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as amended
from time to time, or any successor rule or regulation.
(u) "Securities Act" means the Securities Act of 1933, as amended.
(v) "Service" means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, an Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining vesting under the Optionee's Option
Agreement. The Optionee's Service shall be deemed to have terminated either upon
an actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
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(w) "Stock" means the common stock of the Company, as adjusted from
time to time in accordance with Section 4.2.
(x) "Subsidiary Corporation" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
(y) "Ten Percent Owner Optionee" means an Optionee who, at the time
an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2. Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. Administration.
--------------
3.1. Administration by the Board. The Plan shall be administered by the
Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2. Administration with Respect to Insiders. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3. Powers of the Board. In addition to any other powers set forth in the
Plan and subject to the provisions of the Plan, the Board shall have the full
and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or Nonstatutory
Stock Options;
(c) to determine the Fair Market Value of shares of Stock or other
property;
(d) to determine the terms, conditions and restrictions applicable
to each Option (which need not be identical) and any shares acquired upon the
exercise thereof,
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including, without limitation, (i) the exercise price of the Option, (ii) the
method of payment for shares purchased upon the exercise of the Option, (iii)
the method for satisfaction of any tax withholding obligation arising in
connection with the Option or such shares, including by the withholding or
delivery of shares of stock, (iv) the timing, terms and conditions of the
exercisability of the Option or the vesting of any shares acquired upon the
exercise thereof, (v) the time of the expiration of the Option, (vi) the effect
of the Optionee's termination of Service with the Participating Company Group on
any of the foregoing, and (vii) all other terms, conditions and restrictions
applicable to the Option or such shares not inconsistent with the terms of the
Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or otherwise
adjust the exercise price of, or grant a new Option in substitution for, any
Option or to waive any restrictions or conditions applicable to any Option or
any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability of
any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative versions of,
the Plan, including, without limitation, as the Board deems necessary or
desirable to comply with the laws of, or to accommodate the tax policy or custom
of, foreign jurisdictions whose citizens may be granted Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. Shares Subject to Plan.
----------------------
4.1. Maximum Number of Shares Issuable. Subject to adjustment as provided
in Section 4.2, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be one million (1,000,000) and shall consist of
authorized but unissued or reacquired shares of Stock or any combination
thereof. If an outstanding Option for any reason expires or is terminated or
canceled or shares of Stock acquired, subject to repurchase, upon the exercise
of an Option are repurchased by the Company, the shares of Stock allocable to
the unexercised portion of such Option, or such repurchased shares of Stock,
shall again be available for issuance under the Plan. Notwithstanding the
foregoing, at any such time as the offer and sale of securities pursuant to the
Plan is subject to compliance with Section 260.140.45 of Title 10 of the
California Code of Regulations ("Section 260.140.45"), the total number of
shares of Stock issuable upon the exercise of all outstanding Options (together
with options outstanding under any other stock option plan of the Company) and
the total number of shares provided for under
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any stock bonus or similar plan of the Company shall not exceed thirty percent
(30%) (or such other higher percentage limitation as may be approved by the
shareholders of the Company pursuant to Section 260.140.45) of the then
outstanding shares of the Company as calculated in accordance with the
conditions and exclusions of Section 260.140.45.
4.2. Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and in the exercise price per share
of any outstanding Options. If a majority of the shares which are of the same
class as the shares that are subject to outstanding Options are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event, as defined in Section 8.1) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price per share of,
the outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the exercise price of any Option be decreased to an
amount less than the par value, if any, of the stock subject to the Option. The
adjustments determined by the Board pursuant to this Section 4.2 shall be final,
binding and conclusive.
5. Eligibility and Option Limitations.
----------------------------------
5.1. Persons Eligible for Options. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
5.2. Option Grant Restrictions. Any person who is not an Employee on the
effective date of the grant of an Option to such person may be granted only a
Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences Service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3. Fair Market Value Limitation. To the extent that options designated
as Incentive Stock Options (granted under all stock option plans of the
Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive
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<PAGE>
Stock Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of stock shall be determined as of the time
the option with respect to such stock is granted. If the Code is amended to
provide for a different limitation from that set forth in this Section 5.3, such
different limitation shall be deemed incorporated herein effective as of the
date and with respect to such Options as required or permitted by such amendment
to the Code. If an Option is treated as an Incentive Stock Option in part and as
a Nonstatutory Stock Option in part by reason of the limitation set forth in
this Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. Terms and Conditions of Options.
-------------------------------
Options shall be evidenced by Option Agreements specifying the number of
shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1. Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2. Exercise Period. Options shall be exercisable at such time or times,
or upon such event or events, and subject to such terms, conditions, performance
criteria, and restrictions as shall be determined by the Board and set forth in
the Option Agreement evidencing such Option; provided, however, that (a) no
Option shall be exercisable after the expiration of ten (10) years after the
effective date of grant of such Option, (b) no Incentive Stock Option granted to
a Ten Percent Owner Optionee shall be exercisable after the expiration of five
(5) years after the effective date of grant of such Option, (c) no Option
granted to a prospective Employee, prospective Consultant or prospective
Director may become exercisable prior to the date on which such person commences
Service with a Participating Company, and (d) with the exception of an Option
granted to an officer, Director or Consultant, no Option shall become
exercisable at a rate less than twenty percent (20%) per year over a period of
five (5) years from the effective
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<PAGE>
date of grant of such Option, subject to the Optionee's continued Service.
Subject to the foregoing, unless otherwise specified by the Board in the grant
of an Option, any Option granted hereunder shall have a term of ten (10) years
from the effective date of grant of the Option.
6.3. Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided
below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"Cashless Exercise"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) Tender of Stock. Notwithstanding the foregoing, an Option may
not be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) Cashless Exercise. The Company reserves, at any and all times,
the right, in the Company's sole and absolute discretion, to establish, decline
to approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise.
(d) Payment by Promissory Note. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory
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<PAGE>
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations.
6.4. Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5. Repurchase Rights. Shares issued under the Plan may be subject to a
right of first refusal, one or more repurchase options, or other conditions and
restrictions as determined by the Board in its sole discretion at the time the
Option is granted. The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to
one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
6.6. Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the
Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) Disability. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months (or such longer period of time as determined by
the Board, in its sole discretion) after the date on which the Optionee's
Service terminated, but in any event no later than the date of expiration of the
Option's term as set forth in the Option Agreement evidencing such Option (the
"Option Expiration Date").
(ii) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the
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Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death at any time prior to the
expiration of twelve (12) months (or such longer period of time as determined by
the Board, in its sole discretion) after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
The Optionee's Service shall be deemed to have terminated on account of death if
the Optionee dies within three (3) months after the Optionee's termination of
Service.
(iii) Other Termination of Service. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such longer period of time
as determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.6(a) is prevented by the provisions of Section 11 below, the
Option shall remain exercisable until one (1) month after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
6.6(a) of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. Standard Forms of Option Agreement.
----------------------------------
7.1. Incentive Stock Options. Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2. Nonstatutory Stock Options. Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as a "Nonstatutory Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Nonstatutory Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.3. Authority to Vary Terms. The Board shall have the authority from time
to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and
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conditions of any such new, revised or amended standard form or forms of Option
Agreement shall be in accordance with the terms of the Plan.
8. Transfer of Control.
-------------------
8.1. Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred if
any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the shareholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean an Ownership Change Event or
a series of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. Effect of Transfer of Control on Options. In the event of a Transfer
of Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "Acquiring Corporation"),
may either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Transfer of Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the
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Transfer of Control was entitled. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of an Option prior
to the Transfer of Control and any consideration received pursuant to the
Transfer of Control with respect to such shares shall continue to be subject to
all applicable provisions of the Option Agreement evidencing such Option except
as otherwise provided in such Option Agreement. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the outstanding
Options immediately prior to an Ownership Change Event described in Section
8.1(a)(i) constituting a Transfer of Control is the surviving or continuing
corporation and immediately after such Ownership Change Event less than fifty
percent (50%) of the total combined voting power of its voting stock is held by
another corporation or by other corporations that are members of an affiliated
group within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.
9. Provision of Information.
------------------------
At least annually, copies of the Company's balance sheet and income
statement for the just completed fiscal year shall be made available to each
Optionee and purchaser of shares of Stock upon the exercise of an Option. The
Company shall not be required to provide such information to persons whose
duties in connection with the Company assure them access to equivalent
information.
10. Nontransferability of Options.
-----------------------------
During the lifetime of the Optionee, an Option shall be exercisable only by
the Optionee or the Optionee's guardian or legal representative. No Option shall
be assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution.
11. Compliance with Securities Law.
------------------------------
The grant of Options and the issuance of shares of Stock upon exercise of
Options shall be subject to compliance with all applicable requirements of
federal, state and foreign law with respect to such securities. Options may not
be exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, no Option may be exercised
unless (a) a registration statement under the Securities Act shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (b) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the
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failure to issue or sell such shares as to which such requisite authority shall
not have been obtained. As a condition to the exercise of any Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
12. Indemnification.
----------------
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
13. Termination or Amendment of Plan.
--------------------------------
The Board may terminate or amend the Plan at any time. However, subject to
changes in applicable law, regulations or rules that would permit otherwise,
without the approval of the Company's shareholders, there shall be (a) no
increase in the maximum aggregate number of shares of Stock that may be issued
under the Plan (except by operation of the provisions of Section 4.2), (b) no
change in the class of persons eligible to receive Incentive Stock Options, and
(c) no other amendment of the Plan that would require approval of the Company's
shareholders under any applicable law, regulation or rule. In any event, no
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such termination or amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law, regulation or rule.
14. Shareholder Approval.
--------------------
The Plan or any increase in the maximum number of shares of Stock issuable
thereunder as provided in Section 4.1 (the "Maximum Shares") shall be approved
by the shareholders of the Company within twelve (12) months of the date of
adoption thereof by the Board. Options granted prior to shareholder approval of
the Plan or in excess of the Maximum Shares previously approved by the
shareholders shall become exercisable no earlier than the date of shareholder
approval of the Plan or such increase in the Maximum Shares, as the case may be.
13
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Loraca International, Inc. 1999 Stock Option Plan was duly adopted
by the Board on April 14, 1999.
/s/ Nicola Ontiveros
-------------------------
Secretary
14
<PAGE>
PLAN HISTORY
------------
April 14, 1999 Board adopts Plan, with an initial reserve of 1,000,000
shares.
April 16, 1999 Shareholders approve Plan, with an initial reserve of
1,000,000 shares.
<PAGE>
FORM OF
LORACA INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
<PAGE>
LORACA INTERNATIONAL, INC.
NOTICE OF GRANT OF STOCK OPTION
________________________ (the "OPTIONEE") has been granted an option (the
"OPTION") to purchase certain shares of Stock of Loraca International, Inc.
pursuant to the Loraca International, Inc. 1999 Stock Option Plan (the "PLAN"),
as follows:
DATE OF OPTION GRANT: _____________________, ______
NUMBER OF OPTION SHARES: _____________________________
EXERCISE PRICE: $___________________per share
INITIAL VESTING DATE: _____________________, ______
OPTION EXPIRATION DATE: The date ten (10) years after the Date of Option
Grant.
TAX STATUS OF OPTION: ____________Stock Option. (Enter "Incentive" or
"Nonstatutory." If blank, this Option will be a
Nonstatutory Stock Option.)
VESTED SHARES: Except as provided in the Stock Option Agreement, the
number of Vested Shares (disregarding any resulting fractional share) as of
any date is determined by multiplying the Number of Option Shares by the
"VESTED RATIO" determined as of such date as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the Optionee's Service has not
terminated prior to such date 1/4
Plus:
- ----
For each full month of the Optionee's continuous Service from Initial
Vesting Date until the Vested Ratio equals 1/1, an additional 1/48
</TABLE>
By their signatures below, the Company and the Optionee agree that the Option
is governed by this Notice and by the provisions of the Plan and the Stock
Option Agreement, both of which are attached to and made a part of this
document. The Optionee acknowledges receipt of a copy of the Plan and the Stock
Option Agreement, represents that the Optionee has read and is familiar with
their provisions, and hereby accepts the Option subject to all of their terms
and conditions.
Loraca International, Inc. Optionee
By:
---------------------------------- ---------------------------------
Signature
Its:
--------------------------------- ---------------------------------
Date
Address:
----------------------------- ---------------------------------
Address
- ------------------------------------- ---------------------------------
ATTACHMENTS: 1999 Stock Option Plan, as amended through the Date of Option Grant
Stock Option Agreement and Exercise Notice
<PAGE>
Loraca International, Inc.
Stock Option Agreement
Loraca International, Inc. has granted to the individual (the
"Optionee") named in the Notice of Grant of Stock Option (the "Notice") to which
this Stock Option Agreement (the "Option Agreement") is attached an option (the
"Option") to purchase certain shares of Stock upon the terms and conditions set
forth in the Notice and this Option Agreement. The Option has been granted
pursuant to and shall in all respects be subject to the terms and conditions of
the Loraca International, Inc. 1999 Stock Option Plan (the "Plan"), as amended
to the Date of Option Grant, the provisions of which are incorporated herein by
reference. By signing the Notice, the Optionee: (a) represents that the
Optionee has read and is familiar with the terms and conditions of the Notice,
the Plan and this Option Agreement, including the Effect of Termination of
Service set forth in Section 7 and the Right of First Refusal set forth in
Section 11, (b) accepts the Option subject to all of the terms and conditions of
the Notice, the Plan and this Option Agreement, (c) agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Notice, the Plan or this Option Agreement, and (d)
acknowledges receipt of a copy of the Notice, the Plan and this Option
Agreement.
1. Definitions and Construction.
----------------------------
1.1. Definitions. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Notice or the Plan.
1.2. Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. Tax Consequences.
----------------
2.1. Tax Status of Option. This Option is intended to have the tax
status designated in the Notice.
(a) Incentive Stock Option. If the Notice so designates, this
Option is intended to be an Incentive Stock Option within the meaning of Section
422(b) of the Code, but the Company does not represent or warrant that this
Option qualifies as such. The Optionee should consult with the Optionee's own
tax advisor regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the
<PAGE>
Code, including, but not limited to, holding period requirements. (NOTE TO
OPTIONEE: If the Option is exercised more than three (3) months after the date
on which you cease to be an Employee (other than by reason of your death or
permanent and total disability as defined in Section 22(e)(3) of the Code), the
Option will be treated as a Nonstatutory Stock Option and not as an Incentive
Stock Option to the extent required by Section 422 of the Code.)
(b) Nonstatutory Stock Option. If the Notice so designates, this
Option is intended to be a Nonstatutory Stock Option and shall not be treated as
an Incentive Stock Option within the meaning of Section 422(b) of the Code.
2.2. ISO Fair Market Value Limitation. If the Notice designates this
Option as an Incentive Stock Option, then to the extent that the Option
(together with all Incentive Stock Options granted to the Optionee under all
stock option plans of the Participating Company Group, including the Plan)
becomes exercisable for the first time during any calendar year for shares
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000),
the portion of such options which exceeds such amount will be treated as
Nonstatutory Stock Options. For purposes of this Section 2.2, options
designated as Incentive Stock Options are taken into account in the order in
which they were granted, and the Fair Market Value of stock is determined as of
the time the option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section 2.2, such different limitation shall be deemed incorporated herein
effective as of the date required or permitted by such amendment to the Code.
If the Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 2.2, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued
upon the exercise of the Option. (NOTE TO OPTIONEE: If the aggregate Exercise
Price of the Option (that is, the Exercise Price multiplied by the Number of
Option Shares) plus the aggregate exercise price of any other Incentive Stock
Options you hold (whether granted pursuant to the Plan or any other stock option
plan of the Participating Company Group) is greater than $100,000, you should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an Incentive Stock Option.)
3. Administration.
--------------
All questions of interpretation concerning this Option Agreement shall
be determined by the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
<PAGE>
4. Exercise of the Option.
----------------------
4.1. Right to Exercise. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Vesting Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the number of Vested Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Company's repurchase rights set
forth in Section 11. In no event shall the Option be exercisable for more
shares than the Number of Option Shares.
4.2. Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3. Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership, of whole shares of Stock owned by the Optionee having a Fair Market
Value (as determined by the Company without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less than
the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined
in Section 4.3(b), or (iv) by any combination of the foregoing.
(b) Limitations on Forms of Consideration.
(i) Tender of Stock. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender or attestation would
constitute a violation of the provisions of
<PAGE>
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company, or attestation
to the ownership, of shares of Stock unless such shares either have been owned
by the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(ii) Cashless Exercise. A "Cashless Exercise" means the
delivery of a properly executed notice together with irrevocable instructions to
a broker in a form acceptable to the Company providing for the assignment to the
Company of the proceeds of a sale or loan with respect to some or all of the
shares of Stock acquired upon the exercise of the Option pursuant to a program
or procedure approved by the Company (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from time
to time by the Board of Governors of the Federal Reserve System). The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to decline to approve or terminate any such program or procedure.
4.4. Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Company shall have no obligation to deliver shares
of Stock until the tax withholding obligations of the Participating Company
Group have been satisfied by the Optionee.
4.5. Certificate Registration. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6. Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration
<PAGE>
statement under the Securities Act shall at the time of exercise of the Option
be in effect with respect to the shares issuable upon exercise of the Option or
(ii) in the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act.
THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company's legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
4.7. Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option.
--------------------------------
The Option may be exercised during the lifetime of the Optionee only
by the Optionee or the Optionee's guardian or legal representative and may not
be assigned or transferred in any manner except by will or by the laws of
descent and distribution. Following the death of the Optionee, the Option, to
the extent provided in Section 7, may be exercised by the Optionee's legal
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.
6. Termination of the Option.
-------------------------
The Option shall terminate and may no longer be exercised on the first
to occur of (a) the Option Expiration Date, (b) the last date for exercising the
Option following termination of the Optionee's Service as described in Section
7, or (c) a Change in Control to the extent provided in Section 8.
<PAGE>
7. Effect of Termination of Service.
--------------------------------
7.1. Option Exercisability.
(a) Disability. If the Optionee's Service with the Participating
Company Group terminates because of the Disability of the Optionee, the Option,
to the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's guardian
or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Optionee's Service terminated, but in any
event no later than the Option Expiration Date.
(b) Death. If the Optionee's Service with the Participating
Company Group terminates because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee at any time prior to the expiration of three (3) months (or such other
longer period of time as determined by the Board, in its discretion) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
7.2. Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3. Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be
<PAGE>
subject to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of Service, or (iii) the Option Expiration Date.
8. Change in Control.
-----------------
In the event of a Change in Control, the Acquiring Corporation may
either assume the Company's rights and obligations under the Option or
substitute for the Option a substantially equivalent option for the Acquiring
Corporation's stock. The Option shall terminate and cease to be outstanding
effective as of the date of the Change in Control to the extent that the Option
is neither assumed or substituted for by the Acquiring Corporation in connection
with the Change in Control nor exercised as of the date of the Change in
Control. Notwithstanding the foregoing, shares acquired upon exercise of the
Option prior to the Change in Control and any consideration received pursuant to
the Change in Control with respect to such shares shall continue to be subject
to all applicable provisions of this Option Agreement except as otherwise
provided herein.
9. Adjustments for Changes in Capital Structure.
--------------------------------------------
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "New Shares"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 9 shall be rounded down to the nearest whole number,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. Rights as a Shareholder, Employee or Consultant.
-----------------------------------------------
The Optionee shall have no rights as a shareholder with respect to any
shares covered by the Option until the date of the issuance of a certificate for
the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Section 9. If the Optionee is an Employee, the
<PAGE>
Optionee understands and acknowledges that, except as otherwise provided in a
separate, written employment agreement between a Participating Company and the
Optionee, the Optionee's employment is "at will" and is for no specified term.
Nothing in this Option Agreement shall confer upon the Optionee any right to
continue in the Service of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's Service
as an Employee or Consultant, as the case may be, at any time.
11. Right of First Refusal.
----------------------
11.1. Grant of Right of First Refusal. Except as provided in Section
11.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any shares acquired upon
exercise of the Option (the "Transfer Shares") to any person or entity,
including, without limitation, any shareholder of a Participating Company, the
Company shall have the right to repurchase the Transfer Shares under the terms
and subject to the conditions set forth in this Section 11 (the "Right of First
Refusal").
11.2. Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
11.3. Bona Fide Transfer. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 11, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 11. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
11.4. Exercise of Right of First Refusal. If the Company determines the
proposed transfer to be bona fide, the Company shall have the right to purchase
all or a portion of
<PAGE>
the Transfer Shares at the purchase price and on the terms set forth in the
Transfer Notice by delivery to the Optionee of a notice of exercise of the Right
of First Refusal within thirty (30) days after the date the Transfer Notice is
delivered to the Company. The Company's exercise or failure to exercise the
Right of First Refusal with respect to any proposed transfer described in a
Transfer Notice shall not affect the Company's right to exercise the Right of
First Refusal with respect to any proposed transfer described in any other
Transfer Notice, whether or not such other Transfer Notice is issued by the
Optionee or issued by a person other than the Optionee with respect to a
proposed transfer to the same Proposed Transferee. If the Company exercises the
Right of First Refusal, the Company and the Optionee shall thereupon consummate
the sale of the Transfer Shares to the Company on the terms set forth in the
Transfer Notice within sixty (60) days after the date the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed
Transferee); provided, however, that in the event the Transfer Notice provides
for the payment for the Transfer Shares other than in cash, the Company shall
have the option of paying for the Transfer Shares by the present value cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.
11.5. Failure to Exercise Right of First Refusal. If the Company fails
to exercise the Right of First Refusal in full (or to such lesser extent as the
Company and the Optionee otherwise agree) within the period specified in Section
11.4 above, the Optionee may conclude a transfer to the Proposed Transferee of
the Transfer Shares on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following
delivery to the Company of the Transfer Notice. The Company shall have the right
to demand further assurances from the Optionee and the Proposed Transferee (in a
form satisfactory to the Company) that the transfer of the Transfer Shares was
actually carried out on the terms and conditions described in the Transfer
Notice. No Transfer Shares shall be transferred on the books of the Company
until the Company has received such assurances, if so demanded, and has approved
the proposed transfer as bona fide. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 11.
11.6. Transferees of Transfer Shares. All transferees of the Transfer
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 11 providing for the Right of First Refusal
with respect to any subsequent transfer. Any sale or transfer of any shares
acquired upon exercise of the Option shall be void unless the provisions of this
Section 11 are met.
<PAGE>
11.7. Transfers Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 11.9 below result in a termination of the Right of First
Refusal.
11.8. Assignment of Right of First Refusal. The Company shall have the
right to assign the Right of First Refusal at any time, whether or not there has
been an attempted transfer, to one or more persons as may be selected by the
Company.
11.9. Early Termination of Right of First Refusal. The other provisions
of this Option Agreement notwithstanding, the Right of First Refusal shall
terminate and be of no further force and effect upon (a) the occurrence of a
Change in Control, unless the Acquiring Corporation assumes the Company's rights
and obligations under the Option or substitutes a substantially equivalent
option for the Acquiring Corporation's stock for the Option, or (b) the
existence of a public market for the class of shares subject to the Right of
First Refusal. A "public market" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
12. Stock Distributions Subject to Option Agreement.
-----------------------------------------------
If, from time to time, there is any stock dividend, stock split or
other change, as described in Section 9, in the character or amount of any of
the outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, then in such event any and all new,
substituted or additional securities to which the Optionee is entitled by reason
of the Optionee's ownership of the shares acquired upon exercise of the Option
shall be immediately subject to the Right of First Refusal with the same force
and effect as the shares subject to the Right of First Refusal immediately
before such event.
13. Notice of Sales Upon Disqualifying Disposition.
----------------------------------------------
The Optionee shall dispose of the shares acquired pursuant to the
Option only in accordance with the provisions of this Option Agreement. In
addition, if the Notice designates this Option as an Incentive Stock Option, the
Optionee shall (a) promptly notify the Chief Financial Officer of the Company if
the Optionee disposes of any of the shares acquired pursuant to the Option
within one (1) year after the date the Optionee exercises all or part of the
Option or within two (2) years after the Date of Option Grant and (b) provide
the Company with a
<PAGE>
description of the circumstances of such disposition. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Option Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence.
14. Legends.
-------
The Company may at any time place legends referencing the Right of
First Refusal and any applicable federal, state or foreign securities law
restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
14.1. "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
14.2. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
14.3. If the Notice designates this Option as an Incentive Stock
----------------------------------------------------------
Option: "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
- ------
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
<PAGE>
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE
SHARES SHOULD NOT BE TRANSFERRED PRIOR TO [INSERT LATER OF TWO YEARS AFTER THE
-----------------------------------
DATE OF OPTION GRANT OR ONE YEAR AFTER THE DATE OF EXERCISE HERE]. SHOULD THE
- ----------------------------------------------------------------
REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED
ABOVE."
15. Lock-Up Agreement.
-----------------
The Optionee hereby agrees that in the event of any underwritten
public offering of stock, including an initial public offering of stock, made by
the Company pursuant to an effective registration statement filed under the
Securities Act, the Optionee shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act.
16. Restrictions on Transfer of Shares.
----------------------------------
No shares acquired upon exercise of the Option may be sold, exchanged,
transferred (including, without limitation, any transfer to a nominee or agent
of the Optionee), assigned, pledged, hypothecated or otherwise disposed of,
including by operation of law, in any manner which violates any of the
provisions of this Option Agreement and any such attempted disposition shall be
void. The Company shall not be required (a) to transfer on its books any shares
which will have been transferred in violation of any of the provisions set forth
in this Option Agreement or (b) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares will have been so transferred.
<PAGE>
17. Miscellaneous Provisions.
------------------------
17.1. Binding Effect. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
17.2. Termination or Amendment. The Board may terminate or amend the
Plan or the Option at any time; provided, however, that except as provided in
Section 8 in connection with a Change in Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option, if designated an Incentive Stock Option in the
Notice, to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
17.3. Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given (except to the extent
that this Option Agreement provides for effectiveness only upon actual receipt
of such notice) upon personal delivery or upon deposit in the United States Post
Office, by registered or certified mail, with postage and fees prepaid,
addressed to the other party at the address shown below that party's signature
or at such other address as such party may designate in writing from time to
time to the other party.
17.4. Integrated Agreement. The Notice, this Option Agreement and the
Plan constitute the entire understanding and agreement of the Optionee and the
Participating Company Group with respect to the subject matter contained herein
or therein and supersedes any prior agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company
Group with respect to such subject matter other than those as set forth or
provided for herein or therein. To the extent contemplated herein or therein,
the provisions of the Notice and the Option Agreement shall survive any exercise
of the Option and shall remain in full force and effect.
17.5. Applicable Law. This Option Agreement shall be governed by the
laws of the State of Nevada as such laws are applied to agreements between
Nevada residents entered into and to be performed entirely within the State of
Nevada.
17.6. Counterparts. The Notice may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
[_] Incentive Stock Option Optionee:_______________________
[_] Nonstatutory Stock Option
Date:____________________
STOCK OPTION EXERCISE NOTICE
Loraca International, Inc.
Attention: Chief Financial Officer
___________________________
___________________________
Ladies and Gentlemen:
1. Option. I was granted an option (the "Option") to purchase shares of
------
the common stock (the "Shares") of Loraca International, Inc. (the "Company")
pursuant to the Company's 1999 Stock Option Plan (the "Plan"), my Notice of
Grant of Stock Option (the "Notice") and my Stock Option Agreement (the "Option
Agreement") as follows:
Grant Number: _________________________
Date of Option Grant: _________________________
Number of Option Shares: _________________________
Exercise Price per Share: $________________________
2. Exercise of Option. I hereby elect to exercise the Option to purchase
------------------
the following number of Shares, all of which are Vested Shares in accordance
with the Notice and the Option Agreement:
Total Shares Purchased: _________________________
Total Exercise Price (Total Shares X Price per Share) $ _____________
3. Payments. I enclose payment in full of the total exercise price for
--------
the Shares in the following form(s), as authorized by my Option Agreement:
[_] Cash: $________________________
[_] Check: $________________________
[_] Tender of Company Stock: Contact Plan Administrator
4. Tax Withholding. I authorize payroll withholding and otherwise will
---------------
make adequate provision for the federal, state, local and foreign tax
withholding obligations of the Company, if any, in connection with the Option.
<PAGE>
5. Optionee Information.
--------------------
My address is: _____________________________________________________
_____________________________________________________
My Social Security Number is: ______________________________________
6. Notice of Disqualifying Disposition. If the Option is an Incentive
-----------------------------------
Stock Option, I agree that I will promptly notify the Chief Financial Officer of
the Company if I transfer any of the Shares within one (1) year from the date I
exercise all or part of the Option or within two (2) years of the Date of Option
Grant.
7. Binding Effect. I agree that the Shares are being acquired in
--------------
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, including the Right of First Refusal set forth therein, to all
of which I hereby expressly assent. This Agreement shall inure to the benefit of
and be binding upon the my heirs, executors, administrators, successors and
assigns.
8. Transfer. I understand and acknowledge that the Shares have not been
--------
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and that consequently the Shares must be held indefinitely unless they are
subsequently registered under the Securities Act, an exemption from such
registration is available, or they are sold in accordance with Rule 144 or Rule
701 under the Securities Act. I further understand and acknowledge that the
Company is under no obligation to register the Shares. I understand that the
certificate or certificates evidencing the Shares will be imprinted with legends
which prohibit the transfer of the Shares unless they are registered or such
registration is not required in the opinion of legal counsel satisfactory to the
Company. I am aware that Rule 144 under the Securities Act, which permits
limited public resale of securities acquired in a nonpublic offering, is not
currently available with respect to the Shares and, in any event, is available
only if certain conditions are satisfied. I understand that any sale of the
Shares that might be made in reliance upon Rule 144 may only be made in limited
amounts in accordance with the terms and conditions of such rule and that a copy
of Rule 144 will be delivered to me upon request.
I understand that I am purchasing the Shares pursuant to the terms of the
Plan, the Notice and my Option Agreement, copies of which I have received and
carefully read and understand.
Very truly yours,
____________________________________
(Signature)
Receipt of the above is hereby acknowledged.
Loraca International, Inc.
By: _______________________________________
Title: ____________________________________
Dated: ____________________________________
<PAGE>
Exhibit 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is made effective as of
January 1, 1999 (the "Effective Date") by and between Loraca International, Inc.
("Company"), and Ronald R. Baca ("Executive").
NOW, THEREFORE, the parties agree as follows:
1. Employment. Company hereby engages Executive, and Executive hereby
----------
accepts such engagement, on the terms and conditions set forth herein.
2. Duties.
------
2.1 Position. Executive is engaged in the position of President and
--------
Chief Executive Officer of Company and shall have the duties and
responsibilities assigned by the Board of Directors of Company ("Board of
Directors"). Executive shall perform faithfully and diligently such duties, as
well as such other duties as the Board of Directors shall assign from time to
time. The Board of Directors reserves the right to modify Executive's position
and duties on a prospective basis at any time, in the Board of Directors' sole
and absolute discretion, provided the duties and responsibilities are consistent
with the position of a senior executive or director and Executive continues to
report directly to the Board of Directors.
2.2 Best Efforts/Full-time. Executive agrees to expend Executive's
----------------------
best efforts on behalf of Company, and to abide by all decisions made by Company
as well as all applicable federal, state and local laws, regulations or
ordinances. Executive shall devote Executive's full business time and efforts to
the performance of Executive's duties for Company, unless Executive notifies the
Board of Directors in advance of Executive's intent to engage in other paid work
and receives the Board of Directors' express written consent to do so. Executive
must not engage in any work, paid or unpaid, that creates an actual or potential
conflict of interest with Company and, if the Board of Directors believes a
conflict exists, the Board of Directors may ask Executive to choose whether to
discontinue the other work or resign employment with Company.
3. Term.
----
3.1 Initial Term. The employment relationship pursuant to this
------------
Agreement shall be for an initial term commencing on the Effective Date set
forth above and continuing for a period of five years following such date
("Initial Term"), unless sooner terminated in accordance with paragraph 7 below.
3.2 Renewal. On completion of the Initial Term specified in
-------
paragraph 3.1 above, this Agreement will automatically renew for subsequent one-
year terms unless either party provides three months' advance written notice to
the other that it/he does not wish to renew the Agreement for a subsequent one-
year term. In the event either party gives notice of
1
<PAGE>
nonrenewal pursuant to this paragraph 3.2, this Agreement will expire at the end
of the current term.
4. Compensation.
------------
4.1 Base Salary. As compensation for the proper and satisfactory
-----------
performance of all duties to be performed by Executive hereunder, Company shall
pay to Executive an initial Base Salary of $240,000 per year ("Base Salary"),
payable in arrears in accordance with Company's normal payroll practices, less
all applicable state and federal withholding tax, social security and all other
employment taxes or authorized payroll deductions.
4.2 Incentive Compensation. Executive shall be eligible to earn
----------------------
incentive compensation on an annual basis in accordance with the terms and
conditions established by Company in its sole and exclusive discretion. The
Incentive Compensation Plan established for calendar year 1999 is set forth at
Exhibit A.
4.3 Stock Options. Executive shall be granted a stock option to
--------------
purchase 200,000 shares of Company's common stock in accordance with an option
agreement approved by the Board of Directors.
4.4 Performance Review and Salary Increase. The Board of Directors
--------------------------------------
will periodically review Executive's performance and compensation on no less
than an annual basis. A six percent increase in Executive's Base Salary will
take effect on each anniversary date of this Agreement. Further adjustments in
compensation, if any, will be made in the sole and absolute discretion of the
Board of Directors.
5. Fringe Benefits.
----------------
5.1 Customary Fringe Benefits. Executive shall be eligible for all
--------------------------
customary and usual fringe benefits generally available to employees of Company,
as determined in the sole and absolute discretion of Company. Company reserves
the right to change or eliminate the fringe benefits on a prospective basis at
any time, in Company's sole and absolute discretion.
5.2 Insurance. Company agrees to pay the premiums of four existing
----------
life insurance policies purchased from Money of New York Life Insurance,
insuring Executive's life in the face amount of $500,000 per policy.
Beneficiaries of the policy are Executive's wife and three children. Company
also agrees to purchase a disability policy for Executive at a commercially
reasonable rate, unless Executive is uninsurable. If Executive is uninsurable,
Company will pay Executive an amount equal to the premiums Company would have
paid for a disability policy at a commercially reasonable rate.
5.3 Vacation. Executive shall accrue five (5) weeks of paid vacation
---------
during each one year of employment, subject to and in accordance with the
Company's standard vacation policies for its New Mexico location.
2
<PAGE>
5.4 Automobile Allowance. Executive shall be provided an automobile
---------------------
allowance in the amount of $1000 per month, payable in arrears for each full
month of employment.
6. Business Expenses. Executive will be reimbursed for all reasonable,
-----------------
out-of-pocket business expenses incurred in the performance of Executive's
duties on behalf of Company. To obtain reimbursement, expenses must be submitted
promptly with appropriate supporting documentation in accordance with Company's
policies.
7. Termination of Executive's Employment.
--------------------------------------
7.1 Termination for Cause by Company. Although Company anticipates a
--------------------------------
mutually rewarding employment relationship with Executive, Company may terminate
Executive's employment immediately at any time for good cause, including, but
not limited to: (a) acts or omissions constituting gross negligence,
recklessness or willful misconduct on the part of the Executive in respect to
Executive's obligations or otherwise relating to the business of Company; (b)
Executive's material breach of this Agreement; (c) Executive's conviction or
entry of a plea of nolo contendere for fraud, misappropriation or embezzlement,
or felony or any crime of moral turpitude; and (d) Executive's neglect of duties
or failure to perform as determined in the sole and exclusive discretion of the
Board of Directors. In the event Executive's employment is terminated in
accordance with this paragraph, Executive shall be entitled to receive only the
Base Salary then in effect, prorated to the date of termination.
7.2 Termination Without Cause by Company. Company may terminate
-------------------------------------
Executive's employment under this Agreement without cause at any time on thirty
(30) days' advance written notice to Executive. In the event of such
termination, Company will pay Executive the remainder of his Base Salary then in
effect for the balance of either the Initial Term or any subsequent one-year
term, depending on when the termination occurs. In addition, Executive will
also receive a "Separation Package" described in paragraph 7.2(a) below,
provided Executive complies with the conditions set forth in 7.2(b) below.
(a) Separation Package. The Separation Package will consist
------------------
of the following:
(i) a severance payment equal to two (2) times Executive's
Base Salary then in effect, if the termination occurs during the Initial Term,
------
or a severance payment equal to three (3) times Executive's Base Salary then in
effect if the termination occurs after the Initial Term, either of which must be
-----
paid within thirty (30) days from the date of termination;
(ii) continued provision of Company's standard medical
insurance coverage for thirty-six (36) months on the same terms as during
Executive's employment, provided that Company's medical insurance carrier allows
for such coverage continuation. In the event Company's insurance carrier does
not allow such coverage continuation, Company will pay the monthly premium for
group health benefits for a period of eighteen (18) months, provided Executive
elects to continue these benefits in accordance with the
3
<PAGE>
applicable provisions of the Consolidated Budget Reconciliation Act of 1985
("COBRA"). If such coverage included the Executive's dependents immediately
prior to the date of termination, such dependents shall also be covered at
Company's expense. After Executive's COBRA coverage has ended, Company will pay
Executive an amount equivalent to the premiums Company paid for Executive's
medical coverage during Executive's employment for up to eighteen (18) months.
Notwithstanding the above, in the event Executive becomes covered under another
employer's group health plan during the period provided for herein, the Company
shall cease provision of continued group health insurance for Executive and his
dependents or cease making payments equivalent to premiums for medical insurance
coverage;
(iii) continued payment of life insurance premiums on the
four policies specified in section 5.2 above until the policy dividends cover
the costs of the premiums; and
(iv) continued payment of disability insurance premiums on
the same terms as during Executive's employment for a period not to exceed
thirty-six (36) months or until Executive is covered under another disability
insurance policy, whichever occurs first.
(b) Conditions to Receive Separation Package. The Separation
----------------------------------------
Package will be paid provided the following conditions are met:
(i) Executive agrees to act as a consultant for Company,
without further compensation, for six months following the termination of the
employment relationship, if requested to do so by Company;
(ii) Executive complies with all surviving provisions of
this Agreement as specified in paragraph 12.7 below, including, but not limited
to, refraining from competition with Company as set forth in paragraph 9 below;
and
(iii) Executive executes a full general release, releasing
all claims, known or unknown, that Executive may have against Company arising
out of or in any way related to Executive's employment or termination of
employment with Company.
7.3 Voluntary Resignation by Executive. Executive may voluntarily
-----------------------------------
resign his position with Company with or without cause, at any time, on thirty
(30) days' advance written notice in accordance with the following terms:
(a) Voluntary Resignation Without Cause. In the event of
------------------------------------
Executive's resignation without cause, Executive will be entitled to receive
only the Base Salary then in effect for the 30-day notice period and no other
amount for the remaining months of the Initial Term or subsequent one-year term,
if any. In addition, Executive will not be entitled to receive a Separation
Package or any part thereof, as described in paragraph 7.2(a) above. Executive
agrees to act as a consultant for Company, on mutually agreeable terms, for up
to thirty (30) days following the date of his resignation.
4
<PAGE>
(b) Voluntary Resignation With Cause. In the event of
--------------------------------
Executive's resignation with cause, Executive will be entitled to receive the
Separation Package described in 7.2(a) above, provided he complies with the
conditions in paragraph 7.2(b) above. Executive will be deemed to have resigned
"with cause" in the following circumstances:
(i) Executive's position and/or duties are modified so
that Executive's duties are no longer consistent with the position of a senior
executive or director, or Executive no longer reports to the Board of Directors;
or
(ii) the Company's material breach of any of the provisions
of this Agreement, including but not limited to a reduction by the Company in
Executive's Base Salary (provided however, that a decrease in Executive's Base
Salary shall not be deemed to be a material breach of this Agreement if such
decrease is shared by Company's other executive officers); or
(iii) Company relocates its principal place of business to a
location more than twenty-five (25) miles from its current location at 5600
Wyoming NE, Suite 150, Albuquerque, New Mexico 87109.
(c) No Resignation Pending Change of Control. Notwithstanding
----------------------------------------
the provisions 7.3(a) and 7.3(b) alone, in the event any "person" (as defined in
paragraph 7.4(c) below) begins a tender or exchange offer, circulates a proxy to
shareholders or takes other steps to effect a Change of Control, Executive
agrees he will not voluntarily resign employment with Company, and will render
services to Company in accordance with Executive's position, until such "person"
has abandoned or terminated efforts to effect a Change of Control or until a
Change of Control has occurred.
7.4 Termination on Change of Control.
---------------------------------
(a) Separation Package. If Executive's employment is terminated
-------------------
by Company within twelve (12) months after a Change in Control (as that term is
defined below), other than for cause (as defined in paragraph 7.1 above),
Executive shall be entitled to receive a Separation Package as described in
paragraph 7.2(a) above, provided all conditions in paragraph 7.2(b) for receipt
of the Separation Package are met by Executive.
(b) 280G. If, due to the benefits provided under paragraph
----
7.4(a) above, Executive is subject to any excise tax due to characterization of
any amounts payable under paragraph 7.4(a) as excess parachute payments pursuant
to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
the Executive may elect, in his sole discretion, to reduce the amounts payable
under paragraph 7.4(a) in order to avoid any "excess parachute payment" under
Section 280G(b)(1) of the Code.
(c) Change of Control. A Change of Control is defined as any one
------------------
of the following occurrences:
5
<PAGE>
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other
than a trustee or other fiduciary holding securities of Company under an
employee benefit plan of Company, becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of the
securities of Company representing 49% or more of (A) the outstanding shares of
common stock of Company or (B) the combined voting power of the Company's then-
outstanding securities; or
(ii) the sale or disposition of all or substantially all of
Company's assets (or any transaction having similar effect is consummated); or
(iii) the Company is party to a merger or consolidation that
results in the holders of voting securities of Company outstanding immediately
prior thereto failing to continue to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) at least
51% of the combined voting power of the voting securities of Company or such
surviving entity outstanding immediately after such merger or consolidation; or
(iv) the dissolution or liquidation of Company.
7.5 Termination Of Employment Upon Nonrenewal. In the event either
------------------------------------------
party decides not to renew this Agreement for a subsequent one-year term in
accordance with paragraph 3.2 above, the Agreement will expire, Executive's
employment with Company will terminate and Executive will only be entitled to
his Base Salary paid up to his last day of the current term. Executive will not
be entitled to any Separation Package as described in paragraph 7.2(a) above.
8. Proprietary Rights.
------------------
8.1 Prior Work. Except as set forth on Exhibit B hereto, all
----------
previous work performed by Executive for Company relating in any way to the
conception, reduction to practice, creation, derivation, design, development,
manufacture, sale or support of products or services for Company is the property
of Company, and Executive hereby assigns to Company all of Executive's right,
title and interest in and to such previous work.
8.2 No Violation of Rights of Third Parties. Executive warrants that
---------------------------------------
the performance of all the terms of this Agreement and as an employee of Company
does not and will not breach any agreement to keep in confidence proprietary
information or material acquired by Executive prior to Executive's employment
with Company. Executive agrees not to disclose to Company, or induce Company to
use, any confidential or proprietary information or material belonging to any
previous employer or others. Executive warrants that Executive is not a party
to any other agreement that will interfere with Executive's full compliance with
this Agreement.
8.3 Proprietary Information. The employment relationship between
-----------------------
Company and Executive is one of confidence and trust between Company and
Executive with respect to any information: (a) applicable to the business of
Company; or (b) applicable to the business of
6
<PAGE>
any client or customer of Company, which may be made known to Executive by
Company or by any client or customer of Company, or learned by Executive in such
context during the period of Executive's employment with Company. All such
information has commercial value in the business in which Company is engaged and
is hereinafter called "Proprietary Information." By way of illustration, but not
limitation, Proprietary Information includes any and all technical and non-
technical information including patent, copyright, trade secret, and proprietary
information, techniques, sketches, drawings, models, inventions, know-how,
processes, apparatus, equipment, algorithms, software programs, software source
documents, and formulae related to the current, future and proposed products and
services of Company, and includes, without limitation, respective information
concerning research, experimental work, development, design details and
specifications, engineering, financial information, procurement requirements,
purchasing manufacturing, customer lists, business forecasts, sales and
merchandising and marketing plans and information. "Proprietary Information"
also includes proprietary or confidential information of any third party who may
disclose such information to Company or to Executive in the course of Company's
business.
8.4 Ownership and Nondisclosure of Proprietary Information. All
------------------------------------------------------
Proprietary Information is the sole property of Company, its assigns and its
customers, and Company, its assigns and its customers shall be the sole and
exclusive owner of all patents, copyrights, mask works, trade secrets and other
rights in the Proprietary Information. Executive hereby assigns to Company all
right, title and interest Executive may have or acquire in the Proprietary
Information. At all times, both during the term of Executive's employment by
Company and after termination of such employment, Executive agrees to keep in
confidence and trust all Proprietary Information, and not to use or disclose any
Proprietary Information or anything directly relating to the Proprietary
Information without the written consent of Company, except as may be necessary
in the ordinary course of performing Executive's duties as an employee of
Company.
8.5 Ownership and Return of Materials. All materials (including,
---------------------------------
without limitation, documents, drawings, models, apparatus, sketches, designs,
lists, and all other tangible media of expression) furnished to Executive by
Company shall remain the property of Company. Upon termination of Executive's
employment, or at any time on the request of Company before termination,
Executive will promptly (but no later than five (5) days after the earlier of
the termination of Executive's employment or Company's request) destroy or
deliver to Company, at Company's option, (a) all materials furnished to
Executive by Company, (b) all tangible media of expression that are in
Executive's possession to the extent that they incorporate any Proprietary
Information or otherwise relate to Company's business, and (c) written
certification of Executive's compliance with Executive's obligations under this
sentence.
8.6 Innovations. As used in this Agreement, the term "Innovations"
-----------
means all processes, machines, manufactures, compositions of matter,
improvements, inventions (whether or not protectable under patent laws), works
of authorship, information fixed in any tangible medium of expression (whether
or not protectable under copyright laws), moral rights, mask works, trademarks,
trade names, trade dress, trade secrets, know-how, ideas (whether or not
protectable under trade secret laws), and all other subject matter protectable
under patent,
7
<PAGE>
copyright, moral right, mask work, trademark, trade secret or other laws, and
includes without limitation all new or useful art, combinations, discoveries,
formulae, manufacturing techniques, technical developments, discoveries,
artwork, software, and designs. "Innovations" includes "Inventions," which is
defined to mean any inventions protected under patent laws.
8.7 Disclosure of Prior Innovations. Executive has identified on
-------------------------------
Exhibit B ("Prior Innovations") attached hereto all Innovations applicable to
the business of Company or relating in any way to Company's business or
demonstrably anticipated research and development, which were conceived, reduced
to practice, created, derived, developed, or made by Executive prior to
Executive's employment with Company (collectively, the "Prior Innovations"), and
Executive represents that such list is complete. Executive represents that
Executive has no rights in any such Innovations other than those Prior
Innovations specified in Exhibit B ("Prior Innovations"). If there is no such
list on Exhibit B ("Prior Innovations"), Executive represents that Executive has
neither conceived, reduced to practice, created, derived, developed nor made any
such Prior Innovations at the time of signing this Agreement.
8.8 Assignment of Innovations; License of Prior Innovations.
-------------------------------------------------------
Executive hereby agrees promptly to disclose and describe to Company, and
Executive hereby assigns to Company or Company's designee Executive's entire
right, title, and interest in and to, (a) each of the Innovations (including
Inventions), and any associated intellectual property rights, which Executive
may solely or jointly conceive, reduce to practice, create, derive, develop or
make during the period of Executive's employment with Company, which either (i)
relate, at the time of conception, reduction to practice, creation, derivation,
development, or making of such Innovation, to Company's business or actual or
demonstrably anticipated research or development, or (ii) were developed on any
amount of Company's time or with the use of any of Company's equipment,
supplies, facilities or trade secret information, or (iii) resulted from any
work Executive performed for Company, and (b) each of the Innovations which is
not an Invention (as demonstrated by Executive by evidence meeting the clear and
convincing standard of proof), and any associated intellectual property rights,
which Executive may solely or jointly conceive, develop, reduce to practice,
create, derive, develop, or make during the period of Executive's employment
with Company, which are applicable to the business of Company (collectively, the
Innovations identified in clauses (a) and (b) are hereinafter the "Company
Innovations"). To the extent any of the rights, title and interest in and to the
Company Innovations cannot be assigned by Executive to Company, Executive hereby
grants to Company an exclusive, royalty-free, transferable, irrevocable,
worldwide license (with rights to sublicense through multiple tiers of
sublicensees) to practice such non-assignable rights, title and interest. To the
extent any of the rights, title and interest in and to Company Innovations can
be neither assigned nor licensed by Executive to Company, Executive hereby
irrevocably waives and agrees never to assert such non-assignable and non-
licensable rights, title and interest against Company or any of Company's
successors in interest to such non-assignable and non-licensable rights.
Executive hereby grants to Company or Company's designees a royalty free,
irrevocable, worldwide license (with rights to sublicense through multiple tiers
of sublicensees) to practice all applicable patent, copyright, moral right, mask
work, trade secret and other intellectual property rights relating to any Prior
Innovations which Executive incorporates, or permits to be incorporated, in any
Company Innovations. Notwithstanding the foregoing, Executive agrees
8
<PAGE>
that Executive will not incorporate, or permit to be incorporated, any Prior
Innovations in any Company Innovations without Company's prior written consent.
8.9 Future Innovations. Executive recognizes that Innovations or
------------------
Proprietary Information relating to Executive's activities while working for
Company and conceived, reduced to practice, created, derived, developed, or made
by Executive, alone or with others, within one (1) year after termination of
Executive's employment may have been conceived, reduced to practice, created,
derived, developed, or made, as applicable, in significant part while employed
by Company. Accordingly, Executive agrees that such Innovations and Proprietary
Information shall be presumed to have been conceived, reduced to practice,
created, derived, developed, or made, as applicable, during Executive's
employment with Company and are to be promptly assigned to Company unless and
until Executive has established the contrary by written evidence satisfying the
clear and convincing standard of proof.
8.10 Cooperation in Perfecting Rights to Confidential Information and
----------------------------------------------------------------
Innovations.
- -----------
(a) Executive agrees to perform, during and after Executive's
employment, all acts deemed necessary or desirable by Company to permit and
assist Company, at Company's expense, in obtaining and enforcing the full
benefits, enjoyment, rights and title throughout the world in the Proprietary
Information and Innovations assigned or licensed to, or whose rights are
irrevocably waived and shall not be asserted against, Company under this
Agreement. Such acts may include, but are not limited to, execution of documents
and assistance or cooperation (i) in the filing, prosecution, registration, and
memorialization of assignment of any applicable patents, copyrights, mask work,
or other applications, (ii) in the enforcement of any applicable patents,
copyrights, mask work, moral rights, trade secrets, or other proprietary rights,
and (iii) in other legal proceedings related to the Proprietary Information or
Innovations.
(b) In the event that Company is unable for any reason to secure
Executive's signature to any document required to file, prosecute, register, or
memorialize the assignment of any patent, copyright, mask work or other
applications or to enforce any patent, copyright, mask work, moral right, trade
secret or other proprietary right under any Proprietary Information (including
improvements thereof) or any Innovations (including derivative works,
improvements, renewals, extensions, continuations, divisionals, continuations in
part, continuing patent applications, reissues, and reexaminations thereof),
Executive hereby irrevocably designates and appoints Company and Company's duly
authorized officers and agents as Executive's agents and attorneys-in-fact to
act for and on Executive's behalf and instead of Executive, (i) to execute,
file, prosecute, register and memorialize the assignment of any such
application, (ii) to execute and file any documentation required for such
enforcement, and (iii) to do all other lawfully permitted acts to further the
filing, prosecution, registration, memorialization of assignment, issuance, and
enforcement of patents, copyrights, mask works, moral rights, trade secrets or
other rights under the Proprietary Information, or Innovations, all with the
same legal force and effect as if executed by Executive.
9
<PAGE>
8.11 Nonassignable Inventions. This Agreement does not apply to an
------------------------
Invention which qualifies fully as a nonassignable invention under the
provisions of Section 2870 of the California Labor Code. Executive acknowledges
that a condition for an Invention to qualify fully as a non-assignable invention
under the provisions of Section 2870 of the California Labor Code is that the
invention must be protected under patent laws. Executive has reviewed the
notification in Exhibit C ("Limited Exclusion Notification") and agrees that
Executive's signature thereon acknowledges receipt of the notification. However,
Executive agrees to disclose promptly in writing to Company all Innovations
(including Inventions) conceived, reduced to practice, created, derived,
developed, or made by Executive during the term of Executive's employment and
for one (1) year thereafter, whether or not Executive believes such Innovations
are subject to this Agreement, to permit a determination by Company as to
whether or not the Innovations should be the property of Company. Any such
information will be received in confidence by Company.
8.12 Injunctive Relief. A breach of any of the promises or
-----------------
agreements relating to Proprietary Information or Company Innovations will
result in irreparable and continuing damage to Company for which there will be
no adequate remedy at law, and Company shall be entitled to injunctive relief
and/or a decree for specific performance, and such other relief as may be proper
(including monetary damages if appropriate).
9. Competitive Employment. During the term of Executive's employment
----------------------
with Company, and during any period in which Executive is receiving payments
from Company pursuant to this Agreement, Executive agrees that Executive will
not directly or indirectly compete with Company in any way, and will not act as
an officer, director, employee, consultant, shareholder, volunteer, lender, or
agent of any business enterprise of the same nature as, or which is in direct
competition with, the business in which Company is now engaged or in which
Company becomes engaged during the term of Executive's employment with Company,
as may be determined by Company in its sole discretion. Further, Executive
agrees not to refer any client or potential client to competitors of Company,
without Company's written consent, during the term of Executive's employment
with Company or during the period in which Executive is receiving payments from
Company pursuant to this Agreement.
10. Nonsolicitation. During Executive's employment with Company and for
---------------
a period of two (2) years thereafter, irrespective of the manner of termination
of employment, Executive agrees not to, directly or indirectly, separately or in
association with others:
(a) Interfere with, impair, disrupt or damage Company's
relationship with any of its clients or prospective clients by soliciting or
encouraging or causing others to solicit or encourage, any of them for the
purpose of diverting or taking away the business such clients have with Company;
or
(b) Interfere with, impair, disrupt or damage Company's business
by soliciting, encouraging or causing others to solicit or encourage any of
Company's employees to discontinue their employment with Company.
10
<PAGE>
11. Agreement to Arbitrate. To the fullest extent permitted by law,
----------------------
Executive and Company agree to arbitrate any controversy, claim or dispute
between them arising out of or in any way related to this Agreement, the
employment relationship between Company and Executive, and any disputes upon
termination of employment, including but not limited to breach of contract,
tort, discrimination, harassment, wrongful termination, demotion, discipline,
failure to accommodate, family and medical leave, compensation or benefits
claims, constitutional claims and claims for violation of any local, state or
federal law, statute, regulation or ordinance or common law. This method of
resolving disputes shall be the sole and exclusive remedy of the parties.
Accordingly, the parties understand that they are giving up their rights to have
their disputes decided in a court of law and, if applicable, by a jury, and
instead agree that their disputes shall be decided by arbitration. For the
purpose of this agreement to arbitrate, references to "Company" includes all
parent, subsidiary or related entities and their employees, supervisors,
officers, directors, agents, pension or benefit plans, pension or benefit plan
sponsors, fiduciaries, administrators, affiliates and all successors and assigns
of any of them, and this agreement shall apply to them to the extent Executive's
claims arise out of or relate to their actions on behalf of Company.
11.1 Consideration. The mutual promise by Company and Executive to
-------------
arbitrate any and all disputes between them, rather than litigate them before
the courts or other bodies, provides the consideration for this agreement to
arbitrate.
11.2 Initiation of Arbitration. Either party may exercise the right
-------------------------
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims. In no event shall the request for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claims would be barred by the applicable statute of
limitations.
11.3 Arbitration Procedure. The arbitration will be conducted in New
---------------------
Mexico by a single neutral arbitrator and in accordance with the rules of the
American Arbitration Association ("AAA"). The parties are entitled to
representation by an attorney or other representative of their choosing. The
arbitrator shall have the power to enter any award that could be entered by a
judge of the trial court of the State of New Mexico, and only such power. The
parties agree to abide by and perform any award rendered by the arbitrator.
Judgment on the award may be entered in any court having jurisdiction thereof.
11.4 Costs of Arbitration. Each party shall bear one half the cost
--------------------
of the arbitration filing and hearing fees, and the cost of the arbitrator.
12. General Provisions.
------------------
12.1 Successors and Assigns. The rights and obligations of Company
----------------------
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. Executive shall not be entitled to assign any
of Executive's rights or obligations under this Agreement, except in the event
of Executive's death. In the event of Executive's death, Executive may assign
any rights under this Agreement to his estate.
11
<PAGE>
12.2 Waiver. Either party's failure to enforce any provision of this
------
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.
12.3 Severability. In the event any provision of this Agreement
------------
shall be found unenforceable by an arbitrator or court of competent
jurisdiction, such provision shall be deemed modified to the extent necessary to
allow enforceability of the provision as so limited, it being intended that
Company shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.
12.4 Interpretation; Construction. The headings set forth in this
----------------------------
Agreement are for convenience only and shall not be used in interpreting this
Agreement. This Agreement has been drafted by legal counsel representing
Company, but Executive acknowledges that Executive has had an opportunity to
review the Agreement and have it reviewed by legal counsel, if desired, and,
therefore, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.
12.5 Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the United States of America and the State of New
Mexico.
12.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally, (b) by
overnight courier upon written verification of receipt, (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission, or (d) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below, or such other address as either party may specify in writing.
12.7 Survival. The definitions in this Agreement and the rights and
--------
obligations contained in paragraphs 8 ("Proprietary Rights"), 9 ("Competitive
Employment"), 10 ("Nonsolicitation"), 11 ("Agreement to Arbitrate") and 12
("General Provisions") will survive any termination or expiration of this
Agreement.
12.8 Attorneys' Fees. In the event of any dispute or breach arising
---------------
with respect to this Agreement, the prevailing party in any proceedings for the
resolution or enforcement thereof shall be entitled to recover from the losing
party reasonable expenses, attorneys' fees and costs incurred in relation to
such proceedings.
13. Entire Agreement. This Agreement, including Exhibits A, B and C
----------------
to this Agreement, constitutes the entire agreement between the parties relating
to this subject matter and supersedes all prior or simultaneous representations,
discussions, negotiations, and agreements, whether written or oral. This
Agreement may be amended or modified only with the written consent of Executive
and the Board of Directors. No oral waiver, amendment or
12
<PAGE>
modification will be effective under any circumstances whatsoever.
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN.
WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.
/s/ Ronald R. Baca
______________________________________
Executive's Signature
______________________________________
Ronald R. Baca
11735 Sky Valley, N.E.
Albuquerque, New Mexico 87111
Phone: (505) 856-0111
Fax: (505) 856-0113
Loraca International, Inc.
By: /s/ illegible
______________________________________
[Officer Name]
[Title]
5600 Wyoming NE, Suite 150
Albuquerque, NM 97109
13
<PAGE>
EXHIBIT A
---------
INCENTIVE COMPENSATION PLAN
Calendar Year 1999
In addition to the Base Salary, Executive will be eligible to earn
incentive compensation in the form of a Performance Bonus calculated and paid in
accordance with the terms and conditions set forth below.
1. Prerequisites to Earning Bonus. In order to earn a performance bonus
------------------------------
for any calendar year, Executive must be employed by Company on the last day of
the applicable calendar year.
2. Bonus Calculation. Bonus will be based on the achievement of annual
-----------------
Company earnings before interest, taxes, depreciation and amortization
("EBITDA"). The goals for the year will be set by Company in its sole and
absolute discretion. If Company achieves any sum within the target ranges set
forth below, Executive will receive a payment equivalent to the specified bonus
percentage of that amount. See chart below:
EBITDA Bonus
0 to 500,000 10%
501,000 to 1,000,000 12%
1,000,000 to 2,000,000 14%
2,000,000 and over 15%
3. Payment of Bonus. The annual performance bonus, if any, will be paid
----------------
within 30 days after the completion of the annual audit.
4. Termination of Employment. In the event of termination of employment
-------------------------
prior to the end of any calendar year, Company will pay Executive a prorated
bonus based on Company's achievement of goals to the date of termination.
14
<PAGE>
EXHIBIT B
---------
PRIOR INNOVATIONS
15
<PAGE>
EXHIBIT C
---------
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2870 of the California
Labor Code that the foregoing Agreement between you and Loraca ("Company") does
not require you to assign or offer to assign to Company any invention that you
developed entirely on your own time without using Company's equipment, supplies,
facilities or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to Company's business, or actual or demonstrably anticipated research
or development of Company; or
(2) Result from any work performed by you for Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between Company and the United States of America or any of its
agencies requiring full title to such patent or invention to be in the United
States of America.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:__________________________________
_____________________________________
(Printed Name of Executive)
Date:_______________________________
Witnessed by:
_____________________________
_____________________________
(Printed Name)
Dated:_______________________
16
<PAGE>
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is made effective as of
June 1, 1999 (the "Effective Date") by and between New Mexico Mortgage
Corporation ("NMMC"), a New Mexico corporation and wholly owned subsidiary of
Loraca International, Inc. ("Loraca"), and __________________ ("Executive").
NOW, THEREFORE, the parties agree as follows:
1. Employment. NMMC hereby engages Executive, and Executive hereby accepts
----------
such engagement, on the terms and conditions set forth herein.
2. Duties.
------
2.1 Position. Executive is engaged in the position of President of
--------
NMMC and shall have the duties and responsibilities assigned by the Board of
Directors of NMMC ("NMMC Board"). Executive shall perform faithfully and
diligently such duties, as well as such other duties as the NMMC Board shall
assign from time to time. The NMMC Board reserves the right to modify
Executive's duties on a prospective basis at any time, in the NMMC Board's sole
and absolute discretion, provided the duties assigned are consistent with the
position of the President of NMMC.
2.2 Best Efforts/Full-time. Executive agrees to work diligently on
----------------------
behalf of NMMC, and to abide by all lawful decisions made by NMMC as well as all
applicable federal, state and local laws, regulations or ordinances. Executive
shall devote Executive's full business time and efforts to the performance of
Executive's duties for NMMC, unless Executive notifies the NMMC Board in advance
of Executive's intent to engage in other paid work and receives the NMMC Board's
express written consent to do so. Executive must not engage in any work, paid or
unpaid that creates an actual or potential conflict of interest with NMMC and,
if the NMMC Board believes a conflict exists, the NMMC Board may ask Executive
to choose whether to discontinue the other work or resign employment with NMMC.
3. Term.
----
3.1 Initial Term. The employment relationship pursuant to this
------------
Agreement shall be for an initial term commencing on the Effective Date set
forth above and continuing for a period of three (3) years following such date
("Initial Term"), unless sooner terminated in accordance with paragraph 7 below.
3.2 Automatic Renewal. On each June 1, commencing June 1, 2002, and
-----------------
continuing on June 1 of each year thereafter, the term of this Agreement shall
be automatically renewed for one additional year unless, not later than three
months prior to any such June 1, either party shall have given written notice to
the other that it/he does not wish to renew the term of the Agreement. In the
event either party gives notice of nonrenewal pursuant to this paragraph 3.2,
this Agreement will expire at the end of the current term.
-1-
<PAGE>
4. Compensation.
------------
4.1 Base Salary. As compensation for the proper and satisfactory
-----------
performance of all duties to be performed by Executive hereunder, NMMC shall pay
to Executive a Base Salary at the rate of $150,000 per year ("Base Salary"),
payable in arrears in accordance with NMMC's normal payroll practices, less all
applicable state and federal withholding tax, social security and all other
employment taxes or authorized payroll deductions.
4.2 Incentive Compensation. Executive is entitled to participate in
----------------------
the Bonus Compensation Plan which is set forth at Exhibit A.
4.3 Stock Options. Subject to the approval of Loraca's Board of
-------------
Directors and concurrent with Executive's execution and delivery of this
Agreement to NMMC, Executive shall be granted an option to purchase 112,500
shares of Loraca's common stock, subject to the rules and limitations set forth
in the Loraca International, Inc. 1999 Stock Option Plan (the "Plan"), with an
exercise price to be approved by Loraca's Board of Directors in its sole and
absolute discretion.
4.4 Performance Review. The NMMC Board may periodically review
------------------
Executive's performance and compensation on no less than an annual basis.
Adjustments to Base Salary or to other compensation, if any, will be made in the
sole and absolute discretion of the NMMC Board. Base Salary may not be decreased
and, once increased, any reference in this Agreement to Base Salary shall be
deemed reference to Base Salary as so increased. Any decrease in Base Salary
shall be deemed a material breach of this Agreement.
5. Fringe Benefits.
---------------
5.1 Customary Fringe Benefits. Executive shall be eligible for all
-------------------------
customary and usual fringe benefits generally available to employees of NMMC, as
determined in the sole and absolute discretion of NMMC. NMMC reserves the right
to change or eliminate the fringe benefits on a prospective basis at any time,
in NMMC's sole and absolute discretion; provided, however, that NMMC shall
provide Executive, on the same terms and conditions as provided to other senior
level executives, with the following minimum benefits: (i) comprehensive health,
medical, dental and vision care insurance; (ii) group life insurance coverage;
and (iii) group long-term disability insurance benefits providing an annual
disability income benefit no less than 60% of the Executive's annual Base
Salary.
5.2 Vacation. Executive shall be eligible to accrue four (4) weeks
--------
of paid vacation during each one year of employment. All other terms and
conditions of Executive's vacation will be governed by NMMC's paid leave
policies for California employees.
5.3 Automobile Allowance. Executive shall be provided an automobile
--------------------
allowance in the amount of $1000 per month, payable in arrears for each full
month of employment.
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<PAGE>
5.4 Insurance. NMMC shall cause the Executive to be covered by and
---------
named as an insured under any policy or contract of insurance obtained by NMMC
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of NMMC or
service in other capacities at its request. The coverage provided to the
Executive pursuant to this section 5.4 shall be of the same scope and on the
same terms and conditions of coverage (if any) provided to other officers or
directors of NMMC and shall continue for so long as the Executive shall be
subject to personal liability relating to such service.
6. Business Expenses. Executive will be reimbursed for all reasonable,
-----------------
out-of-pocket business expenses incurred in the performance of Executive's
duties on behalf of NMMC. To obtain reimbursement, expenses must be submitted
promptly with appropriate supporting documentation in accordance with NMMC's
policies. However, on a one time basis only, Executive shall be permitted to
submit for reimbursement all past business expenses incurred to date provided he
does so in accordance with NMMC's policies within 15 days from the date this
Agreement is entered.
7. Termination of Executive's Employment.
-------------------------------------
7.1 Termination for Cause by NMMC. Although NMMC anticipates a
-----------------------------
mutually rewarding employment relationship with Executive, NMMC may terminate
Executive's employment immediately at any time for good cause, which shall be:
(a) acts or omissions constituting gross negligence, recklessness or willful
misconduct on the part of Executive with respect to Executive's obligations or
otherwise relating to the business of NMMC; (b) Executive's material breach of
this Agreement; (c) Executive's conviction or entry of a plea of nolo contendere
for fraud, misappropriation or embezzlement, or any felony or crime of moral
turpitude; or (d) Executive's material neglect of duties or material failure to
perform in accordance with the business plan prepared by Executive and adopted
by the NMMC Board of Directors from year to year. In the event Executive's
employment is terminated in accordance with this paragraph, Executive shall be
entitled to receive only the Base Salary then in effect, prorated to the date of
termination, and any benefits to which Executive is entitled to by virtue of his
prior employment with NMMC (collectively referred to as "Standard
Entitlements.") Executive will not be entitled to receive the Separation Package
or any part thereof as described in paragraph 7.2 below.
7.2 Termination Without Cause by NMMC. NMMC may terminate
---------------------------------
Executive's employment under this Agreement without cause at any time on thirty
(30) days' advance written notice to Executive. In the event Executive's
employment is terminated in accordance with this paragraph, Executive shall be
entitled to receive the Standard Entitlements plus a Separation Package
described in paragraph 7.2(a) below, provided the Executive complies with the
conditions described in paragraph 7.2(b) below.
(a) Separation Package. In the event of such termination, NMMC
------------------
will pay Executive (i) a lump sum payment equal to the aggregate of all
installments of Base Salary that would be due and payable for the remainder of
the Initial Term or any subsequent renewal term, as applicable; (ii) a lump sum
payment equal to the average of the bonus payments
-3-
<PAGE>
actually paid to Executive for the four most recently completed quarters
multiplied by the number of quarters remaining under either the Initial Term or
any subsequent renewal term, as applicable; (iii) payment by NMMC directly to
the carrier of all premiums for any group health plan continuation coverage
elected by the Executive pursuant to the Consolidated Budget Reconciliation Act
of 1985; and (iv) full vesting and immediate exercisability of all outstanding
stock options. The lump sum payments under (i) and (ii) above shall be paid
within fifteen (15) business days after the termination of Executive's
employment without discount for early payment.
(b) Conditions to Receive Separation Package. The Separation
----------------------------------------
Package will be paid provided the following conditions are met: (i) Executive
agrees to act as a consultant for NMMC, without further compensation, for a
period of thirty (30) days following the termination of the employment
relationship, if requested to do so by NMMC; (ii) Executive complies with all
surviving provisions of this Agreement as specified in paragraph 13.7 below,
including, but not limited to, refraining from competition with NMMC as set
forth in paragraph 9 below; and (iii) Executive executes a full general release,
releasing all claims, known or unknown, that Executive may have against NMMC
arising out of or in any way related to Executive's employment or termination of
employment with NMMC.
7.3 Voluntary Resignation by Executive. Executive may voluntarily
----------------------------------
resign his position with NMMC with or without cause at any time on thirty (30)
days advance written notice in accordance with the following terms:
(a) Voluntary Resignation Without Cause. In the event of
-----------------------------------
Executive's resignation without cause, Executive will be entitled to receive
only that portion of the Base Salary then in effect for the thirty (30) day
notice period and no other amount for the remaining months of the current term,
if any. Executive will not be entitled to receive the Separation Package or any
part thereof, as described in paragraph 7.2(a) above. NMMC may, at its option,
relieve Executive of all duties at any time during the notice period. Executive
agrees to act as a consultant for NMMC, on mutually agreeable terms, for up to
thirty (30) days following the date of his resignation, if requested to do so by
NMMC.
(b) Voluntary Resignation With Cause. In the event of
--------------------------------
Executive's voluntary resignation with cause, Executive will be entitled to
receive the Standard Entitlements plus the Separation Package described in
7.2(a) above, provided he complies with the conditions in paragraph 7.2(b)
above. Executive will be deemed to have resigned "with cause" in the following
circumstances:
(i) NMMC's material breach of any of the provisions of this
Agreement; or
(ii) a charge of material breach by NMMC under paragraph 7.1
above which is determined by final judgment to be made
without adequate basis in law or fact.
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<PAGE>
7.4 Termination Of Employment Upon Nonrenewal. In the event either
-----------------------------------------
party decides not to renew this Agreement for a subsequent one-year term in
accordance with paragraph 3.2 above, the Agreement will expire, Executive's
employment with NMMC will terminate and Executive will only be entitled to the
Standard Entitlements.
8. Proprietary Rights. All references to NMMC in paragraphs 8.1-8.12 include
------------------
Loraca as a third party beneficiary.
8.1 Prior Work. Except as set forth on Exhibit B hereto, all
----------
previous work performed by Executive for NMMC or Loraca relating in any way to
the conception, reduction to practice, creation, derivation, design,
development, manufacture, sale or support of products or services for NMMC is
the property of NMMC/Loraca, and Executive hereby assigns to NMMC/ Loraca all of
Executive's right, title and interest in and to such previous work.
8.2 No Violation of Rights of Third Parties. Executive warrants that
---------------------------------------
the performance of all the terms of this Agreement and as an employee of NMMC
does not and will not breach any agreement to keep in confidence proprietary
information or material acquired by Executive prior to Executive's employment
with NMMC. Executive agrees not to disclose to NMMC/Loraca, or induce
NMMC/Loraca to use, any confidential or proprietary information or material
belonging to any previous employer or others. Executive warrants that Executive
is not a party to any other agreement that will interfere with Executive's full
compliance with this Agreement.
8.3 Proprietary Information. The employment relationship between
-----------------------
NMMC and Executive is one of confidence and trust between NMMC and Executive
with respect to any information: (a) applicable to the business of NMMC/Loraca;
or (b) applicable to the business of any client or customer of NMMC/Loraca,
which may be made known to Executive by NMMC/Loraca or by any client or customer
of NMMC/Loraca, or learned by Executive in such context during the period of
Executive's employment with NMMC. All such information has commercial value in
the business in which NMMC/Loraca is engaged and is hereinafter collectively
called "Proprietary Information." By way of illustration, but not limitation,
Proprietary Information includes any and all technical and non-technical
information including patent, copyright, trade secret, and proprietary
information, techniques, sketches, drawings, models, inventions, know-how,
processes, apparatus, equipment, algorithms, software programs, software source
documents, and formulae related to the current, future and proposed products and
services of NMMC/Loraca, and includes, without limitation, respective
information concerning research, experimental work, development, design details
and specifications, engineering, financial information, procurement
requirements, purchasing manufacturing, customer lists, business forecasts,
sales and merchandising and marketing plans and information. "Proprietary
Information" also includes proprietary or confidential information of any third
party who may disclose such information to NMMC/Loraca or to Executive in the
course of NMMC/Loraca's business, which NMMC/Loraca and/or Executive is obliged
not to disclose pursuant to a confidentiality agreement.
-5-
<PAGE>
8.4 Ownership and Nondisclosure of Proprietary Information. All
------------------------------------------------------
Proprietary Information is the sole property of NMMC/Loraca, its assigns and its
customers, and NMMC/Loraca, its assigns and its customers shall be the sole and
exclusive owner of all patents, copyrights, mask works, trade secrets and other
rights in the Proprietary Information. Executive hereby assigns to NMMC/Loraca
all right, title and interest Executive may have or acquire in the Proprietary
Information. At all times, both during the term of Executive's employment by
NMMC and after termination of such employment, Executive agrees to keep in
confidence and trust all Proprietary Information, and not to use or disclose any
Proprietary Information or anything directly relating to the Proprietary
Information without the written consent of NMMC/Loraca, except as may be
necessary in the ordinary course of performing Executive's duties as an employee
of NMMC.
8.5 Ownership and Return of Materials. All materials (including,
---------------------------------
without limitation, documents, drawings, models, apparatus, sketches, designs,
lists, and all other tangible media of expression) furnished to Executive by
NMMC/Loraca shall remain the property of NMMC/Loraca. Upon termination of
Executive's employment, or at any time on the request of NMMC/Loraca before
termination, Executive will promptly (but no later than five (5) days after the
earlier of the termination of Executive's employment or NMMC/Loraca's request)
destroy or deliver to NMMC/Loraca, at NMMC/Loraca's option, (a) all materials
furnished to Executive by NMMC/Loraca, (b) all tangible media of expression that
are in Executive's possession to the extent that they incorporate any
Proprietary Information or otherwise relate to NMMC/Loraca's business, and (c)
written certification of Executive's compliance with Executive's obligations
under this sentence.
8.6 Innovations. As used in this Agreement, the term "Innovations"
-----------
means all processes, machines, manufactures, compositions of matter,
improvements, inventions (whether or not protectable under patent laws), works
of authorship, information fixed in any tangible medium of expression (whether
or not protectable under copyright laws), moral rights, mask works, trademarks,
trade names, trade dress, trade secrets, know-how, ideas (whether or not
protectable under trade secret laws), and all other subject matter protectable
under patent, copyright, moral right, mask work, trademark, trade secret or
other laws, and includes without limitation all new or useful art, combinations,
discoveries, formulae, manufacturing techniques, technical developments,
discoveries, artwork, software, and designs. "Innovations" includes
"Inventions," which is defined to mean any inventions protected under patent
laws.
8.7 Disclosure of Prior Innovations. Executive has identified on
-------------------------------
Exhibit B ("Prior Innovations") attached hereto all Innovations applicable to
the business of NMMC/Loraca or relating in any way to NMMC/Loraca's business or
demonstrably anticipated research and development, which were conceived, reduced
to practice, created, derived, developed, or made by Executive prior to
Executive's employment with NMMC (collectively, the "Prior Innovations"), and
Executive represents that such list is complete. Executive represents that
Executive has no rights in any such Innovations other than those Prior
Innovations specified in Exhibit B ("Prior Innovations"). If there is no such
list on Exhibit B ("Prior Innovations"), Executive represents that Executive has
neither conceived, reduced to
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practice, created, derived, developed nor made any such Prior Innovations at the
time of signing this Agreement.
8.8 Assignment of Innovations; License of Prior Innovations.
-------------------------------------------------------
Executive hereby agrees promptly to disclose and describe to NMMC/Loraca, and
Executive hereby assigns to NMMC/Loraca or NMMC/Loraca's designee Executive's
entire right, title, and interest in and to, (a) each of the Innovations
(including Inventions), and any associated intellectual property rights, which
Executive may solely or jointly conceive, reduce to practice, create, derive,
develop or make during the period of Executive's employment with NMMC, which
either (i) relate, at the time of conception, reduction to practice, creation,
derivation, development, or making of such Innovation, to NMMC/Loraca's business
or actual or demonstrably anticipated research or development, or (ii) were
developed on any amount of NMMC/Loraca's time or with the use of any of
NMMC/Loraca's equipment, supplies, facilities or trade secret information, or
(iii) resulted from any work Executive performed for NMMC/Loraca, and (b) each
of the Innovations which is not an Invention (as demonstrated by Executive by
evidence meeting the clear and convincing standard of proof), and any associated
intellectual property rights, which Executive may solely or jointly conceive,
develop, reduce to practice, create, derive, develop, or make during the period
of Executive's employment with NMMC, which are applicable to the business of
NMMC/Loraca (collectively, the Innovations identified in clauses (a) and (b) are
hereinafter the "NMMC/Loraca Innovations"). To the extent any of the rights,
title and interest in and to NMMC/Loraca Innovations cannot be assigned by
Executive to NMMC/Loraca, Executive hereby grants to NMMC/Loraca an exclusive,
royalty-free, transferable, irrevocable, worldwide license (with rights to
sublicense through multiple tiers of sublicensees) to practice such non-
assignable rights, title and interest. To the extent any of the rights, title
and interest in and to NMMC/Loraca Innovations can be neither assigned nor
licensed by Executive to NMMC/Loraca, Executive hereby irrevocably waives and
agrees never to assert such non-assignable and non-licensable rights, title and
interest against NMMC/Loraca or any of NMMC/Loraca's successors in interest to
such non-assignable and non-licensable rights. Executive hereby grants to
NMMC/Loraca or NMMC/Loraca's designees a royalty free, irrevocable, worldwide
license (with rights to sublicense through multiple tiers of sublicensees) to
practice all applicable patent, copyright, moral right, mask work, trade secret
and other intellectual property rights relating to any Prior Innovations which
Executive incorporates, or permits to be incorporated, in any NMMC/Loraca
Innovations. Notwithstanding the foregoing, Executive agrees that Executive will
not incorporate, or permit to be incorporated, any Prior Innovations in any
NMMC/Loraca Innovations without NMMC/Loraca's prior written consent.
8.9 Future Innovations. Executive recognizes that Innovations or
------------------
Proprietary Information relating to Executive's activities while working for
NMMC and conceived, reduced to practice, created, derived, developed, or made by
Executive, alone or with others, within one (1) year after termination of
Executive's employment may have been conceived, reduced to practice, created,
derived, developed, or made, as applicable, in significant part while employed
by NMMC. Accordingly, Executive agrees that such Innovations and Proprietary
Information shall be presumed to have been conceived, reduced to practice,
created, derived, developed, or made, as applicable, during Executive's
employment with NMMC and are to be promptly
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<PAGE>
assigned to NMMC/Loraca unless and until Executive has established the contrary
by written evidence satisfying the clear and convincing standard of proof.
8.10 Cooperation in Perfecting Rights to Confidential Information and
----------------------------------------------------------------
Innovations.
- -----------
(a) Executive agrees to perform, during and after Executive's
employment, all acts deemed necessary or desirable by NMMC/Loraca to permit and
assist NMMC/Loraca, at NMMC/Loraca's expense, in obtaining and enforcing the
full benefits, enjoyment, rights and title throughout the world in the
Proprietary Information and Innovations assigned or licensed to, or whose rights
are irrevocably waived and shall not be asserted against, NMMC/Loraca under this
Agreement. Such acts may include, but are not limited to, execution of documents
and assistance or cooperation (i) in the filing, prosecution, registration, and
memorialization of assignment of any applicable patents, copyrights, mask work,
or other applications, (ii) in the enforcement of any applicable patents,
copyrights, mask work, moral rights, trade secrets, or other proprietary rights,
and (iii) in other legal proceedings related to the Proprietary Information or
Innovations.
(b) In the event that NMMC/Loraca is unable for any reason to
secure Executive's signature to any document required to file, prosecute,
register, or memorialize the assignment of any patent, copyright, mask work or
other applications or to enforce any patent, copyright, mask work, moral right,
trade secret or other proprietary right under any Proprietary Information
(including improvements thereof) or any Innovations (including derivative works,
improvements, renewals, extensions, continuations, divisionals, continuations in
part, continuing patent applications, reissues, and reexaminations thereof),
Executive hereby irrevocably designates and appoints NMMC/Loraca and
NMMC/Loraca's duly authorized officers and agents as Executive's agents and
attorneys-in-fact to act for and on Executive's behalf and instead of Executive,
(i) to execute, file, prosecute, register and memorialize the assignment of any
such application, (ii) to execute and file any documentation required for such
enforcement, and (iii) to do all other lawfully permitted acts to further the
filing, prosecution, registration, memorialization of assignment, issuance, and
enforcement of patents, copyrights, mask works, moral rights, trade secrets or
other rights under the Proprietary Information, or Innovations, all with the
same legal force and effect as if executed by Executive.
8.11 Nonassignable Inventions. This Agreement does not apply to an
------------------------
Invention which qualifies fully as a nonassignable invention under the
provisions of Section 2870 of the California Labor Code. Executive acknowledges
that a condition for an Invention to qualify fully as a non-assignable invention
under the provisions of Section 2870 of the California Labor Code is that the
invention must be protected under patent laws. Executive has reviewed the
notification in Exhibit C ("Limited Exclusion Notification") and agrees that
Executive's signature thereon acknowledges receipt of the notification. However,
Executive agrees to disclose promptly in writing to NMMC/Loraca all Innovations
(including Inventions) conceived, reduced to practice, created, derived,
developed, or made by Executive during the term of Executive's employment and
for one (1) year thereafter, whether or not Executive believes such Innovations
are subject to this Agreement, to permit a determination by NMMC/Loraca as to
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<PAGE>
whether or not the Innovations should be the property of NMMC/Loraca. Any such
information will be received in confidence by NMMC/Loraca.
8.12 Injunctive Relief. A breach of any of the promises or
-----------------
agreements relating to Proprietary Information or NMMC/Loraca Innovations will
result in irreparable and continuing damage to NMMC/Loraca for which there will
be no adequate remedy at law, and NMMC shall be entitled to injunctive relief
and/or a decree for specific performance, and such other relief as may be proper
(including monetary damages if appropriate).
9. Competitive Employment. During the term of Executive's employment with
----------------------
NMMC, and during any period in which Executive is (i) receiving payments from
NMMC under paragraph 7 above; or (ii) retained as a consultant for NMMC under
paragraph 7 above (up to a maximum of thirty (30) days), Executive agrees that
he will not directly or indirectly compete with NMMC in any way, and will not
act as an officer, director, employee, consultant, shareholder, volunteer,
lender, or agent of any business enterprise of the same nature as, or which is
in direct competition with, the business in which NMMC is now engaged or in
which NMMC becomes engaged during the term of Executive's employment with NMMC,
as may be determined by NMMC in its sole discretion. Further, Executive agrees
not to refer any client or potential client to competitors of NMMC, without
NMMC's written consent, during the term of Executive's employment with NMMC and
during any period in which Executive is receiving payments from NMMC under
paragraph 7 above or retained as a consultant for NMMC under paragraph 7 above
(up to a maximum of thirty (30) days).
10. Nonsolicitation. During Executive's employment with NMMC and for a period
---------------
of one (1) year thereafter, irrespective of the manner of termination of
employment, Executive agrees not to, directly or indirectly, separately or in
association with others:
10.1 Interfere with, impair, disrupt or damage NMMC's relationship
with any of its clients or prospective clients by soliciting or encouraging or
causing others to solicit or encourage, any of them for the purpose of diverting
or taking away the business such clients have with NMMC; or
10.2 Interfere with, impair, disrupt or damage NMMC's business by
soliciting, encouraging or causing others to solicit or encourage any of NMMC's
employees to discontinue their employment with NMMC.
11. Litigation Representation. Employee represents and warrants to NMMC that,
-------------------------
except as set forth on Exhibit D hereto ("Disclosure Of Existing And Threatened
Litigation"), as of the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or known investigation involving Employee before
any agency, court or tribunal or, to the knowledge of Employee, threatened
against Employee. Employee further represents and warrants to NMMC that there
is no judgment, decree or order against Employee that could prevent, enjoin or
materially alter or delay performance by Employee of any of his obligations
under this Agreement. All litigation to which Employee is a party (or, to his
knowledge, is threatened to become a party) is disclosed on Exhibit D.
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<PAGE>
12. Agreement to Arbitrate. To the fullest extent permitted by law, Executive
----------------------
and NMMC agree to arbitrate any controversy, claim or dispute between them
arising out of or in any way related to this Agreement, the employment
relationship between NMMC and Executive, and any disputes upon termination of
employment, including but not limited to breach of contract, tort,
discrimination, harassment, wrongful termination, demotion, discipline, failure
to accommodate, family and medical leave, compensation or benefits claims,
constitutional claims and claims for violation of any local, state or federal
law, statute, regulation or ordinance or common law. This method of resolving
disputes shall be the sole and exclusive remedy of the parties. Accordingly,
the parties understand that they are giving up their rights to have their
disputes decided in a court of law and, if applicable, by a jury, and instead
agree that their disputes shall be decided by arbitration. For the purpose of
this agreement to arbitrate, references to "NMMC" includes all parent,
subsidiary or related entities and their employees, supervisors, officers,
directors, agents, pension or benefit plans, pension or benefit plan sponsors,
fiduciaries, administrators, affiliates and all successors and assigns of any of
them, and this agreement shall apply to them to the extent Executive's claims
arise out of or relate to their actions on behalf of NMMC.
12.1 Consideration. The mutual promise by NMMC and Executive to
-------------
arbitrate any and all disputes between them, rather than litigate them before
the courts or other bodies, provides the consideration for this agreement to
arbitrate.
12.2 Initiation of Arbitration. Either party may exercise the right
-------------------------
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims. In no event shall the request for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claims would be barred by the applicable statute of
limitations.
12.3 Arbitration Procedure. The arbitration will be conducted in San
---------------------
Diego, California by a single neutral arbitrator and in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association ("AAA"). The parties are entitled to representation by
an attorney or other representative of their choosing. The arbitrator shall have
the power to enter any award that could be entered by a judge of the Superior
Court of the State of California, and only such power. The parties agree to
abide by and perform any award rendered by the arbitrator. Judgment on the award
may be entered in any court having jurisdiction thereof.
12.4 Costs of Arbitration. Each party shall bear one half the cost
--------------------
of the arbitration filing and hearing fees, and the cost of the arbitrator.
13. General Provisions.
------------------
13.1 Successors and Assigns. The rights and obligations of NMMC
----------------------
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of NMMC. Executive shall not be entitled to assign any of
Executive's rights or obligations under this Agreement.
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<PAGE>
13.2 Waiver. Either party's failure to enforce any provision of this
------
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.
13.3 Severability. In the event any provision of this Agreement
------------
shall be found unenforceable by an arbitrator or court of competent
jurisdiction, such provision shall be deemed modified to the extent necessary to
allow enforceability of the provision as so limited, it being intended that the
parties shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.
13.4 Interpretation; Construction. The headings set forth in this
----------------------------
Agreement are for convenience only and shall not be used in interpreting this
Agreement. This Agreement has been drafted by legal counsel representing NMMC,
but Executive acknowledges that Executive has had an opportunity to review the
Agreement and has had it reviewed by legal counsel, and, therefore, the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
13.5 Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the United States of America and the State of
California.
13.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally, (b) by
overnight courier upon written verification of receipt, (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission, or (d) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below, or such other address as either party may specify in writing.
13.7 Survival. The definitions in this Agreement and the rights and
--------
obligations contained in paragraphs 8 ("Proprietary Rights"), 9 ("Competitive
Employment"), 10 ("Nonsolicitation"), 12 ("Agreement to Arbitrate") and 13
("General Provisions") will survive any termination or expiration of this
Agreement.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
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<PAGE>
13.8 Entire Agreement. This Agreement, including Exhibits A, B, C
----------------
and D to this Agreement, constitutes the entire agreement between the parties
relating to this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations, and agreements, whether written or
oral. This Agreement may be amended or modified only with the written consent of
Executive and NMMC. No oral waiver, amendment or modification will be effective
under any circumstances whatsoever.
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES
HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.
DATED:___________________ _________________________________
Name:
Phone:
Fax:
DATED:___________________ NMMC
By: _____________________________
Ronald R. Baca
11735 Sky Valley NE
Albuquerque, NM 87111
Phone: (505) 856-5626
Fax: (505) 856-5663
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<PAGE>
EXHIBIT A
Calendar Year 1999 NMMC Bonus Compensation Plan
1. Eligibility. An employee must be a member of senior management to become
------------
eligible to earn bonuses under this Bonus Compensation Plan.
2. Earning And Calculation of Bonus. Provided that NMMC's return on average
--------------------------------
equity ("ROE"), as determined in accordance with generally accepted accounting
principles ("GAAP"), equals or exceeds 10% for any fiscal quarter, then a bonus
pool (the "Bonus Pool") shall be created for distribution to NMMC's senior
management, including Executive, in accordance with the schedule below.
If NMMC's actual earnings before taxes (as determined in accordance with GAAP)
for a given fiscal quarter ("Actual EBT") is less than 50% of projected earnings
before taxes as approved by NMMC's Board of Directors ("Projected EBT"), then no
Bonus Pool shall be created.
If Actual EBT is equal to or greater than 50% but less than 75% of Projected
EBT, then the Bonus Pool shall equal 5% of Actual EBT.
If Actual EBT is equal to or greater than 75% but less than 100% of Projected
EBT, then the Bonus Pool shall equal 7.5% of Actual EBT.
If Actual EBT is equal to 100% of Projected EBT, then the Bonus Pool shall equal
10% of Actual EBT.
If Actual EBT is equal to or greater than 100% but less than 125% of Projected
EBT, then the Bonus Pool shall equal 12.5% of Actual EBT.
If Actual EBT is equal to or greater than 125% of Projected EBT, then the Bonus
Pool shall equal 15% of Actual EBT.
Executive, together with NMMC's Chief Executive Officer, shall have sole
discretion for allocation of the Bonus Pool among NMMC senior management,
subject to the approval of NMMC's Board of Directors.
3. Payment of Bonus. The performance bonus, if any, will be paid within 45
----------------
days following the close of the quarter.
4. Termination. Unless otherwise provided by the employee's Employment
-----------
Agreement, in the event of termination prior to the end of any quarter, the
employee will receive a prorated bonus based on achievement of goals to the date
of termination.
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<PAGE>
EXHIBIT B
PRIOR INNOVATIONS
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<PAGE>
EXHIBIT C
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2870 of the California
Labor Code that the foregoing Agreement between you and New Mexico Mortgage
Corporation ("NMMC") does not require you to assign or offer to assign to NMMC
any invention that you developed entirely on your own time without using NMMC's
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to NMMC's business, or actual or demonstrably anticipated research or
development of NMMC; or
(2) Result from any work performed by you for NMMC.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between NMMC and the United States of America or any of its agencies
requiring full title to such patent or invention to be in the United States of
America.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:__________________________________
_____________________________________
Name:
Date:________________________________
Witnessed by:
_____________________________
_____________________________
(Printed Name)
Dated:_______________________
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<PAGE>
EXHIBIT D
DISCLOSURE OF EXISTING AND THREATENED LITIGATION
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<PAGE>
Exhibit 10.4
J.A. YOUNG & CO.
MASTER AGREEMENT FOR PROFESSIONAL SERVICES
This Agreement is made effective this 13/th/ day of August, 1999, by and between
------ ------
NMMC, Inc. d/b/a/ New Mortgage Millenium Corp./Loraca International, Inc.
- -------------------------------------------------------------------------
(CLIENT) and J.A. Young & Co. (JAYCO).
ARTICLE 1 - WORK TO BE PERFORMED
During the term of this Agreement, and subject to the conditions herein set
forth, CLIENT may call upon JAYCO to perform specific professional services.
In each instance a separate Statement of Work (SOW) will be prepared, each being
separately subject to the terms and conditions of this Agreement. Said SOW will
define (1) Scope of Work to be performed ("Work"), (2) Proposed Schedule of Work
and (3) Estimated Cost of Work. Such document will be mutually agreed upon by
CLIENT and JAYCO, subject to the terms and conditions of this Agreement, and
will be executed by an authorized representative of each party.
CLIENT agrees to provide work space, computer machine time, security
arrangements, modem and telephone connections, and existing office productivity
software and materials necessary in conjunction with the fulfillment of the
projects defined in each separate SOW, as defined above.
Any terms or conditions of any purchase or work order submitted hereunder which
is contrary to the terms of this Agreement shall be void and of no force and
effect.
ARTICLE 2 - COMPENSATION
2.1 Time and Expense: As full compensation for performance of the Work, CLIENT
shall pay JAYCO a fee on a time and expense basis in accordance with the
hourly labor rates, charges and payment provisions set forth in each
separate SOW. Said hourly labor rates for JAYCO staff are based on the
skill level and background required to perform the proposed Work. Any
overtime authorized by CLIENT will be invoiced at the same hourly rate as
regular time. Reasonable expenses, if agreed to, will be included. Invoices
will include a summary of actual hours worked by JAYCO's employees engaged
directly on the project and the pertinent billing rate. Direct non-salary
expenses such as subcontractors, materials, travel expenses and other
project costs and expenses will be itemized separately on each invoice for
each separate portion of the work.
2.2 Fixed Fee/Lump Sum: As full compensation for performance of the Work,
CLIENT shall pay JAYCO a fixed fee as set forth in each separate document
defining the professional Work to be performed. The fixed fee defined in
the SOW will cover only the specific tasks, expenses, and deliverables
specified in the Scope of Work. Tasks, expenses, and deliverables specified
by the CLIENT that are not included in the Statement of Work will be
provided on a time and expense basis. Invoices will be based on JAYCO's
percentage of completion in accordance with milestones set forth in the SOW
for the fixed-fee project defined in the SOW including an estimation of the
percentage of actual hours worked by JAYCO's employees engaged directly on
the project and the pertinent billing rate. Direct non-salary expenses such
as subcontractors, materials, travel expenses and other project costs and
expenses will be itemized separately on each invoice for each separate SOW.
2.3 Taxes: Any taxes or fees, enacted by local, state or federal government
subsequent to the date of this contract, and based on gross receipts or
revenues will be added to amounts due under this contract, in accordance
with any such fees or taxes.
Page 1 of 6
<PAGE>
MASTER AGREEMENT FOR PROFESSIONAL SERVICES (cont.)
2.4 Payment: Invoices will be submitted monthly and shall be due and payable
within ten (10) days of receipt. Remittance will be mailed to JAYCO at the
address noted on such invoices or as JAYCO may otherwise advise.
2.5 Disputed Amounts: CLIENT may withhold payment of any JAYCO invoice (or part
thereof) that it in good faith disputes are due or owing by providing JAYCO
a written explanation of the basis of the disputed amounts. CLIENT shall,
by the applicable due date, pay any amounts then due that are not disputed.
The parties shall diligently pursue an expedited resolution of the dispute.
If the dispute is not settled within 60 days, then within ten (10) days
after JAYCO's request or such later date upon which any such amount may
become due, CLIENT shall deposit any disputed amount into an interest-
bearing escrow account in a nationally recognized financial institution
reasonably acceptable to JAYCO and shall furnish evidence of such deposit
to JAYCO. Upon the resolution of any disputes as to which CLIENT has
deposited funds into escrow, the funds paid into the escrow account in
respect of such dispute, together with any interest earned thereon and any
expenses of opening and maintaining the escrow account shall be allocated
between the Parties in accordance with the resolution of the dispute.
ARTICLE 3 - INDEPENDENT CONTRACTOR STATUS/LEGAL RELATIONSHIP
The parties intend that JAYCO, in performing Work specified in this Agreement,
shall act as an independent contractor and shall have control of its work and
the manner in which it is performed. JAYCO is not authorized to make any
contract, agreement, warranty or representation on behalf of CLIENT.
JAYCO shall be solely responsible for wages, salaries and other amounts due its
employees or subcontractors under this Agreement and shall be responsible for
all reports and obligations respecting its employees concerning social security,
income tax, unemployment insurance, worker's compensation, and similar matters.
Unless specifically agreed to otherwise, in writing, JAYCO agrees not to use any
work product prepared on behalf of CLIENT for any other individual or entity.
ARTICLE 4 - PROFESSIONAL RESPONSIBILITY
JAYCO shall perform Work consistent with the skill and care ordinarily exercised
by other professional consultants under similar circumstances at the time Work
is performed, subject to any limitations established by CLIENT as to degree of
care, time or expense to be incurred or other limitations of this Agreement. No
other representation, warranty or guaranty, express or implied, is included in
or intended by JAYCO's Work, proposals, agreements or reports.
ARTICLE 5 - LIMITATION OF LIABILITY
Each party, its officers, directors, shareholders, employees, agents, and
representatives, agrees to limit the liability of the other, for all claims or
legal proceedings of any type arising out of or relating to the performance of
Work under this Agreement (including but not limited to JAYCO's breach of the
Agreement, its professional negligence, errors and omissions and other acts) to
the amounts paid under the particular Scope of Work in the course of which the
injury arose. Neither party shall be liable for any indirect, special or
consequential loss or damages arising from this Agreement.
Page 2 of 6
<PAGE>
MASTER AGREEMENT FOR PROFESSIONAL SERVICES (cont.)
ARTICLE 6 - INDEMNIFICATION
Subject to the limitation of liability above, each party agrees to indemnify,
defend and hold harmless the other from any claim, suit, liability, damage,
injury, cost or expense, including attorneys fees, (hereafter collectively
called "Loss") arising out of such party's a) breach of this Agreement or b)
willful misconduct or negligence in connection with the performance of this
Agreement.
ARTICLE 7 - CONFIDENTIALITY
At the request of CLIENT, JAYCO has agreed to execute a separate Confidentiality
Agreement.
ARTICLE 8 - TERM OF AGREEMENT; TERMINATION
This Agreement will be for an initial term commencing on the date hereof, and
ending at the end of the calendar year in which the Agreement was fully
executed, and will thereafter automatically renew for successive periods of one
(1) year each, unless terminated by either party by not less than thirty (30)
days prior written notice to the other party. In the event of termination by the
CLIENT prior to completion of the SOW, CLIENT agrees to pay for all costs for
services performed up to the date of termination.
The obligations of the parties to indemnify and the limitations on liability set
forth in this Agreement shall survive the expiration or termination of this
Agreement.
ARTICLE 9 - TIME OF PERFORMANCE/FORCE MAJEURE
JAYCO shall not be in default of performance under this Agreement where such
performance is prevented, suspended or delayed by any cause beyond JAYCO's
control.
Neither party will hold the other responsible for damages for delays in
performance caused by acts of God or other events beyond the control of the
other party and which could not have been reasonably foreseen or prevented. If
such events occur, it is agreed that both parties will use their best efforts to
overcome all difficulties arising and to resume as soon as reasonably possible
performance of Work under this Agreement. Delays within the scope of this
provision will extend the contract completion date for specified Work
commensurately.
ARTICLE 10 - NO THIRD PARTY BENEFICIARIES
There are no third party beneficiaries of this Agreement, and no third party
shall be entitled to rely upon any work performed or reports prepared by JAYCO
hereunder for any purpose whatsoever.
ARTICLE 11 - DESIGNS AND DISCOVERIES
In the course of providing Work to CLIENT, JAYCO may utilize or develop designs,
ideas, discoveries, inventions, or improvements of these (collectively "Ideas"),
made by the JAYCO Parties. CLIENT agrees that JAYCO's utilization or development
of such Ideas does not grant CLIENT any right in the form or ownership or
license to such Ideas. All Ideas utilized or developed fy JAYCO while providing
CLIENT Work shall be deemed to be property of JAYCO. Notwithstanding the
foregoing all work product prepared by JAYCO on behalf of CLIENT shall belong
exclusively to CLIENT.
ARTICLE 12 - LAWS AND REGULATIONS
Both parties will be entitled to regard all applicable laws, rules, regulations
and orders issued by any federal, state, regional or local regulatory body as
valid and may act in accordance therewith until such time as the same may be
modified or superseded by such regulatory body or invalidated by final judgment
in a court of
Page 3 of 6
<PAGE>
MASTER AGREEMENT FOR PROFESSIONAL SERVICES (cont.)
competent jurisdiction, unless prior to such final judicial determination, the
effectiveness of such law, rule or regulation has been stayed by an appropriate
judicial or administrative body having jurisdiction.
ARTICLE 13 - ATTORNEYS' FEES AND COSTS
The prevailing party in any action to enforce or interpret provisions of this
Agreement shall be entitled to recover all reasonable fees, costs and expenses,
of enforcement or interpretation.
If JAYCO is requested to respond to any mandatory orders for the production of
documents or witnesses on CLIENT's behalf regarding work performed by JAYCO,
CLIENT agrees to pay all costs and expenses incurred by JAYCO not reimbursed by
others in responding to such order, including attorneys fees, staff time at
current billing rates and reproduction expenses.
ARTICLE 14 - GOVERNING LAW
This Agreement shall be subject to, interpreted and enforced according to the
laws of the State of Oregon.
ARTICLE 15 - BREACH OF AGREEMENT
In the event either party perceives a breach of this Agreement by the other,
said party shall immediately notify the other party of the breach and allow
fifteen (15) days in which to remedy or to propose a plan to remedy the
perceived default.
ARTICLE 16 - ARBITRATION
Any controversies or claims arising out of or relating to this Agreement, other
than equitable claims, shall be fully and finally settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect (the "AAA Rules"), conducted by one arbitrator either
mutually agreed upon by J.A. Young & Co. and CLIENT or chosen in accordance with
the AAA Rules, except that the parties thereto shall have any right to discovery
as would be permitted by the Federal Rules of Civil Procedure for the period of
90 days following the commencement of such arbitration and the arbitrator
thereof shall resolve any dispute which arises in connection with such
discovery. The prevailing party shall be entitled to costs, expenses and
reasonable attorney's fees, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
ARTICLE 17 - SEVERABILITY
Any provision of this Agreement held in violation of any law will be deemed
stricken, and all remaining provisions shall continue valid and binding upon the
parties. The parties will attempt in good faith to replace any invalid or
unenforceable provision(s) of this Agreement with provisions which are valid and
enforceable and which come as close as possible to expressing the intention of
the original provisions.
ARTICLE 18 - NON-WAIVER
A failure to exercise or waiver of any right(s) granted to a party under any
clause of this Agreement shall not act to waive any other right(s) granted to
such party under this Agreement, whether under the same or different clauses.
ARTICLE 19 - ASSIGNMENT
This Agreement may not be assigned without the express written consent of each
party, which consent will not be unreasonably withheld.
Page 4 of 6
<PAGE>
MASTER AGREEMENT FOR PROFESSIONAL SERVICES (cont.)
ARTICLE 20 - NOTICES
All notices and other communications pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given if personally delivered or,
if mailed, when mailed by United States certified or registered mail, or by
Federal Express (or comparable overnight mail service), postage prepaid, or sent
via facsimile to the other party at the address or facsimile number set forth
below (or at such other address as shall be given in writing by either party to
the other) with a copy to Client's attorney.
<TABLE>
<CAPTION>
<S> <C>
If to JAYCO: If to CLIENT:
J.A. Young & Co., Inc. NMMC, Inc. d/b/a/ New Mortgage Millenium Corp
2800 Northup Way, Suite 120 6 Centerpointe Dr., S.W., Suite 360
Bellevue, WA 98004 Lake Oswego, OR 97035
ATTN: Dr. James A. Young ATTN: Mr. Bernard A. Guy
President/CEO Chief Executive Officer
fax: 425/576-1050 fax: 503/670-9033
with a copy to CLIENT's attorney:
Mr. Mark Lee
c/o Gray, Cary, Ware & Freidenrich, LLP
4365 Executive Drive, suite 1600
San Diego, CA 92121
fax: 858/677-1477
</TABLE>
ARTICLE 21 - ENTIRE AGREEMENT
The obligations of the parties to indemnify and the limitations on liability set
forth in this Agreement shall survive the expiration or termination of this
Agreement. This Agreement, consisting of all documents attached hereto, together
with each SOW executed between the parties, constitutes the entire agreement
between the parties, and supersedes any and all prior written or oral agreements
with respect to the subject matter hereof. No amendment hereto will be binding
unless reduced to writing and signed by authorized representatives of each
party.
The parties hereto have read this Agreement and accept all of its terms and
conditions subject to those modifications, if any, which are typed or
handwritten on the Agreement or attached and incorporated herein and which have
been initialed by all contracting parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
NMMC, Inc. d/b/a/ New Mortgage Millenium Corp./ J.A. YOUNG & CO., INC. (JAYCO)
Loraca International, Inc. (CLIENT)
By_____________________________ By____________________________
James A. Young, Ph.D. Bernard A. Guy
Title President Title Chief Executive Officer
-------------------------- -------------------------
Page 5 of 6
<PAGE>
MASTER AGREEMENT FOR PROFESSIONAL SERVICES (cont.)
Date August 13, 1999 Date
------------------------- -------------------------
Page 6 of 6
<PAGE>
Exhibit 10.5
AMENDED AND RESTATED
WAREHOUSE LOAN AND SECURITY AGREEMENT
-------------------------------------
This Amended and Restated Warehouse Loan and Security Agreement ("Agreement") is
made and entered into on this 2nd day of August, between NMMC, Inc., a New
------
Mexico corp. with its principal place of business located at 6 Centerpointe Dr
#360, Lake Oswego, OR ("Borrower"), and The Provident Bank, an Ohio banking
corporation with its principal place of business located at One East Fourth
Street, Cincinnati, Ohio 45202 ("Provident").
WITNESSETH:
-----------
WHEREAS, Borrower is engaged in the business of underwriting, processing,
originating, closing, funding, purchasing, servicing and selling mortgage loans
secured by first or second liens evidenced by mortgages on real property; and
WHEREAS, Provident has financed and continues to finance the funding of
mortgage loans by Borrower in connection with its origination thereof, pursuant
to the Warehouse Loan Agreement currently in effect (as amended by Provident and
Borrower from time to time prior to thc date of this Agreement, the "Existing
Warehouse Loan Agreement"; and
WHEREAS, Provident and Borrower decide to amend and restate the Existing
Warehouse Loan Agreement in its entirety pursuant to the terms, conditions and
limitations set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises, the extension of credit
by Provident to Borrower and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Provident and Borrower agree
that the Existing Warehouse Loan Agreement shall be amended and restated in its
entirety to read and provide as follows:
(1) DEFINITIONS. (a) When used in this Agreement, the following terms
-----------
shall have the following meanings and the terms defined elsewhere in this
Agreement shall have the meanings assigned to them (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Advance" shall mean any amount loaned by Provident to Borrower under this
-------
Agreement.
"Affiliate" shall mean, in relation to any Person (in this definition
---------
called "Affiliated Person") any Person (i) which (directly or indirectly)
controls or is controlled by or is under common control with such Affiliated
Person; or (ii) which (directly or indirectly) owns or holds five percent (5%)
or more of any equity interest in Borrower; or (iii) five percent (5%) or more
of whose voting stock or other equity interest is directly or indirectly owned
or held by Borrower. For the purposes of this definition, the term "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession (directly or indirectly) of the power to direct or to cause the
direction of the management or the policies of such Person, whether through the
ownership of shares of any class in the capital or any other voting securities
of such Person or by contract or otherwise.
"Assignment of Mortgage" shall mean, with respect to any Mortgage, an
----------------------
assignment of the Mortgage, notice of transfer of equivalent instrument, in
recordable form, sufficient under the laws of the jurisdiction in which the
related Mortgaged Property is located to reflect the assignment of the Mortgage.
"Business Day" shall mean a day other than Saturdays, Sundays, holidays or
------------
other days on which the main office of Provident is not open for business.
"Cash Collateral Account" shall mean the demand deposit account
-----------------------
comprising a portion of the Collateral and established and maintained by
Borrower with Provident pursuant to Section 5(d).
<PAGE>
-2-
"Change of Control" shall mean the time at which (i) any Person
-----------------
(including a Person's Affiliates and associates) or group (as that term is
understood under Section 13(d) of the Securities Exchange Act of 1934 and the
rules and regulations thereunder), other than Management Shareholders and
Affiliates thereof (the "Control Group") or a group controlled by the Control
Group, has become the beneficial owner of a percentage (based on voting power,
in the event different classes of stock shall have different voting powers) of
the voting stock of Borrower equal to at least ten percent (10%), (ii) there
shall be consummated any consolidation or merger of Borrower pursuant to which
Borrower's common stock (or other capital stock) would be converted into cash,
securities or other property, other than a merger or consolidation of Borrower
in which the holders of such common stock (or such other capital stock)
immediately prior to the merger have the same proportionate ownership, directly
or indirectly, of common stock of the surviving corporation immediately after
the merger as they had of Borrower's common stock immediately prior to such
merger, or (iii) all or substantially all of Borrower's assets shall be sold,
leased, conveyed or otherwise disposed of as an entirety or substantially as an
entirety to any Person (including an Affiliate or associate of Borrower) in one
or a series of transactions.
"Closing Date" shall mean the date on which Borrower sells, transfers
------------
or otherwise disposes of a Mortgage Loan funded and originated by Borrower with
an Advance made by Provident to Borrower under this Agreement.
"Collateral" shall have the meaning set forth in Section 5(a).
----------
"Collections" shall mean, collectively, all Sale Proceeds, all Payment
-----------
Collections and all other collections and Proceeds on or in respect of the
Mortgage Loans.
"Cost and Fee Schedule" shall have the meaning set forth in Section
---------------------
2(f).
"Credit File" shall mean, as to each Mortgage Loan, a copy of the
-----------
Mortgage and copies of all intervening assignments of mortgage, if any, with
evidence of recording thereon, showing a complete chain of title from the
originator to Borrower; the original attorney's opinion of title or the original
policy of title insurance, if not previously delivered to Provident; the
originals of all assumption, modification and extension agreements, if any; and
all applications, credit reports, salary or employment verifications,
appraisals, surveys, other underwriting and work papers, closing statements,
HUD-1 settlement statements and any addendums thereto, truth-in-lending
disclosures, right of rescission notices, payment histories, and all other
closing documents and all other agreements, reports, certificates, documents and
instruments related thereto or obtained or prepared in connection therewith and
included or includable in Borrower's mortgage file relating to such Mortgage
Loan.
"Default Interest Rate" shall mean an annual rate of interest which
---------------------
shall (to the extent permitted by applicable law) at all times be equal to four
percent (4%) above the Interest Rate.
"Demand For Payment" shall have the meaning set forth in Section 4(a).
------------------
"Document Custodian" shall mean Borrower, as custodian and bailee for
------------------
Provident, or any successor appointed by Provident at any time.
"Fees" shall have the meaning set forth in Section 2(f).
----
"Funding Date" shall mean the date on which an Advance is made by
------------
Provident to Borrower under this Agreement.
"Initial Collateral Package" shall mean as to each Mortgage Loan: (i)
--------------------------
the original Mortgage Note and the originals of all intervening endorsements, if
any, showing a complete chain of title, from the originator of the Mortgage Loan
to Borrower, endorsed in blank (either on the Mortgage Note or a separate
allonge attached thereto); (ii)
<PAGE>
-3-
a certified copy of thc original Mortgage and copies of all intervening
assignments of the Mortgage, if any, (iii) the original assignment of Mortgage
in favor of Provident in recordable form for the jurisdiction in which the
Mortgaged Property is located; and (iv) the original attorney's opinion of title
or the original policy of title insurance (or if such original policy of title
insurance has not yet been received by Borrower, a copy of such policy or a
title insurance binder or commitment for the issuance of such policy).
"Interest Rate" shall mean an annual rate of interest which shall (to
-------------
the extent permitted by applicable law) at all times be equal to the Prime Rate
plus the applicable margin determined by reference to the factors applicable to
such determination set forth in the Cost and Fee Schedule in effect on an
Interest Payment Date or Closing Date, as the case may be.
"Lien" shall mean any lien, mortgage, pledge, security interest,
----
charge or other encumbrance of any kind including any conditional sale or other
title retention agreement, any lease in the nature thereof, and any agreement to
give any security interest.
"Loan Documents" shall mean this Agreement, the Security Documents,
--------------
the Policies and Procedures, the Cost and Fee Schedule and any other instrument,
certificate or document executed in connection with or pursuant to this
Agreement whether concurrently herewith or subsequent hereto.
"Losses" shall have the meaning set forth in Section 11(b).
------
"Management Shareholders" shall mean those shareholders of Borrower
-----------------------
who are senior executive officers of Borrower on the date of this Agreement.
"Maturity Date" shall have the meaning set forth in Section 4(b).
-------------
"Mortgage" shall mean the mortgage, deed of trust or other instrument
--------
creating a first or second Lien on an estate in fee simple interest in the
Mortgaged Property securing a Mortgage Loan.
"Mortgage Loan" shall mean any mortgage loan funded and originated by
-------------
Borrower with any Advance made by Provident to Borrower under this Agreement.
"Mortgage Loan Document" shall mean with respect to a Mortgage Loan,
----------------------
the documents comprising the Initial Collateral Package and the Credit File for
such Mortgage Loan.
"Mortgage Note" shall mean, with respect to a Mortgage Loan, the
-------------
original note or other evidence of indebtedness pursuant to which the related
Mortgagor agrees to pay the indebtedness evidenced thereby and which is secured
by the related Mortgage.
"Mortgaged Property" shall mean the underlying real property,
------------------
including all improvements and additions thereon, securing a Mortgage Loan.
"Mortgagor" shall mean the obligor or obligors under a Mortgage Note.
---------
"Other Obligations Secured Hereby" shall mean all of Borrower's debts,
--------------------------------
obligations or liabilities of every kind, nature, class and description to
Provident (other than those under this Agreement and the other Loan Documents),
now due or to become due, direct or indirect, absolute or contingent, presently
existing or hereafter arising, joint or several, secured or unsecured, purchase
money or non-purchase money, related or unrelated, similar or dissimilar,
whether for payment or performance, regardless of how the same arise or by what
instrument, agreement or book account they may be evidenced, or whether
evidenced by any instrument, agreement or book account, including, without
limitation, all loans (including any loan by renewal or extension), and all
overdrafts, all guarantees, all bankers acceptances, all agreements, all letters
of credit issued by Provident for Borrower and the applications relating
thereto.
<PAGE>
-4-
all indebtedness of Borrower to Provident, all undertakings to take or refrain
from taking any action," and all indebtedness, liabilities and obligations owing
from Borrower to others which Provident may obtain by purchase, negotiation,
discount, assignment or otherwise.
"Payment Collections" shall mean, collectively, all collections on the
-------------------
Mortgage Loans attributed to the payment of the principal amount thereof,
accrued interest thereon or any fees, charges or other amounts payable
thereunder or in respect thereof.
"Person" shall mean an individual, a company, a limited liability
------
company, a corporation, an association, a partnership, a joint venture, an
unincorporated trade or business enterprise, a trust, an estate, or other legal
entity or a government (national, regional or local), court, arbitrator or any
agency, instrumentality or official of the foregoing.
"Prime Rate" shall mean the rate of interest published from time to
----------
time in the "Money Rates" column of The Wall Street Journal (Central Edition) as
-----------------------
the "prime rate" or, if such rate ceases to be so published, then such other
rate as may be substituted by Provident as the prime rate, which may be the
rate of interest announced by Provident from time to time as its prime rate.
The Prime Rate shall change on each date the prime rate so published changes.
"Policies and Procedures" shall mean Provident's Policies and
-----------------------
Procedures for its Warehouse Division as of the date of this Agreement, as
amended, modified, restated or supplemented by Provident from time to time.
"Sale Proceeds" shall mean (i) any proceeds received or receivable by
-------------
Borrower with respect to or in respect of any sale, transfer or other
disposition of any Mortgage Loan and (ii) any proceeds received or receivable by
Borrower with respect to or in respect of any sale, transfer, disposition,
condemnation or casualty event and all other amounts from any disposition,
taking, damage or destruction of any Mortgaged Property acquired by Borrower
upon foreclosure (or deed in lieu of foreclosure) of any Mortgage Loan.
"Security Documents" shall have the meaning set forth in Section 5(b).
------------------
"Third Party Investor" shall mean any Person with whom Borrower has
--------------------
contracted to sell any Mortgage Loan that has been funded and originated by
Borrower with any Advance made by Provident to Borrower under this Agreement.
Provident may itself be a Third Party Investor.
"UCC" shall mean the Uniform Commercial Code as the same may, from
---
time to time, be in effect in the State of Ohio; provided, however, that in the
-----------------
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection, or priority of Provident's security interest in any of
the Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction, other than the State of Ohio, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection, or priority and
for purposes of definitions related to such provisions.
(b) All terms defined in the UCC and used in Section 5 of this
Agreement shall have the meanings assigned to such terms in the UCC.
(c) Where appropriate, words importing the singular only shall include
the plural and vice versa.
<PAGE>
-5-
2. ADVANCES.
--------
(a) Subject to the terms and conditions hereof and the Policies and
Procedures, which are hereby incorporated herein by this reference, Provident
may elect, in its sole discretion, to make Advances to Borrower from time to
time in such amounts as Borrower may request. Nothing herein shall be deemed or
construed as a commitment by Provident to make any Advance hereunder and it is
expressly acknowledged and agreed by Borrower that the decision to make any
Advance hereunder is, and shall at all times be, wholly discretionary on the
part of Provident.
(b) In order to obtain Advances, Borrower shall comply with the
requirements set forth in this Agreement and the Policies and Procedures and
shall furnish Provident with such requests and all other documents Provident
may request or require at any time in connection with any Advance. In addition,
the following conditions precedent, unless waived in whole or in part by
Provident, shall be satisfied before Provident makes any Advance hereunder: (i)
Provident, in its sole discretion, shall have approved the underwriting of the
Mortgage Loans to be funded with any Advance; (ii) Borrower shall have provided
Provident with an insured closing letter, evidence of a current errors and
omissions insurance policy with limits of at least $1,000,000, an executed
closing agent agreement and wiring instructions for each closing agent used by
Borrower to close the Mortgage Loans funded with any Advance, each of which
shall be acceptable to Provident in its sole discretion; (iii) Borrower shall
have furnished Provident with an executed, recordable Power of Attorney covering
the items set forth in Section 5(e) hereof for each state in which Borrower
does business; and (iv) Provident, or its agent, bailee or designee, shall have
received the Initial Collateral Package for each of the Mortgage Loans funded
with any Advance. Each request for an Advance by Borrower shall constitute a
certification that each of the representations and warranties made by Borrower
to Provident in this Agreement or the other Loan Document shall be true and
correct in all material respects on and as of the date when made and shall, for
all purposes of this Agreement, be deemed to be repeated on and as of each date
an Advance is made by Provident to Borrower hereunder and shall be true and
correct in all material respects on and as of each of such date, except as
affected by the consummation of the transactions contemplated by this Agreement
and the other Loan Document, and Borrower shall have performed, complied with
and observed all of its covenants and agreements contained in this Agreement and
the other Loan Documents on and as of each date an Advance is made by Provident
to Borrower hereunder.
(c) Advances hereunder will be made by Provident on behalf of Borrower
to third parties in connection with the funding of the Mortgage Loans originated
by Borrower. All matters relating to the funding of any Mortgage Loan hereunder
shall be acceptable to Provident in its sole discretion.
(d) Borrower represents, warrants and covenants to Provident that all
proceeds of all Advances shall be used by it solely to fund Mortgage Loans
originated by Borrower in the ordinary course of its business and for no other
use or purpose.
(e) Advances for the funding of any Mortgage Loan originated by
Borrower shall not exceed one hundred percent (100%) of the original principal
amount of such Mortgage Loan.
(f) In connection with each Advance, Borrower agrees to pay Provident
the transaction fees charged by Provident with respect to the Mortgage Loans
funded and originated with such Advance ("Fees"). The amounts of Fees payable by
Borrower in connection with any Advance shall be determined by reference to
the Cost and Fee Schedule in effect on the Funding Date of such Advance (the
"Cost and Fee Schedule"). The Cost and Fee Schedule in effect on the date of
this Agreement is attached hereto as Schedule A. Any Cost and Fee Schedule shall
remain in effect until a new Cost and Fee Schedule is delivered to Borrower in
accordance with the requirements of Section 11(f).
3. INTEREST PAYABLE ON ADVANCES. Borrower promises to pay to Provident
----------------------------
interest in arrears on the unpaid amount of each Advance made by Provident to
Borrower pursuant to this Agreement and on the unpaid amount of any interest not
paid when due at a variable rate of interest per annum equal at all times to the
Interest Rate. Interest shall be calculated on the daily unpaid amount of each
Advance from its Funding Date. Interest with respect to each Advance hereunder
shall be payable: (i) commencing on the date that is sixty-one (61) days after
the Funding
<PAGE>
-6-
Date of the Advance and continuing on the same day of each consecutive month
thereafter; and (ii) on its Maturity Date. Payments of interest shall be due and
payable as set forth above until payment in full of all Advances. All interest
under this Agreement shall be calculated on the basis of a year consisting of
360 days (comprised of twelve 30 day months) and paid for actual days elapsed.
4. TERMINATION; MANDATORY REPAYMENTS OF ADVANCES
---------------------------------------------
PRIOR TO TERMINATION
--------------------
(a) Provident may, at any time, for any reason and without prior
notice, terminate this Agreement and demand that Borrower pay the aggregate
unpaid amount of all Advances made by Provident to Borrower pursuant to this
Agreement, all accrued and unpaid interest thereon as well as all Fees, charges
and other amounts payable hereunder and under the Loan Documents ("Demand For
Payment").
Following a Demand for Payment, the aggregate unpaid amount of
all Advances made by Provident to Borrower pursuant to this Agreement, together
with all accrued and unpaid interest thereon as well as all Fees, charges and
other amounts payable hereunder and under the other Loan Documents shall be
immediately due and payable in full and no future or additional Advances will be
made by Provident to Borrower hereunder.
(b) Prior to termination of this Agreement as provided for above,
Borrower shall repay to Provident the unpaid amount of each Advance made by
Provident to Borrower hereunder, all accrued and unpaid interest thereon and all
Fees, charges and other amounts payable hereunder, on the earlier to occur of:
(i) the Closing Date on which Borrower sells or otherwise disposes of the
Mortgage Loan(s) funded and originated with the Advance whether by sale to a
Third Party Investor or otherwise; or (ii) on or before the applicable number of
days after its Funding Date set forth in the Cost and Fee Schedule under the
heading entitled "Days Allowed for Purchase by Third Party Investor" (the
earlier to occur of (i) or (ii) being referred to herein as the "Maturity
Date").
5. GRANT OF SECURITY INTEREST.
--------------------------
(a) To secure the prompt payment of the Advances, interest and all
other amounts payable hereunder and under the other Loan Documents and the due
and punctual performance and observance by Borrower of all of its other
covenants, obligations and liabilities under this Agreement and the other Loan
Documents and also to secure all of the Other Obligations Secured Hereby,
Borrower hereby grants to Provident a security interest in and to, and hereby
pledges and collaterally assigns to Provident, all of its rights, title,
interest and claims in, to and under all of the following property, wherever
located, whether now or hereafter owned, held or acquired, or hereafter existing
or arising (collectively, the "Collateral"):
(i) all Mortgage Loans;
(ii) all Mortgage Loan Documents including, without
limitation, all Mortgage Notes, Mortgages and Assignments of Mortgages
relating to the Mortgage Loans;
(iii) all rights to service or subservice the Mortgage Loans;
(iv) all certificates, notes and other securities of any kind
whatsoever, residual or otherwise, issued to Borrower or now or hereafter
owned, held or acquired by Borrower in connection with or related to any
mortgage loan securitization or any asset-back transaction involving the
Mortgage Loans;
(v) all of Borrower's rights under contracts or agreements
to which Borrower is party (but none of its covenants, obligations or
liabilities thereunder) in connection with the Mortgage Loans, including
all contracts or agreements with all Third Party Investors and all
attorney's opinions of title and title insurance policies;
<PAGE>
-7-
(vi) the Cash Collateral Account and all funds in the Cash
Collateral Account; and
(vii) all Proceeds of any and all of the foregoing Collateral
in whatever form, including but not limited to, all payments made by
Mortgagors to Borrower in connection with the Mortgage Loans and all
premiums paid to Borrower by Third Party Investors in connection with the
sales of the Mortgage Loans.
(b) Borrower shall take all actions necessary or appropriate under
all applicable laws, or as requested by Provident, to perfect, maintain and
preserve, and to continue as perfected, Provident's first lien and security
interest in the Collateral, Borrower shall pay all costs of preparing, recording
and filing UCC Financing Statements (and any continuation or termination
statements with respect thereto) and any other documents, titles, statements,
assignments or the like reasonably required to create, maintain, preserve or
perfect the liens or security interests granted under the Loan Documents,
together with costs and expenses of any lien or UCC searches required by
Provident in connection with the making of any Advance. At Provident's request,
Borrower shall execute and deliver to Provident at any time and from time to
time hereafter, all supplemental documentation that Provident may reasonably
request to perfect, maintain, preserve or continue the security interest and
liens in the Collateral granted Provident hereby and under any of the other Loan
Documents (collectively, the "Security Documents"), in form and substance
acceptable to Lender, and pay the costs of preparing and recording or filing of
the same. Borrower agrees that a carbon, photographic, or other reproduction of
this Agreement or of a financing statement is sufficient as a financing
statement. Borrower shall promptly notify Provident concerning any changes in
its name, identity or structure, concerning any changes in the address(es) of
its chief executive office or other places of business or concerning any changes
in its trade name(s) or name(s) under which it does business.
(c) The Document Custodian shall maintain possession of each Credit
File and the Mortgage Loan Documents comprising each Credit File (other than the
Initial Collateral Package) for each Mortgage Loan. Promptly after Provident's
request therefor, Borrower, at its expense, shall cause the Credit Files held by
the Document Custodian to be delivered to Provident or its agent, bailee or
other designee.
(d) Borrower shall, at all times, maintain the Cash Collateral
Account with Provident. Borrower shall deposit or cause to be deposited all
Collections into the Cash Collateral Account when and as Collections are
received or receivable by Borrower. Withdrawals may be made from the Cash
Collateral Account by Borrower in accordance with the Policies and Procedures.
Provident is hereby authorized to withdraw funds from the Cash Collateral
Account from time to time, either before or after Provident's Demand for
Payment, and to apply such withdrawals to the payment of the Advances, accrued
and unpaid interest thereon and Fees, charges and other amounts payable
hereunder or under the other Loan Documents.
(e) Borrower hereby makes, constitutes and appoints Provident
(by any of its officers, employees or agents), its true and lawful agent and
attorney-in-fact and hereby gives and grants to Provident full power and
authority to do and perform each and every act whatsoever requisite, necessary
and proper (i) to endorse the related Mortgage Note to the Third Party Investor
that purchases any Mortgage Loan; (ii) to endorse any original Mortgage Note to
Provident or the purchaser thereof should Borrower default in its obligations
hereunder; (iii) to prepare, execute and record on behalf of Borrower any
Assignment of Mortgage; (iv) at the sole option of Provident, to prosecute, in
Borrower's or Provident's name, any and all claims or causes of action
collaterally assigned to Provident hereunder; and (v) to do and perform every
act necessary to place Provident in position to enforce the payment of any
Mortgage Loan.
6. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
-----------------------------------------
warrants to Provident as follows as of the date hereof and as of each Funding
Date:
(a) Borrower is and shall at all times be, duly organized, validly
existing and in good standing under the laws of the State set forth in the first
paragraph of this Agreement and has, and shall at all times have, full power and
authority and legal right to engage in and carry on Borrower's business as now
being conducted, to undertake the borrowings contemplated hereby and to execute
and deliver each of the Loan Documents. Borrower is qualified and licensed in
each jurisdiction wherein the nature or conduct of its business make such
qualification necessary or advisable.
<PAGE>
-8-
Borrower is currently qualified and licensed in good standing in each such
jurisdiction. Borrower's name as set forth in the caption of this Agreement and
as set forth on the signature page of this Agreement is Borrower's correct
individual, partnership or corporate name, as the case may be.
(b) Borrower has full power and authority and legal right to enter
into this Agreement and each of the other Loan Documents, and to perform,
observe and comply with all of its agreements and obligations under each of such
documents, including without limitation, the making by Borrower of the
borrowings contemplated hereby and the granting by Borrower of the security
interest in the Collateral pursuant to Section 5.
(c) Thc execution and delivery by Borrower of this Agreement and the
other Loan Documents, the performance by Borrower of all of its agreements and
obligations hereunder and thereunder and the making by Borrower of the
borrowings contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Borrower and do not and will not
constitute a breach, violation or event of default (or an event which would
become an event of default with the lapse of time or notice or both) under any
judgment, decree, note, agreement, indenture or other instrument to which
Borrower is a party or otherwise subject.
(d) Borrower owns or possesses all rights, licenses, permits,
franchises and the like necessary for the conduct of its business as presently
conducted and proposed to be conducted, All of the foregoing rights, licenses,
permits and franchises are in full force and effect, and Borrower is in
compliance with all of the foregoing. No event has occurred which permits, or
after notice or lapse of time or both would permit, the revocation or
termination of any such right, license, permit or franchise, or affects the
rights of Borrower thereunder.
(e) The balance sheets, statements of income and other financial
statements previously delivered to Provident present fairly the financial
condition and results of operations of Borrower as of the dates thereof and for
the fiscal periods then ended. There are no material liabilities or obligations,
secured and unsecured (whether accrued, absolute or actual, contingent or
otherwise), which were not reflected in the balance sheets of Borrower as of the
dates thereof.
(f) No changes have occurred in the assets, liabilities or financial
condition of Borrower from those reflected on the most recent balance sheet
delivered to Provident (the "Current Balance Sheet") which, individually or in
the aggregate, have been adverse. Since the date of the Current Balance Sheet,
there has been no adverse development in the business or in the operations or
prospects of Borrower.
(g) Borrower is the sole owner of and has good and marketable title
to the Collateral, free and clear of all Liens and encumbrances whatsoever,
except for the security interest granted by Borrower pursuant to Section 5. All
information furnished to Provident concerning the Collateral is and will be
complete, accurate and correct in all respects when furnished.
7. COVENANTS REGARDING THE BORROWER. Borrower covenants and agrees with
--------------------------------
Provident as follows:
(a) Borrower shall deliver to Provident as soon as available and, in
any event, within thirty (30) days after the end of each calendar quarter
quarterly unaudited financial statements of Borrower and within seventy-five
(75) days after the end of each fiscal year of Borrower, annual financial
statements of Borrower which, in each case, shall include a balance sheet,
statement of income, statement of changes in financial position and notes to
financial statements. Provident reserves the right to require Borrower to
deliver audited annual financial statements.
Such financial statements shall be certified by the chief executive
officer of Borrower to the effect that such financial statements reflect, in his
opinion and in the opinion of senior management of Borrower, all adjustments
necessary to present fairly the financial position of Borrower as at the end of
such quarter or year, as the case may be, and the results of its operations for
the period then ended.
<PAGE>
-9-
(b) Borrower shall deliver to Provident all information Provident may
reasonably request at any time and from time to time concerning its business,
financial condition, results of operations, the Mortgage Loans financed
hereunder or the other Collateral.
(c) Borrower covenants to keep the Credit File for each of the
Mortgage Loans financed hereunder at all times at Borrower's business premises
or at such other location or locations as Provident may approve in writing.
Borrower further covenants to deliver the Credit File(s) to Provident upon
demand by Provident, which demand may be made in Provident's sole and absolute
discretion.
(d) Borrower shall pay or cause to be paid all taxes, assessments and
other governmental charges imposed upon its properties or assets or in respect
of any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become due and payable and which by law
have or might become a lien or charge upon any of its properties or assets,
provided that (unless any material item of property would be lost, forfeited or
materially damaged as a result thereof) no such charge or claim need be paid if
the amount, applicability or validity thereof is currently being contested in
good faith and if such reserve or other appropriate provision, if any, as shall
be required by generally accepted accounting principles shall have been made
therefor.
(e) At any time or times during Borrower's usual business hours,
Borrower shall permit Provident (by any of its officers, employees or agents) to
enter upon Borrower's business premises for any of the following reasons: (i) to
inspect the Collateral and any books or records related thereto (including
making copies of and extracts therefrom), (ii) to verify the amount, quality,
quantity, value or condition of) or any other matter relating to, the
Collateral, (iii) to examine all of the other books and records of Borrower
(including making copies of and extracts therefrom), including those relating to
its tax records, payroll records and insurance records, and (iv) to discuss the
business, financial condition or results of operations with any of Borrower's
officers, employees, agents, or accountants. Borrower covenants to pay Provident
a reasonable audit fee and reimburse Provident for its out-of-pocket expenses
for all inspections, audits and examinations conducted by Provident other than
regular monthly audits.
(f) Borrower covenants to comply with all federal, state and local
laws, rules, regulations and orders applicable to it and its business.
(g) Borrower agrees to notify Provident in writing within fifteen
(15) calendar days of any proposed Change of Control or any proposed, or
completed, change in the executive management of Borrower, including, but not
limited to, any management change in the office of president, or any change in
the management of Borrower's underwriting department. Borrower further agrees to
notify Provident in writing at least thirty (30) days in advance of any change
in the location of its principal place of business or of any proposed change in
the name of Borrower or the opening or closing of any office.
(h) Borrower shall not at any time create, assume, incur or permit to
exist, any Lien or other encumbrance in respect of any of the Collateral.
(i) Borrower agrees to give Provident prompt notice of any
development, financial or otherwise, which would materially adversely affect its
business, properties or affairs or the ability of Borrower to perform its
obligations under this Agreement.
8. COVENANTS REGARDING THE MORTGAGE LOANS. Borrower further covenants and
--------------------------------------
agrees with Provident as follows with respect to each Mortgage Loan to be
financed by Provident hereunder.
(a) As of its Funding Date, the Initial Collateral Package and Credit
File relating to the Mortgage Loan shall contain each of the documents and
instruments specified herein to be included therein.
<PAGE>
-10-
(b) The related Mortgage shall be valid and enforceable first or
second Lien of record on the Mortgaged Property subject, in the case of any
second Mortgage Loan, only to a first Lien on such Mortgaged Property and
subject in all cases to the exceptions to the titles set forth in the title
insurance policy or attorney's opinion of title with respect to the related
Mortgage Loan, which exceptions shall be acceptable to Provident.
(c) Borrower shall hold good, marketable and indefeasible title
to, and be the sole owner and holder of, the Mortgage Loan subject to no Liens
or rights of others.
(d) The Mortgage Loan shall not be subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
nor shall the operation of any of the terms of the Mortgage Note or Mortgage, or
the exercise of any right thereunder, render either the Mortgage Note or the
Mortgage unenforceable in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
and no such right of rescission, set-off, counterclaim or defense shall have
been asserted with respect thereto.
(e) The Mortgage Loan shall comply with, and shall at all times be
serviced in compliance with, in all material respects, applicable state and
federal laws and regulations, including, without limitation, usury, equal credit
opportunity, consumer credit, truth-in-lending and disclosure laws.
(f) With respect to the Mortgage Loan, either (i) a lender's title
insurance policy, issued in standard American Land Title Association or
California Land Title Association form, or other form acceptable in the
particular jurisdiction, by a title insurance company authorized to transact
business in the state in which the related Mortgage Property is situated,
together with a condominium endorsement, if applicable, in an amount at least
equal to the original principal balance of such Mortgage Loan insuring the
mortgagee's interest under the related Mortgage Loan as the holder of a valid
first or second mortgage lien of record on the Mortgaged Property described in
the Mortgage, subject only to the exceptions of the character referred to in
subsection (b) above, shall be valid and in full force and effect on the Funding
Date of the origination of such Mortgage Loan or (ii) an attorney's opinion of
title shall be prepared in connection with the origination of such Mortgage
Loan. Such mortgage title insurance policy or attorney's opinion of title shall
be issued in favor of Borrower and its successors and assigns. Borrower shall,
by act or omission, not have done anything that would impair the coverage of
such mortgage title insurance policy or attorney's opinion of title.
(g) The Mortgage Note and the related Mortgage shall have been duly
and properly executed, constitute the legal, valid and binding obligation of the
related Mortgagor and shall be enforceable in accordance with their respective
terms, except only as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law), and all parties to
the Mortgage Loan shall have had full legal capacity to execute all Mortgage
Loan Documents and to convey the estate therein purported to be conveyed.
(h) The terms of the Mortgage Note and the Mortgage shall not have
been or be impaired, altered or modified in any material respect, except by a
written instrument which shall have been recorded or is in the process of being
recorded, if necessary, to protect the interests of Borrower therein. The
original Mortgage shall be recorded, and all subsequent assignments of the
original Mortgage shall he recorded in the appropriate jurisdictions wherein
such recordation is necessary to perfect the Lien thereof as against creditors
of Borrower.
(i) No instrument of release or waiver shall have been executed in
connection with the Mortgage Loan, and no Mortgagor shall have been released
therefrom, in whole or in part.
(j) The proceeds of the Mortgage Loan shall have been fully
disbursed, and there shall be no obligation on the part of Borrower to make any
future advances thereunder. All costs, fees and expenses incurred in making or
closing or recording of the Mortgage Loan shall have been paid in full.
<PAGE>
-11-
(k) The Mortgage Note shall not be secured by any collateral, pledged
account or other security except the lien of the corresponding Mortgage.
(l) There shall be no obligation on the part of Borrower or any other
Person to make payments in respect of the Mortgage Loan in addition to those to
be made by the Mortgagor.
(m) All parties which have had any interest in the Mortgage Loan,
whether as originator, mortgagee, assignee, pledgee, servicer or otherwise, are
(or, during the period in which they held and disposed of such interest, were)
(1) in compliance with any and all applicable licensing requirements of the laws
of the state wherein the Mortgaged Property is located and (2)(A) organized
under the laws of such state, or (B) qualified to do business in such state, or
(C) federal savings and loan associations or national banks having principal
offices in such state, or (D) not doing business in such state so as to require
qualification or licensing.
(n) The Mortgage shall contain customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial or non-judicial foreclosure.
(o) To the best of Borrower's knowledge, there shall not exist any
circumstances or conditions with respect to the Mortgage Loan, the Mortgaged
Property, the Mortgagor or the Mortgager's credit standing that could be
reasonably expected to materially adversely affect the value or marketability of
the Mortgage Loan.
(p) Each of the documents and instruments included in the Credit File
shall have been duly executed and in due and proper form and each such document
or instrument shall be in a form generally acceptable to prudent institutional
mortgage lenders that regularly originate or purchase mortgage loans.
(q) The Borrower shall be in possession of the complete Credit File
and there shall be no custodial agreements in effect adversely affecting the
right or ability of Borrower to make the document deliveries required hereby.
(r) The Mortgage property shall not be damaged by fire, wind or other
cause or loss and there shall not be any condemnation proceedings pending. To
the best knowledge of Borrower, no improvement on any Mortgage property is in
violation of any applicable zoning law or regulation.
(s) All signatures, names and addresses, amounts and other statements
of facts, including descriptions of the property, appearing on the credit
application and other related documents relating to each Mortgage Loan shall be
true and correct and the Mortgagors named thereon will be, as of the date of
each such document upon which signatures appear, of majority age, and will have
the legal capacity to enter into the Mortgage.
(t) Borrower will have reviewed all of the Mortgage Loan Documents,
and all the related documents thereto, and will make such inquiries as it deems
necessary to make and confirm the accuracy of the representations set forth
herein and throughout this Agreement.
(u) Each Mortgage Loan which Borrower warrants is insured by a
private mortgage insurance company shall be so insured.
9. SALES OF MORTGAGE LOANS AND OTHER COLLATERAL. Until Provident shall
--------------------------------------------
have made a demand for Payment, Borrower shall be entitled to sell the Mortgage
Loans financed hereunder and the other Collateral in the ordinary course of
Borrower's business, but nothing herein shall be deemed to waive or release
Provident's security interest in any Proceeds of any Collateral. Upon the sale
of any Mortgage Loan financed hereunder, Borrower shall pay to Provident on its
Closing Date, the unpaid amount of the Advance with respect to such Mortgage
Loan, all accrued and unpaid interest thereon through and including such Closing
Date and all Fees, charges and other amounts payable
<PAGE>
-12-
hereunder. The sales of Mortgage Loans to Third Party Investors shall be handled
in accordance with the requirements set forth in the Policies and Procedures. In
addition, Borrower agrees that Provident shall have the right, in its sole
discretion, to (i) impose additional requirements regarding thc delivery of
Mortgage Loan Documents to any Third Party Investor; and (ii) return wire
transfers received in connection with the sale of any Mortgage Loan to the
originating bank if such wire transfer does not comply with the Policies and
Procedures.
10. REMEDIES.
--------
(a) After a Demand for Payment shall have been made by Provident, all
amounts owed to Provident hereunder shall thereupon be immediately due and
payable and no additional or further Advances will be made by Provident to
Borrower hereunder.
(b) From and after any Demand For Payment, Provident shall, in
addition to its other rights and remedies under applicable law, have the rights
and remedies of a secured party under the Uniform Commercial Code with respect
to the Collateral and all other security pursuant to any other Security
Documents between Provident and Borrower. In addition, Provident or its agents
or representatives may take possession of the Collateral and sell the same. For
such purpose, Provident may enter upon the premises where the Collateral shall
be located and remove the same to such other place as Provident shall determine.
Borrower shall immediately, upon Provident's demand, make the Credit Files
available to Provident at Provident's place of business.
(c) Any such taking of possession by Provident shall not affect
Provident's right, which hereby is confirmed, to retain all payments made prior
thereto by Borrower, and in the event of such taking of possession, Provident
may sell the Collateral at a public or private sale or any other commercially
reasonable manner permitted by law. The proceeds of any such sale or other
disposition shall be applied first to the actual and reasonable costs of such
sale, then to the actual and reasonable costs of retaking possession and storage
of such Collateral and then to the satisfaction of the unpaid balance of the
Advances. In the event the proceeds of any such sales are not sufficient to pay
such expenses and to satisfy all amounts due by acceleration or otherwise with
respect to all Advances made pursuant hereto, Borrower shall pay to Provident
any deficiency existing. Provident will give Borrower reasonable notice of the
time and place of any public sale of the Collateral or of the time after which
any private sale or other intended disposition thereof is to be made. Borrower
agrees that the requirement of reasonable notice shall be met if such notice is
mailed, postage prepaid, to the address of the Borrower listed in Section 11(f)
at least 10 days prior to the time of such sale or disposition. Borrower further
agrees and acknowledges that (i) the Collateral is customarily sold in a
recognized market; (ii) Borrower regularly sells and Provident regularly
purchases mortgage loans similar to the Collateral; and (iii) Provident may be
the purchaser of the Collateral either in a public or private sale.
(d) From and after any Demand For Payment, Borrower shall pay, in
addition to interest on funds actually advanced, all costs incurred by Provident
in enforcing Provident's rights hereunder, including those incurred in
bankruptcy proceedings, expenses of locating the Collateral, all costs and
expenses actually incurred by Provident in connection with examination,
preservation and protection of the Collateral, examination of the Borrower's
books and records otherwise in connection with the financing pursuant hereto and
reasonable attorney's fees and legal expenses.
(e) If any payment of interest under Section 3 or principal or
interest under Section 4 is not paid when due whether by demand or otherwise,
the unpaid amount of all Advances and all accrued and unpaid interests thereon
as well as any other charges and other amounts due Provident hereunder or under
any Loan Document shall bear interest, at Provident's option, at the Default
Interest Rate from the date on which such late payment shall have first become
due and payable to Provident. Interest will continue to accrue until the
obligations in respect of the payment are discharged (whether before or after
judgment).
(f) The rights and remedies of Provident hereunder shall be cumulative
and shall be in addition to every other right or remedy available to Provident
under applicable law.
<PAGE>
-13-
11. GENERAL PROVISIONS.
------------------
(a) Borrower absolutely and unconditionally agrees to pay to Provident
upon demand by Provident at any time and as often as the occasion therefor may
require, whether or not all or any of the transactions contemplated by any of
the Loan Documents are ultimately consummated (i) all reasonable out-of-pocket
costs and expenses which shall at any time be incurred or sustained by Provident
or any of its directors, officers, employees or agents as a consequence of, on
account of, in relation to or any way in connection with the preparation,
negotiation, execution and delivery of the Loan Documents and the perfection and
continuation of the rights of Provident in connection with the Advances, as well
as the preparation, negotiation, execution, or delivery or in connection with
the amendment or modification of any of the Loan Documents or as a consequence
of, on account of, in relation to or any way in connection with the granting by
Provident of any consents, approvals or waivers under any of the Loan Documents
including, but not limited to, reasonable attorneys' fees and disbursements; and
(ii) all reasonable out-of-pocket costs and expenses which shall be incurred or
sustained by Provident or any of its directors, officers, employees or agents as
a consequence of, on account of, in relation to or any way in connection with
the exercise, protection or enforcement (whether or not suit is instituted) of
any of its rights, remedies, powers or privileges under any of the Loan
Documents or in connection with any litigation, proceeding or dispute in any
respect related to any of the Loan Documents (including, but not limited to, all
of the reasonable fees and disbursements of consultants, legal advisors,
accountants, experts and agents for Provident, the reasonable travel and living
expenses away from home of employees, consultants, experts or agents of
Provident, and the reasonable fees of agents, consultants and experts not in the
full-time employ of Provident for services rendered on behalf of Provident).
(b) Borrower shall absolutely and unconditionally indemnify and hold
harmless Provident against any and all claims, demands, suits, actions, causes
of action, damages, losses, settlement payments, obligations, costs, expenses
(including, but not limited to, attorney's fees and other legal costs and
expenses) and all other liabilities whatsoever ("Losses") which shall at any
time or times be incurred or sustained by Provident or by any of its
shareholders, directors, officers, employees, subsidiaries, Affiliates or agents
on account of, or in relation to, or in any way in connection with, any of the
arrangements or transactions contemplated by, associated with or ancillary to
this Agreement or any of the other Loan Documents, whether or not all or any of
the transactions contemplated by, associated with or ancillary to this Agreement
or any of such Loan Documents are ultimately consummated, including, but not
limited to, Losses arising from or in connection with, or related to any of the
Mortgage Loans financed hereunder, whether arising from the underwriting,
processing, origination, closing, funding, purchase, servicing or sale of any
such Mortgage Loans.
(c) No amendment, supplement, modification, termination, waiver,
consent to departure or alteration of the terms hereof or any of the other Loan
Documents shall be binding or effective unless the same is in writing, dated
subsequent to the date hereof, and duly executed by Borrower and Provident, and
then such amendment, modification or waiver shall be effective only in the
specific instance and for the specific purpose for which given.
(d) All agreements, representations, obligations and warranties made
herein shall survive the execution and delivery of this Agreement, the making of
any Advance hereunder, the execution and delivery of any of the other Loan
Documents and payment in full of the Advances.
(e) This Agreement (including the Exhibits and Schedules hereto) and
the other Loan Documents (including the Security Documents) and any documents,
certificates and instruments referred to herein or delivered by the parties in
connection herewith constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and verbal, between the parties with respect to the
subject matter of this Agreement and are not intended to confer upon any Person
other than the parties any rights or remedies.
<PAGE>
-14-
(f) All notices and other communications pursuant to this Agreement
and under any of the other Loan Documents shall be in writing, either delivered
in hand or sent by first-class mail, registered or certified, return receipt
requested, or sent by telecopier or facsimile transmission, addressed as
follows:
If to Borrower, at: NMMC, Inc.
----------------------
6 Centerpointe Dr #360
----------------------
Lake Oswego, OR 97035
----------------------
Attn: Sandra L. Field
Fax No. 503/670-9033
----------------------
If to Provident, at: The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Attn: Kenneth D. Logan, Senior Vice President
Mail Stop: 265D
Fax Number: (513) 564-7943
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 11. Any notice or other communication pursuant to this Agreement
or any other Loan Document shall be deemed to have been duly given or made and
to have become effective when delivered in hand to the party to which it is
directed, or, if sent by first-class mail or by telecopier or facsimile
transmission, and properly addressed (i) when received by the addressee; or (ii)
if sent by first class mail, on the third (3rd) Business Day following the day
of the mailing thereof (unless actually received earlier).
(g) No delay or failure of Provident in exercising any right, power,
remedy or privilege hereunder or under any of the other Loan Documents on any
occasion shall affect such right, power, remedy or privilege or be construed as
a waiver or any requirement of this Agreement; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or privilege be prejudicial to any subsequent exercise of such
right, power or privilege, Provident's acceptance or approval of any request,
payment, document or instrument pertaining to any Advance made pursuant hereto
shall not constitute any representation or warranty, express or implied, by
Provident as to the validity or sufficiency of any such request, payment,
document or instrument. The rights and remedies of Provident hereunder are
cumulative and not exclusive. All remedies herein provided shall be in addition
to and not in substitution for any remedies otherwise available to Provident.
Any waiver, permit, consent or condition hereof, must be in writing and shall be
effective only to the extent set forth in such writing.
(h) This Agreement shall be binding upon and inure to the benefit of
Borrower and Provident and their respective successors and assigns, except that
Borrower may not assign or transfer any of its rights or obligations hereunder
to any Person or Persons without the express prior written consent of Provident.
If more than one Borrower shall sign this Agreement, the liability of each
hereunder shall be joint and several.
(i) This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio.
(j) It is hereby stipulated and agreed that TIME IS OF THE ESSENCE
hereon and shall be of the essence as to each of the other Loan Documents.
(k) Any provision contained in any document which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of such document or affecting the validity or
enforceability of such provision in any other jurisdiction.
<PAGE>
-15-
(l) This Agreement may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so executed
and deliver shall be deemed to be an original and all of which taken together
shall constitute but one and the same Agreement.
12. WAIVER OF JURY TRIAL; JURISDICTION AND VENUE.
--------------------------------------------
(a) AS A SPECIFICALLY BARGAINED INDUCEMENT FOR PROVIDENT TO EXTEND
CREDIT TO BORROWER, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL,
BORROWER AND, IF MORE THAN ONE, EACH OF THEM HEREBY EXPRESSLY WAIVES THE RIGHT
TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS AGREEMENT OR
ARISING IN ANY WAY FROM ITS OBLIGATIONS HEREUNDER.
(b) BORROWER AND, IF MORE THAN ONE, EACH OF THEM HEREBY DESIGNATES ALL
COURTS OF RECORD SITTING IN HAMILTON COUNTY, OHIO AND HAVING JURISDICTION OVER
THE SUBJECT MATTER, STATE AND FEDERAL, AS FORUMS WHERE ANY ACTION, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING FROM OR OUT OF THIS AGREEMENT, ITS MAKING,
VALIDITY, PERFORMANCE, INTERPRETATION OR ENFORCEMENT MAY BE LITIGATED AS TO ALL
PARTIES, THEIR SUCCESSORS AND ASSIGNS, AND BY THE FOREGOING DESIGNATION BORROWER
AND, IF MORE THAN ONE, EACH OF THEM HEREBY CONSENTS TO THE JURISDICTION AND
VENUE OF SUCH COURTS. BORROWER WAIVES ANY AND ALL RIGHTS UNDER THE LAWS OF ANY
OTHER STATE TO OBJECT TO JURISDICTION WITHIN THE STATE OF OHIO FOR THE PURPOSES
OF LITIGATION TO ENFORCE THE OBLIGATIONS UNDER THIS AGREEMENT.
IN WITNESS WHEREOF, the undersigned have caused this Warehouse Loan and
Security Agreement to be signed by their duly authorized signatories on and as
of the date first above written.
NMMC, Inc.
----------
BY: /s/ Bernard Guy
-------------------------------
NAME: Bernard Guy
-----------------------------
TITLE: CEO
----------------------------
THE PROVIDENT BANK
BY:
-------------------------------
NAME:
-----------------------------
TITLE:
-----------------------------
<PAGE>
Exhibit 10.6
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (the "Agreement") is hereby made as of the 7 day of
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July, 1999, by and between NMMC, Inc. dba New Mortgage Millennium Corp. (the
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"Mortgage Originator"), with an address of Six Centerpointe Dr. #360 Lake
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Oswego, OR 97035, and STERLING BANK AND TRUST, FSB (the "Participant"), with an
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address of One Towne Square, 17th Floor, Southfield, Michigan 48076.
WITNESSETH
The Mortgage Originator is the holder from time to time of various mortgage
loans (the "Mortgage Loans") evidenced by notes and secured by first mortgages
and/or deeds of trust (referred to collectively herein as "mortgages") on
improved one- to four-family residential real properties. The Mortgage Loans
will be eligible for purchase in the secondary market by FNMA or FHLMC or other
investors, or are eligible to serve as collateral for mortgage-backed securities
issued by GNMA. The Mortgage Originator desires to sell a senior participation
interest (each a "Participation") in each of the Mortgage Loans from time to
time to the Participant, and the Participant is willing to purchase such
Participations under the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, it is agreed:
1. Purchase of Participations. The Participant agrees to purchase from time to
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time from the Mortgage Originator, but only in accordance with the terms and
conditions hereof, one or more loan participation certificates (the
"Participation Certificates"), substantially in the form of Exhibit A hereto,
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each of which represents the Participant's Participation in a Mortgage Loan
originated by the Mortgage Originator. The principal balance of each
Participation (the "Participation Principal Balance") shall be set out in the
related Participation Certificate and shall decrease as any portion of the
principal collections with respect to the Mortgage Loans are paid to the
Participant. The principal terms relating to the purchase of each Participation,
including but not limited to the maximum participation percentage, the purchase
price and the interest rate on the Participation Principal Balance may be set
out in the terms addendum attached hereto as Exhibit B, as the same may be
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amended from time to time (the "Terms Addendum"). Each Participation shall bear
interest on the related Participation Principal Balance at the rate specified as
the "Interest Rate" on the Terms Addendum; provided, however, that from the
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date on which any Event of Default (defined below) shall be deemed to have
occurred until the earlier of (i) the date on which the default is, in
Participant's sole discretion, waived in writing or (ii) the date on which the
Participation is paid in full, the Participation shall bear interest at the
Default Rate set forth on the Terms Addendum. The aggregate outstanding
principal balance of all Participations on any day shall not exceed the amount
specified as the "Maximum Participation Amount" on the Terms Addendum.
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2. Mechanics of Purchase and Repurchase. The Mortgage Loan subject to a
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Participation shall be listed on Schedule I to the related Participation
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Certificate (the "Mortgage Loan Schedule"). The Mortgage Originator shall be
responsible for delivering a Mortgage Loan Schedule.
(a) From time to time prior to the termination of this Agreement, the
Mortgage Originator may request that the Participant purchase a Participation.
If no Event of Default exists or no event that with the passage of time would
become an Event of Default, the Participant, in its sole discretion, may accept
the Participation for purchase and the Participant shall pay the Mortgage
Originator or, on behalf of the Mortgage Originator, a settlement agent, in the
Participant's sole discretion, an amount equal to the purchase price.
(b) The Mortgage Originator shall deliver the Participation Certificate
simultaneously with the documents referenced in Section 10 and if Participant
accepts the same, Participant shall make the payment referenced in Section 2(a)
above. The Participation Certificate and the documents referenced in Section 10
shall be forwarded to Participant, or they may, in the sole discretion of the
Participant, be delivered to a settlement agent approved by Participant. The
Mortgage Originator shall submit the names of settlement agents for approval by
Participant, accompanied by such information regarding the settlement agents as
Participant shall require. Each such settlement agent shall execute an escrow
instruction letter with Participant on terms satisfactory to Participant.
(c) If the Mortgager Originator delivers to the Participant the
Participation Certificate and other documents referenced in Section 10 at the
time participant makes the payment referenced in Section 2(a) above, then the
purchase is referred to in this Agreement (and in exhibits hereto and other
documentation relating to the purchase and sale of Participations by Participant
and Mortgage Originator) as a "Dry Funding." If the Mortgager Originator
delivers to the settlement agent pursuant to Section 2(b) above the
Participation Certificate and other documents referenced in Section 10 at the
time Participant makes the payment referenced in Section 2(a) above, then the
purchase is referred to in this Agreement (and in exhibits hereto and other
documentation relating to the purchase and sale of Participations by Participant
and Mortgage Originator) as a "Wet Funding."
(d) From time to time prior to the termination of this Agreement, the
Mortgage Originator may request to repurchase a Participation by (i) delivering
a written request to the Participant, substantially in the form attached as
Exhibit C, and (ii) tendering to the Participant the related "Repurchase Amount"
for each such Participation. The request for repurchase shall specify that a
Participation is being repurchased for one of the following reasons: (A) the
Mortgage Loan has been paid in full; (B) the Mortgage Loan is being sold
pursuant to a Takeout Commitment; (C) the Participation has been outstanding for
more than ninety (90) days; (D) a representation or warranty contained or
provided for in Section 8 or 9 of this Agreement has been breached; (B) the
Mortgage Loan has become more than thirty (30) days delinquent; or (F)
foreclosure proceedings are being started with respect to the Mortgage Loan. If
the Participant permits such repurchase, which it may do in its sole discretion,
upon receipt of the Repurchase Amount, the Participant shall return to the
Mortgage Originator (or such other party as the Mortgage Originator may direct)
the related note,
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mortgage, and assignment of mortgage, to the extent such documents were
delivered to the Participant and have not previously been redelivered to the
Mortgage Originator.
(c) For purposes hereof, the "Repurchase Amount" means the amount set forth
in Section 13(c).
3. Restrictions on Transfer by Mortgage Originator. The Mortgage Originator
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shall not sell, transfer or assign its retained interest in the Mortgage Loans
without the prior written consent of the Participant.
4. Required Repurchases. The Participant, in its sole discretion, may require
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the Mortgage Originator to repurchase a Participation, in accordance with
Section 2(d) above, (i) if any Mortgage Loan underlying a Participation becomes
more than thirty (30) days delinquent, (ii) if any representation or warranty
pertaining to a Mortgage Loan is untrue, (iii) if any legal action is initiated
or threatened which, if successful, would in any way impair the value of
Participant's interest in the Participation, as determined by the Participant in
its sole judgment, or (iv) if a Participation has been outstanding for a period
of more than ninety (90) days. In the event that Participant requires Mortgage
Originator to repurchase a Participation, the Repurchase Amount must be received
by Participant within ten (10) days after Participant sends notice to Mortgage
Originator.
5. Applications of Unscheduled Payments and Takeout Proceeds. If a Mortgage
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Loan is foreclosed upon or is otherwise liquidated or if the Mortgage Loan is to
be sold to a takeout investor, the related Participation shall be repaid in
full, together with any accrued interest thereon, from the proceeds of such
liquidation, foreclosure or takeout sale prior to the payment of any amount to
the Mortgage Originator with respect to such Mortgage Loan.
6. Servicing. In consideration of the Participant's agreement to purchase
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Participations from the Mortgage Originator, the Mortgage Originator hereby
agrees to act as the servicer of the Mortgage Loans subject to each
Participation. So long as any indebtedness remains outstanding on any of the
Mortgage Loans, the Mortgage Originator shall service such Mortgage Loans until
all payments due with respect to the related Participation are paid in full, and
to that end will, by way of illustration only and without limitation:
(a) Proceed with reasonable diligence to collect all payments on the
Mortgage Loans as and when they shall become due and payable, exercising the
same standard of care and using the same methods that the Mortgage Originator
would use in servicing mortgage loans held in its portfolio or, if higher, the
standard of care and methods used in the mortgage loan servicing industry for
the servicing of loans held by others;
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(b) Remit to the Participant on or before the tenth day of each month,
except as Participant may change this due day in any billing schedule or other
written notice sent to the Mortgage Originator, (i) the participant's pro rata
share of the amount of principal collected on each of the outstanding Mortgage
Loans during the previous month and (ii) accrued interest on the outstanding
Participation Principal Balance for each Participation as set forth in Section 1
above; provided, however, that if any collections on a Mortgage Loan are due to
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foreclosure or other liquidation of the Mortgage Loan, then such collections
shall be applied in accordance with Section 5 above;
(c) Cause the related mortgagor to maintain hazard insurance policies,
including but not limited to policies of flood insurance if required, covering
the mortgaged premises in an amount at least equal to the outstanding mortgage
balance;
(d) Keep records pertaining to each mortgage note and the collections
thereon and permit the Participant to examine these and other records pertaining
to each of the Mortgage Loans at such times as the Participant may elect during
the Mortgage Originator's business hours; and
(e) Cause the taxes on the mortgaged premises securing each Mortgage Loan
to be examined annually and report any delinquent taxes to the Participant.
7. Servicing Compensation. The Mortgage Originator shall be entitled to
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retain, as its sole compensation for servicing the Mortgage Loans subject to
Participations hereunder, all late charges payable and collected under the terms
of the Mortgage Loans. The Mortgage Originator shall not be entitled to any
additional fees for the performance of its duties as servicer of any Mortgage
Loan.
8. Representations and Warranties with Respect to Mortgage Loans. The Mortgage
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Originator represents and warrants to the Participant as to each Mortgage Loan
as of the date of the purchase of the related Participation that:
(a) proceeds equal to the note amount have been disbursed to or for the
account of the mortgagor;
(b) it holds a mortgagee title insurance policy or a valid first lien
letter from a title insurance company acceptable to Participant with an insured
closing letter from the underwriter, showing the related mortgage to be a first
mortgage lien on the mortgaged premises subject only to such easements,
restrictions, title irregularities and similar matters which do not have any
adverse effect on the ownership, appraised value or use of the mortgaged
premises;
(c) no more than three (3) days have elapsed between the closing of the
Mortgage Loan and the related Participation being presented to Participant for
purchase;
(d) the note and mortgage are genuine instruments binding and enforceable
against the mortgagor and subject to no defenses of any kind or nature;
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(e) there are no defaults existing under the note or mortgage;
(f) the mortgage has been duly recorded or has been forwarded to the proper
governmental office (and is in the proper form and accompanied by appropriate
fees) for recording;
(g) the principal balance remaining unpaid is the amount shown on the
Mortgage Loan Schedule attached to the related Participation Certificate;
(h) it holds a policy of insurance covering the mortgaged premises insuring
against loss or damage by fire and other hazards not less extensive than
extended coverage insurance, with an appropriate mortgagee loss payable
endorsement in favor of the Mortgage Originator and its assigns as mortgagee;
(i) at all times each Mortgage Loan and each party was in compliance with
all of the applicable provisions of applicable federal and state law and
regulations: by way of illustration and not limitation, all Mortgage Loans which
are subject to Section 226.32 of Federal Reserve Regulation Z have been
accurately identified, accurate disclosures have been provided to the Mortgagor
and Participant with respect to such Mortgage Loans, such Mortgage Loans do not
contain any prohibited terms as specified in Section 226.32(d) and the Mortgage
Originator has not engaged in any prohibited acts or practices as specified in
Section 226.32(c);
(j) all information provided to the Participant with respect to each
Mortgage Loan is true, complete and accurate and no person or entity involved in
the origination or servicing of the Mortgage Loan has made any false
representation or has failed to provide information that is true, complete and
accurate in connection with such transaction;
(k) the mortgage securing the Mortgage Loan is a valid, existing and
enforceable first lien on the mortgaged property;
(l) the Mortgage Originator has no knowledge of any circumstances or
condition with respect to the Mortgage Loan or the related mortgagor's credit
standing that can reasonably be expected to cause the Mortgage Loan to become an
unacceptable investment or delinquent or to adversely affect the value of any
Participation;
(m) the Mortgage Originator is the sole owner and holder of the Mortgage
Loan, the Mortgage Originator has not assigned or pledged the Mortgage Loan to
secure any obligation other than the related Participation and the Mortgage
Originator has good and marketable title to the Mortgage Loan;
(n) the Mortgage Loan is subject to a contractual arrangement between the
Mortgage Originator and a takeout investor, the arrangement and takeout investor
both being acceptable to the Participant in its sole discretion (including an
agency of the United States government, a seller-servicer approved by an agency
of the United States government or any other institutional
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investor) pursuant to which such purchaser agrees to purchase such Mortgage Loan
or guarantee another party's purchase of the Mortgage loan (a "Takeout
Commitment");
(o) the Mortgage Loan has been underwritten in accordance with standard
underwriting requirements as specified by the Participant or the related takeout
investor, whichever are more stringent;
(p) the Mortgage Loan complies with all requirements set forth in the
Participant's seller-servicer guide as amended from time to time; and
(q) the Mortgage Loan is not subject to any right of rescission, setoff,
recoupment, abatement, counterclaim or defense (including the defense of usury),
other than any such rights provided under applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors rights in general and general principles
of equity, and none of the Mortgagor or takeout investor has asserted or
manifested an intention to assert any right of rescission, setoff, recoupment,
counterclaim or defense, affecting any Mortgage Loan or Takeout Commitment which
is related to the Participation. The Mortgage Originator covenants that it shall
notify the Participant if it receives notice that any Mortgagor or takeout
investor asserts or manifests any intention to assert any such right.
9. Further Assurances. The Mortgage Originator agrees to make such further
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representations and warranties with respect to each Mortgage Loan and to take
such actions in connection with each Mortgage Loan (including the reaffirmation
of the representations and warranties contained herein) as the Participant may
require.
10. Delivery of Documents. Simultaneously with the purchase of any
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Participation, or, in the case of a Wet Funding, no later than five (5) days
after the closing of the Mortgage Loan, the Mortgage Originator shall deliver to
the Participant, or the settlement agent in accordance with Section 2(b) hereof,
with respect to each Mortgage Loan, the following documents:
(a) The original, fully executed mortgage note for such Mortgage Loan,
endorsed in blank without recourse, which note is hereby pledged to the
Participant to secure the performance of all of the Mortgage Originator's
obligations to the Participant incurred hereunder. The Participant will from
time to time, at the request of the Mortgage Originator and in accordance with
this Agreement, return to the Mortgage Originator such notes as have been paid
by the mortgagor or, as determined by Participant in its sole discretion, are
otherwise needed by the Mortgage Originator to facilitate the servicing of the
Mortgage Loans.
(b) The fully executed mortgage with respect to such Mortgage Loan with
evidence of recording thereon, or, if such document has not been returned by the
applicable recording office, a certified true and complete copy of such
document.
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(c) A fully executed assignment of mortgage in recordable form of the
individual mortgage which secures the Mortgage Loan. Assignments delivered under
this Agreement may be recorded by the Participant at any time in the sole
discretion of the Participant.
(d) A copy of the Takeout Commitment relating to such Mortgage Loan, the
rights under such Takeout Commitment being assigned to the Participant.
(e) All title insurance, hazard and/or homeowners insurance, PMI, and other
policies (or copies thereof) relating to the Mortgage Loan.
11. Assignment of Rights. By the sale of each Participation to the Participant,
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the Mortgage Originator hereby assigns to Participant those instruments and
documents set forth in Section 10 above (but, with respect to the Takeout
Commitment, only Mortgage Originator's rights therein), and all Mortgage
Originator's rights thereunder, and further conveys and transfers to the
Participant all right, title and interest in any property (real or personal)
including cash, deeds or titles received in exchange for all or part of the
Mortgage Loan.
12. Events of Default. The Mortgage Originator shall be in default upon the
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occurrence of any one or more of the following events (each, an "Event of
Default"):
(a) The Mortgage Originator shall fail to remit to the Participant any
principal or interest on a Participation as such amounts become due and payable
under the terms of this Agreement;
(b) The Mortgage Originator shall fail to timely repurchase a Participation
whose repurchase is required under Section 4 of this Agreement;
(c) In the case of any Wet Funding, Participant shall not have received the
documents set forth in Section 10 within five (5) days after the closing of the
Mortgage Loan.
(d) The Mortgage Originator shall default in the performance of any other
agreement herein contained and such default continues for twenty-one (21) days
after written notice thereof shall be given the Mortgage Originator by the
Participant;
(e) The Mortgage Originator shall become insolvent or bankrupt, or make an
assignment for the benefit of its creditors, or a receiver or trustee is
appointed for the Mortgage Originator, or if bankruptcy, reorganization or
liquidation proceedings are instituted by or against the Mortgage Originator; or
(f) Any license or registration reasonably necessary for the conduct of the
Mortgage Originator's business shall be revoked, suspended, or otherwise limited
by any state or federal regulatory, administrative, or quasi-governmental agency
(including, without limitation, FNMA
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and FHLMC), or any such state or federal regulatory, administrative, or quasi-
governmental agency in any way restricts Mortgage Originator's authority to
conduct its business in any state.
13. Remedies. Upon the occurrence of an Event of Default by the Mortgage
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Originator:
(a) The Participant's commitment to purchase Participations under this
Agreement shall cease to be in effect.
(b) The Participant may, at its option, take record title to each Mortgage
Loan, may endorse the notes in its favor, may record the assignments of mortgage
and shall have the right to service each of the Mortgage Loans. For such
purposes, the Mortgage Originator agrees that upon demand by the Participant, it
will turn over to the Participant all of its records pertaining to the Mortgage
Loans and all documents pertaining thereto, including, but not limited to, title
insurance policies, hazard insurance policies, mortgages, surveys and related
papers. In addition, the Mortgage Originator hereby grants full power and
authority to the Participant, acting in its name alone, or in its name as
attorney-in-fact for the Mortgage Originator, to do and perform any and all of
the undertakings of the Mortgage Originator hereunder, and in addition hereto,
the power and authority to demand, collect, sue for all monies due or to become
due on any of the Mortgage Loans, to foreclose any of the Mortgage Loans by
exercise of the power of sale or by court action, and to exercise any and all
other powers and rights that the Mortgage Originator may now have or hereafter
acquire with respect to any of the Mortgage Loans. This power is declared to be
coupled with an interest and is irrevocable so long as the Participant shall
have any interest in a Participation hereunder.
(c) The Participant shall be entitled, at the Participant's option, to
require the Mortgage Originator to repurchase the Participation Certificate
relating to any Participation at an amount equal to the related Participation
Principal Balance as of the date of repurchase plus (i) any accrued and unpaid
interest on such Participation Principal Balance, (ii) any accrued and unpaid
fees owed to the Participant, and (iii) any out-of-pocket expenses paid by the
Participant for which the Participant is entitled to be reimbursed under the
terms of this Agreement.
14. Operations Training Manual. Participant may provide to Mortgage Originator
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from time to time an Operations Training Manual (the "Manual") setting forth
guidelines and conditions applicable to Mortgage Loans and to the purchase and
sale of Participations under this Agreement. Such guidelines and conditions may
include, without limitation, reporting and monitoring requirements to be
observed by Mortgage Originator and Participant's reservation of rights to audit
and verify information pertaining to the purchase and sale of Participations
under this Agreement. The Manual is hereby incorporated into this Agreement.
Participant may, in its discretion, amend the Manual from time to time. The
amended Manual shall apply to all Mortgage Loans and to all matters relating to
the purchase and sale of Participations under this Agreement twenty-one (21)
days after Participant sends the amendment to the Mortgage Originator.
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15. Guaranty and Security. The Mortgage Originator's obligations hereunder
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shall be guarantied and secured in a manner satisfactory to the Participant;
provided that any guaranty shall be deemed satisfactory if substantially
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in the form of Exhibit D.
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16. Servicing by Participant. When the Participant is servicing the Mortgage
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Loans or exercising the power and authority granted by Section 13 above, it
shall be entitled to receive the late charges referred to in Section 7 above.
17. Fees and Expenses. Upon the purchase or repurchase of a Participation, the
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Mortgage Originator shall pay to the Participant the fees and expenses set forth
in the Terms Addendum.
18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
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ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
19. Entire Agreement; Severability. This Agreement shall supersede any existing
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agreement and shall constitute the entire agreement between the parties relating
to the subject matter hereof. Each provision and agreement herein shall be
treated as separate and independent from any other provision or agreement herein
and shall be enforceable notwithstanding the unenforceability of any such other
provision or agreement.
20. Notices and Other Communications. Any and all notices, statements, demands
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or other communications hereunder may be given by a party to the other by mail,
facsimile, telegraph, messenger or otherwise to the address listed below, or
such other address as may be specified in a notice of change of address
hereafter received by the other:
MORTGAGE ORIGINATOR: New Mortgage Millennium Corp.
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6 Centerpointe Dr SW - Ste 360
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Lake Oswego, OR 97035
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Attention: Sandra Field
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Telephone: 503/670-8386
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Facsimile: 603/670-9033
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PARTICIPANT: Sterling Bank and Trust, FSB
One Towne Square, 17th Floor
Southfield, Michigan 48076
Attention: Robert R. Denton
Telephone: 248-948-8717
Facsimile: 248-948-8733
with copy to: Sterling Bank and Trust, FSB
Office of the General Counsel
One Towne Square, 17th Floor
Southfield, Michigan 48076
Telephone: 248-351-3425
Facsimile: 248-948-8751
All notices, demands and requests hereunder may be made orally, to be confirmed
promptly in writing, or by other communication as specified in the preceding
sentence.
21. Waiver; Amendment. No express or implied waiver of any Event of Default by
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either party shall constitute a waiver of any other Event of Default and no
exercise of any remedy hereunder by any party shall constitute a waiver of its
right to exercise any other remedy hereunder. No modification or waiver of any
provision of this Agreement and no consent by any party to a departure herefrom
shall be effective unless in writing and duly executed by both of the parties
hereto.
22. Termination of Agreement; Renewal(s).
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(a) If this Agreement has not otherwise been terminated pursuant to its
terms or by an act of the Participant or Mortgage Originator, this Agreement
shall terminate SIX months from the date hereof. The Mortgage Originator or
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Participant may terminate this Agreement by written notice to the other of its
intent to do so, which notice shall take effect not sooner than ninety (90) days
after such notice is given. If either the Mortgage Originator or the Participant
delivers notice of intent to terminate this Agreement, or if the termination
date described in the first sentence of this Section passes without renewal of
this Agreement pursuant to Section 22(b), the Mortgage Originator shall not be
entitled to sell Participations after the earlier of the date so described or
the termination date specified in such notice. Notwithstanding termination of
this Agreement, however, the Mortgage Originator's obligations hereunder shall
not be terminated until the Participant has received all amounts due with
respect to all Participations.
(b) This Agreement may be renewed in Participant's discretion for an
additional like period of time as set forth in Section 22(a)(A) upon delivery
by Mortgage Originator to Participant of (i) a complete copy of Mortgage
Originator's financial statements, (ii) copies of reports arising from any
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regulatory audits conducted by any state or federal regulalory, administrative,
or quasi-governmental agency (including, without limitation, FNMA and FHLMC),
(iii) proof that the Mortgage Originator has in full force and effect errors and
omissions insurance at a coverage level appropriate in light of the Mortgage
Originator's business activity and loss history, and (iv) such other
documentation and information as Participant may require; and (B) upon
satisfaction of such other conditions as Participant may require.
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their authorized officers the day and year
first above written.
NMMC, Inc. dba New Mortgage Millennium Corp.
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as "Mortgage Originator"
by: /s/ Bernard A. Guy
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Bernard A. Guy
its: Chief Executive Officer
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Sterling Bank and Trust, FSB
as "Participant"
by: _____________________________
Robert R. Denton
its: Managing Director, Mortgage Banking Division
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TERMS ADDENDUM
Terms Addendum dated as of July 7, 1999 to that certain Participation Agreement
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(the "Agreement") of even date between NMMC, Inc. dba New Mortgage Millennium
Corp. (the "Mortgage Originator"), and STERLING BANK AND TRUST, FSB (the
"Participant").
This Terms Addendum is hereby incorporated into and made a part of the Agreement
and shall be binding as if fully set forth therein. The purpose of this Terms
Addendum is to: (i) state the principal terms of the Participations that the
Participant may purchase and have outstanding at any one time from Mortgage
Originator, (ii) separately state all fees and charges to be made by the
Participant to the Mortgage Originator during the effective term of the
Agreement, and (iii) set forth further requirements for the eligibility of
Mortgage Loans in which Participations will be sold by Mortgage Originator to
Participant. Mortgage Originator recognizes its responsibility for the fees and
charges stated and the right of Participant to debit any proceeds received on
behalf of Mortgage Originator or Mortgage Originator's Maintenance Account, as
such term is defined below, in the amount and at the time any such fee or charge
becomes due. Any capitalized term used and not defined herein shall have the
respective meaning given thereto in the Agreement. This Terms Addendum
supersedes any other addendum that may have been incorporated into the Agreement
previously.
A. Principal terms of each Participation:
1. Maximum Participation Amount: $5,000,000,00.
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2. Participation Percentage will be 98% of the Note Amount unless a
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Sterling Bank & Trust account is opened for 1% of the Maximum
Participation amount in which case the Participation Percentage will be
98% of the Take-out price not to exceed par.
3. Purchase price for any participation will be 100% of par of the
Participation Principal Balance.
B. The fees and charges are as follows:
1. Interest Rate:
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(a) Shall be Prime plus 4.0% per annum for Wet fundings, computed on a
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daily basis from the date Participant wires funds to a closing agent
until such date as Participant receives in its possession original
executed documents, and shall be Prime plus 2.0% per annum
thereafter. ----
(b) Shall be Prime plus 2.0% per annum for Dry Fundings.
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Interest shall be computed on a daily basis with respect to the amount
outstanding under the Participation Certificate and, at the discretion of
Participant, may be billed monthly or debited against any collections
received in the Account, as such term is defined below, for any Mortgage
Loans listed on Schedule I of the Participation Certificate.
Note: The Interest Rate and all interest charges shall be based on the
Prime Rate as published from time to time in the Money Rates column of the
Wall Street Journal (Eastern Edition) as effective for each such day for
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which interest shall be attributable plus the additional percentage as
indicated above.
2. Default Rate: Shall be the applicable Interest Rate (Wet or Dry) plus
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2.0% to be computed on a daily basis with respect to any Participation
that has not been repurchased and paid in full within the number of
days specified in Section 4 of the Agreement or that is otherwise
deemed to be in default by the Participant. The Default Rate shall
apply until payment thereof.
3. A $125 loan processing fee shall be payable with respect to each
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Mortgage Loan package delivered to Participant which may at
Participant's option be debited against any collections
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received in the Account for such Mortgage Loan, unless the loans is to
be delivered to Sterling Bank & Trust at which time a $50.00 processing
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fee shall apply.
4. Participation Percentage shall be upgraded from 98% to 100% if loans
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are sold to Sterling Bank & Trust.
5. A $100 fee for any Mortgage Loan submitted to Participant for review
and potential purchase 1ess than 24 hours prior to the proposed closing
of said Mortgage Loan, which may at Participant's option be debited
against any collections received in the Account for such Mortgage Loan
to be debited against any collections received in the Account for such
Mortgage Loan.
6. A $25 fee plus all shipping costs incurred by Participant with respect
to each Mortgage Loan for which the Mortgage Originator fails to supply
the appropriate shipping packages for shipment to a takeout investor or
such shipping cannot be charged to the Mortgage Originator's account
for any reason, which may at Participant's option be debited against
any collections received in the Account for such Mortgage Loan.
7. Any other amounts due pursuant to the Agreement.
8. Any other charges incurred by Participant on behalf of the Mortgage
Originator.
9. Participant reserves the right to reduce the Maximum Participation
Amount based on the extent of Mortgage Originator's use of the
facility.
10. In the event that the Mortgage Originator makes no sales of
Participations during a three month consecutive period, Participant
reserves the right to impose a fee equal to 25 basis points (based on
the average unused portion of the Maximum Participation Amount).
C. No Mortgage Loan shall be considered to be an eligible Mortgage Loan under
the Agreement unless it (i) complies in all respects with the requirements
set forth herein and in the Agreement, and (ii) complies in all respects
with the following additional requirements:
1. The dollar amount of any individual Mortgage Loan shall not exceed
$350,000.
--------
2. Is first lien secured by a residential 1-4 family.
3. Is deliverable to the Take-Out Investor issuing the corresponding Take-
Out Agreement within 60 days.
In addition, a Mortgage Loan shall not qualify as an eligible Mortgage Loan
if any of the following statements is true with regard to such Mortgage
Loan:
1. Is a Mortgage Loan to an officer, principal, manager or Guarantor of the
Mortgage Originator.
2. The borrower(s) on the Mortgage Loan have two (2) loans outstanding with
this facility.
3. The Mortgage Loan is a construction or other "draw" type loan.
4. The Mortgage Loan property has deferred maintenance of more than 10% of
the appraised value.
5. Is a Mortgage Loan not generally salable in the secondary market.
D. Participant shall establish and maintain an account (the "Account") at
Comerica Bank. Detroit, or such other bank as Participant may from time to
time designate, into which Mortgage Originator agrees to deposit or cause
to be deposited all collections of principal, interest, purchase proceeds
and such other amounts from time to time due and owing on the Mortgage
Loan.
<PAGE>
E. Mortgage Originator shall maintain at all times a balance in an account
(the "Maintenance Account") established by Participant at Sterling Bank &
---------------
Trust, or such other bank as Participant may from time to time designate,
-----
of $5,000.00. Participant shall be entitled to debit, from time to time,
--------
Mortgage Originator's balance in the Maintenance Account for any sum due
and owing Participant from Mortgage Originator.
IN WITNESS WHEREOF, the parties have caused this Terms Addendum to be executed
in their respective corporate names and their corporate seals to be affixed and
attested to by their respective duly authorized officers, as of the date first
set forth above.
NMMC, Inc. dba New Mortgage Millennium Corp.
- --------------------------------------------
as "Mortgage Originator"
by: /s/ Bernard A. Guy
---------------------------------------
Bernard A. Guy
its: Chief Executive Officer
---------------------------------------
Sterling Bank and Trust, FSB
as "Participant"
by: _____________________________
Robert Denton
its: Managing Director of Mortgage Banking
<PAGE>
Exhibit 10.7
LEASE AGREEMENT
STANDARD OFFICE LEASE
ONE SYCAMORE PLAZA
------------------
This Lease made as of this 18th day of July, 1997 by and between G & P Resorts,
Inc. a New Mexico Corporation, (hereinafter "Landlord") and N M MORTGAGE, INC.
A NEW MEXICO S CORPORATION. (hereinafter "Tenant").
1. PREMISES. Landlord does hereby lease to Tenant, and Tenant does hereby take
from Landlord, those certain premises to be known as Suite 150 and 150B,
comprising approximately 3833 square feet of rentable area hatched in red on
Exhibit A attached hereto (hereinafter the "Leased Premises"). The Lease
Premises is located in a complex known as One Sycamore Plaza, which is
located at 5600 Wyoming Blvd. NE, Albuquerque, New Mexico and which includes
surface parking, walking areas, landscaped areas and certain common areas
and facilities that are shared with other occupants under rules and
regulations as instituted by Landlord from time to time.
2. LEASE TERM AND OPTION TO EXTEND TERM. The Lease term shall commence on or
about September 16, 1997 (hereinafter "Commencement Date") and shall continue
thereafter to and including the, 30th day of September, 2002 unless earlier
terminated as hereinafter provided.
Tenant shall have One (l) five year option to extend the term at then
existing market rate, but no less then current rent of this Lease by giving
ninety (90) days written notification to Landlord prior to lease termination.
Non-notification of this right to option within the given time period
shall be deemed as a waiver of this right and Landlord shall have no
further obligation to Tenant with regards to right of option. It shall be a
condition of Tenant's right to exercise the option to renew herein that
Tenant is in compliance with all the terms and conditions of this Lease both
at the same time of Tenant's exercise of this option and at the time the
renewal term is scheduled to commence; and this condition may be waived by
Landlord at its sole discretion and may not be used by Tenant as a means to
negate the effectiveness of Tenant's exercise of this option.
3. ANNUAL BASE RENT. Tenant shall pay to Landlord during the lease term an
annual base rent in monthly installments pursuant to the following Schedule
(hereinafter "Annual Base Rent"):
From the commencement of the Lease Term until September 30, 1998, the sum of
Sixty-five Thousand Eight hundred Seventy-nine and 50/100 Dollars
($65,879.50), payable in equal monthly installments of Five Thousand Two
hundred seventy and 36/100 Dollars ($5,270.36) on the first day of each
month. Landlord hereby acknowledges receipt of Two Thousand six hundred
thirty-five and 18/100 Dollars ($2,635.18) which represents pro-rated rent
for September, 16-30, 1997.
Beginning October 1, 1998 through September 30, 1999 the sum of Sixty-five
Thousand one hundred Sixty and 96/100 Dollars ($65,160.96) payable in equal
monthly installments of Five Thousand Four hundred thirty and 08/100 Dollars
($5,430.08) on the first day of each month.
Beginning October 1, 1999 through September 30, 2000 the sum of Sixty-seven
Thousand Seventy-seven and 48/100 Dollars ($67,077.48) payable in equal
monthly installments of Five Thousand Fivehundred eighty-nine and 79/100
Dollars ($5,589.79) on the first day of each month.
Beginning October 1, 2000 through September 30, 2001 the sum of Sixty-
eight Thousand Nine hundred ninety-four and 00/100 Dollars ($6,994.00)
payable in equal monthly installments of Five Thousand Seven hundred forty-
nine and 50/100 Dollars ($5,749.50)on the first day of each month.
Beginning October 1,2001 through September 30, 2002 the sum of Seventy
Thousand Nine hundred ten and 52/100 Dollars ($70,910.52) payable in equal
monthly installments of Five Thousand Nine hundred nine and 21/100 Dollars
($5,909.21) on the first day of each month.
The monthly installments of Annual Base Rent shall be due and payable in
advance on the 1st day of each month.
Should the Tenant fail within five (5) days of the date due, to pay all of
the rents provided for herein at the time and in the manner herein provided,
Landlord may, at his option, impose a collection fee of 10% of the amount
then due.
4. RENTAL ADJUSTMENT A. Cost Adjustment. In the event that the "building
operating costs" of the Building shall increase during any calendar year
over the "basis operating costs", then the fixed rental for said premises
shall be adjusted commencing with the first day of the calendar year next
following such increase
--1--
<PAGE>
and each year thereafter in the manner hereinafter provided. Building
operating costs means the actual expense incurred and paid by the Landlord
for the operation maintenance of the Building in accordance with accepted
principles of sound management and accounting practices as applied to office
buildings, including, without limitation:
1. janitor labor and supplies;
2. maintenance and engineering labor and supplies;
3. insurance applicable solely to the Building and it's operation;
4. water, gas and other fuels;
5. electricity used in the operation and maintenance of the Building;
6. salaries and wages of employees other than employees above the grade of
Building Superintendent whose time is spent directly and solely in the
operation of the Building; and
7. all real property taxes paid by the Landlord.
8. expenses incurred in connection with the maintenance and operation of
any parking area.
Notwithstanding anything to the contrary, the following expenses are excluded
from Building Operating Costs:
1. expenses for any capital improvement made to the land or Building;
2. expenses for painting, redecorating or other work which Landlord
performs for any tenant of the Building;
3. expenses for repairs or other work occasioned by fire, windstorm, or
other insurable casualty;
4. expenses incurred in leasing or procuring new tenants;
5. expenses incurred in enforcing the term of this Lease;
6. interest or amortization payments on any mortgage;
Promptly after January 1st of each calendar year of this Lease, Landlord
shall determine the building operating costs for the preceding calendar year.
In the event that the building operating costs for said preceding calendar
year shall exceed the basic operating costs, then the percentage of such
increase shall be computed and the Tenant's share determined. Landlord agrees
to promptly notify Tenant in writing of the amount of Tenant's share of such
increase. Tenant agrees to pay to Landlord monthly Tenant's share of such
increase. Such additional rental payments shall commence as of the first day
of January next following each calendar year in which such operating costs
have exceeded said basic operating costs.
"Basic Operating Costs" shall mean the building operating costs for the
calendar year 1998. Landlord shall determine the basic operating costs and
-----
shall notify Tenant in writing of the amount thereof.
Tenant's percentage share of the increasing costs shall be determined by
dividing the total number of square feet then currently leased by Tenant by
the total gross leasable square feet of the buildings comprising of
approximately 61,693 square feet.
-------------------
B. Other Adjustment. If Landlord's expenses increase due to any fees, levies
or other taxes imposed by any governmental agency effecting the operations
of this property subsequent to execution of this Lease, then Tenant shall pay
his percentage share of such fee, levy or tax.
C. Payment of Additional Rent. Any and all increases in rental pursuant to
this paragraph shall be additional rent payable by Tenant hereunder and in
the event of non-payment thereof, Landlord shall have
--2--
<PAGE>
similar rights with respect to such non-payment as it has with respect to
any other non-payment of rent hereunder.
D. Security Deposit. Tenant has deposited with Landlord the sum of Five
--------------------------------------------------
Thousand Nine hundred nine and 21/100 Dollars ($5,909.21), receipt of which
---------------------------------------------------------------------------
is hereby acknowledged by Landlord, as security for the performance by Tenant
-----------------------------------
and all of the terms, covenants, and conditions of this Lease. Security
Deposit shall be returned to Tenant upon the termination of this Lease,
without interest, provided Tenant has complied with all the terms, conditions
and covenants hereof, and that the Tenant's premises are left in good
condition, cleaned and restored to the condition of the premises at the
time of the commencement of the Lease, usual wear and tear excepted.
5. USE AND INSURANCE RATING. Tenant shall use the Leased Premises for the
following purposes and for no other purposes whatsoever: General offices.
Tenant will not conduct or permit to be conducted any activity or place any
equipment in or about the Leased Premises, which will in any way increase
the rate of fire insurance or other insurance on the Building; and if any
increase in the rate of fire insurance or other insurance is stated by any
insurance company or by the applicable insurance rating bureau to be due to
activity or equipment of Tenant in or about the Leased Premises, such
statement shall be conclusive evidence that such increase in such rate is
due to such activity or equipment, and as a result thereof, Tenant shall be
liable for such increase and shall reimburse Landlord therefor.
6. NO WARRANTIES BY LANDLORD AND AGENTS/ACCEPTANCE OF PREMISES.
Neither Landlord nor any agents or employees of Landlord has made any
representations or promises with respect to the Leased Premises or the
Building, except as expressly set forth herein and no rights, privileges,
easements or licenses are acquired by Tenant, except as expressly set forth
herein.
The taking of a possession of the Leased Premises by Tenant shall be
conclusive evidence that, except for minor "punch list" items, if any, the
Leased Premises were on such date of possession in good, clean and
tenantable condition and that the Tenant accepts the Leased Premises "as
is", except that Landlord, at Landlord's expense, shall provide building
standard carpet and paint throughout the premises in accordance with the
attached spaceplan.
If for any reason Landlord cannot deliver possession of the Premises to
Tenant by the Commencement Date, Landlord shall not be subject to any
liability therefor, nor shall such failure affect the validity of this
Lease, or the obligations of Tenant hereunder, or extend the term hereof,
but such case, Tenant shall not, except as otherwise provided herein, be
obligated to pay rent or perform any other obligation of Tenant under the
terms of this Lease until Landlord delivers possession of the Premises to
Tenant. If possession of the Premises is not delivered to Tenant within sixty
(60) days after the Commencement Date, Tenant may, at its option, by notice
in writing to Landlord within ten (10) days after the end of said sixty
(60) day period, cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder; provided further, however, that
if such written notice of Tenant is not received by Landlord within said ten
(10) day period, Tenant's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Tenant when required by this Lease and Tenant
does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Tenant would otherwise have
enjoyed shall run from the date of delivery of possession and continue for
a period equal to the period during which the Tenant would have otherwise
enjoyed under the terms hereof, but minus any days of delay caused by the
acts, changes or omissions of Tenant.
7. ASSIGNMENT AND SUB-LETTING. Tenant shall have the right to assign this Lease
or sub-let all or any part of the Leased Premises with the prior written
consent of the Landlord provided as follows:
A. the Landlord may in its sole discretion withhold its consent to an
assignment or a sub-lease (i) to any present tenant of Landlord in the
Building or (ii) to any tenant whose occupancy would be inconsistent with
the type of tenant in the Sycamore Office Building;
-------------------------
B. such assignment or sublease shall not relieve Tenant of its obligations
under this Lease;
D. Tenant shall provide Landlord with notice of any assignment or sub-lease
in writing together with a copy of such assignment or sub-lease, and
Landlord shall have thirty (30) days from receipts thereof to make a
decision concerning such assignment or sub-lease;
E. such assignment or sub-lease shall not violate rules, from time to time
adopted by Landlord, for general application throughout the Building;
--3--
<PAGE>
F. the financial condition and credit record of the assignee shall be
reasonably acceptable to Landlord; and
G. any assignment or sub-letting made in violation of the provisions
contained herein shall be ineffective.
H. notwithstanding anything to the contrary, Landlord shall have the right to
terminate this Lease with respect to that part of the Leased Premises
that Tenant intends to assign or sublease and, upon such termination, all
of the liabilities of the parties each to the other shall cease and
terminate except as to the covenants of Tenant which survive the
termination of this Lease. Landlord shall exercise its right to terminate
by notice to Tenant within thirty (30) days after Landlord's receipt of
Tenant's notice of its intention to assign or sublease all or any part of
the Leased Premises and such termination shall be effective as of the
date set forth in Tenant's notice Which shall be not less than thirty (30)
days after Landlord's receipt of such notice.
8. ALTERATIONS. Tenant will not make any alterations of or additions to the
Leased Premises without the prior written approval of Landlord. All work to
be performed in the Leased Premises shall be performed by competent
contractors and subcontractors, approved by Landlord, which approval shall
not be unreasonably withheld by Landlord, except that Landlord may in any
event condition its approval of such contractors and subcontractors on the
Tenant's furnishing separate performance and payment surety bonds covering
any work to be performed by such contractors or subcontractors on the
Leased Premises, and Landlord may, in any event, require that contractors
and subcontractors normally employed by Landlord be engaged for any
mechanical or electrical work and that any alterations be done by contractors
or subcontractors compatible with those workmen, contractors and
subcontractors employed from time to time in the Building by Landlord. All
alteration work performed by or for Tenant hereunder must be performed in
such manner to avoid disruption of the Building operations or disturbance of
other tenants in the Building. Unless Landlord requires the Tenant to
restore the Leased Premises as set forth in this Lease, all alterations,
additions or improvements which may be made by either of the parties
hereto upon the Leased Premises, except office furnishings and equipment
-------------
purchased by Tenant which may be removed without damage or destruction to
the Leased Premises, shall be the property of Landlord and shall remain upon
and be surrendered with the Leased Premises as a part thereof at the
termination of this Lease or any extension thereof. Tenant will not permit
any mechanics, laborers or materialmen's liens to stand against the Leased
Premises and will immediately remove all such liens. Landlord may remove
such liens and Tenant shall immediately reimburse Landlord upon demand for
all costs and expenses, including attorney's fees, incurred by Landlord in
removing such mechanic's or materialmen's lien.
9. TENANT EQUIPMENT AND FURNISHINGS. Tenant may install or operate in the Leased
Premises any electrically operated equipment or other machinery which uses
standard 110 volt current and which Landlord determines in its reasonable
judgment to constitute standard office equipment. Tenant shall not install
any other equipment of any kind or nature whatsoever which will or may
require any changes, replacements or additions to or in the use of the
heating, air conditioning, electrical or plumbing systems of the Leased
Premises or the Building without first obtaining the prior written consent
of the Landlord. No plumbing fixtures of any type shall be installed within
the Leased Premises without Landlord's written approval. If Tenant's business
machines and mechanical equipment cause noise or vibration that may be
transmitted to the structure of the Building or to any space therein in such
a degree as to be reasonably objectionable to Landlord or to any tenant in
the Building, then Tenant shall install vibration eliminators or other
devices sufficient to eliminate such noise and vibration at Tenant's cost. If
Tenant uses heat generating machines or equipment (other than standard
office equipment designated by Landlord as set forth above) in the Leased
Premises which affect the temperature in the Leased Premises otherwise
maintained by the air conditioning system furnished by Landlord as set forth
in Section 12, Landlord reserves the right to install or to require Tenant
to install adequate supplementary air conditioning equipment in the Leased
Premises at Tenant's cost.
No furniture, equipment or other bulky items of any description will be
received into the Building or carried in the elevators except as approved
by Landlord. All moving of furniture, equipment and other materials shall be
done during hours previously approved by Landlord or Landlord's agent, be
under the direct control and supervision of Landlord or its agent which
shall not be responsible for any damage to or charges for moving the same.
Tenant shall promptly remove from the public and common areas in the Building
any of the Tenant's furniture, equipment or other material there delivered or
deposited. Landlord shall have the right to limit the weight and prescribe
the position of safes and other heavy equipment or fixtures. In no event will
Tenant be allowed to place a load exceeding fifty (50) pounds per square foot
on any floor of the Building (except a floor on grade) without prior written
consent of Landlord. Any and all damage or injury to the Leased Premises or
the Building caused by moving the property of Tenant in or out of the Leased
Premises, or due to the same being on the Leased Premises, shall be
repaired by and at the sole cost of Tenant.
If any electrical equipment, machinery, plumbing fixtures or other mechanical
equipment installed or used by Tenant in the Leased Premises consume or
require utility service in addition to those services to be furnished by
Landlord pursuant to Section 12, Tenant shall promptly pay, as additional
rent, all charges for such additional utilities and utility service furnished
to the Leased Premises during the term of this Lease. If such utilities
are separately metered to the Leased Premises, Tenant shall pay all such
additional charges directly to the utility company furnishing the same.
To the extent that utilities are furnished to the Leased Premises
--4--
<PAGE>
without separate metering, the amount which may be specially charged to
Tenant for additional utility usage shall be determined by Landlord on the
basis of Landlord's reasonable estimates of consumption by Tenant of such
utilities in the Leased Premises, and on the basis of the costs incurred by
Landlord in purchasing such additional utilities for use in the Building.
Personal Properly Tax. Tenant shall pay all taxes levied against Tenant's
personal properly, of every description, maintained on and used by the
Tenant in connection with the Leased Premises.
10. SERVICES FURNISHED BY LESSOR. Landlord agrees to furnish the following
services to Tenant upon the terms and conditions set forth herein with the
costs for such services being part of the Operating Costs.
A. Heating and Air Conditioning. Landlord agrees to furnish sufficient heat
and air conditioning to provide a temperature condition required in
Landlord's reasonable judgment for comfortable occupancy of the Leased
Premises under normal business operations between 7:00 a.m. and 7:00 p.m.
Monday through Friday and 8:00 a.m. to 1:00 p.m. Saturdays except
holidays. Upon request of Tenant, Landlord will furnish air conditioning
at other times (that is, at times other than the times specified above);
provided, however, Tenant must request such additional services before
2:00 p.m. on the business day prior to the day Tenant desires the same.
If such services are furnished by Landlord at any such other times,
Tenant shall reimburse Landlord for furnishing such services at the rate
of $35.00 per hour for each hour Tenant is present.
B. Lavatory Service. Landlord will provide reasonable sewer service and
water for drinking, lavatory and toilet purposes in the Building.
C. ElectricitY. Landlord agrees to provide 110 volt current electricity to
the Leased Premises.
D. Elevator Service. Landlord will provide passenger elevator service at all
times.
E. Janitor Service. Landlord will provide daily janitor service.
F. Keys and Locks. Landlord shall furnish Tenant with up to ten (l0) keys
--------------
for the lock on each corridor door entering the Premises. Additional keys
will be furnished at a charge by Landlord on an order signed by Tenant or
Tenant's authorized representative. All such keys shall remain the
property of Landlord. No additional locks shall be allowed on any door of
the Premises without Landlord's permission, and Tenant shall not make or
permit to be made any duplicate keys except those furnished by
Landlord. Upon termination of this Lease, Tenant shall surrender to
Landlord all keys to the Premises, and give to Landlord the explanation
of the combination of all locks for safes, safe cabinets and vault
doors, if any, in the Premises; provided, however, Tenant shall place no
safes, safe cabinets or vaults within the Premises without the prior
written consent of Landlord.
G. Graphics. Landlord shall provide and install, at Tenant's cost all
letters or numerals on entrance doors to the Premises; all such letters
and numerals shall be in the building standard graphics, and not others
shall be used or permitted on the exterior of, or which may be visible
from outside, the Premises, without Landlord's consent.
11. NO WARRANTY AS TO SERVICES. Landlord does not warrant that any of the
services it is required to provide under the terms of this Lease will be
free from interruption. Interruption of service shall never be deemed an
eviction or disturbance of Tenant's use and possession of the Leased
Premises or any part thereof, or render Landlord or Landlord's agents or
employees liable to Tenant for damages, or relieve Tenant from performance
of Tenant's obligations under this Lease. Provided, however, that Landlord
will use due diligence to restore the interrupted service as soon as
reasonably possible and, to the extent that the interruption of service is
under the control of Landlord, such interruption will be during non-business
hours as much as possible and for less than ten (10) business days.
-----------------------------------------
12. COMPLIANCE WITH LAW - ENERGY POLICIES. Wherever in this Lease any terms,
covenants or conditions are required to be performed by the Landlord, the
Landlord shall be deemed to have kept and performed such terms, covenants
and conditions notwithstanding any action taken by the Landlord, if such
action is pursuant to any governmental regulations, requirements or
directives. Without limiting the generality of the foregoing, the Landlord
may reduce the quantity and quality of all utility and any other services
and impose such regulations as the Landlord deems necessary in order to
preserve energy. Landlord agrees that its determination hereunder shall in
all instances be reasonable.
13. PERSONAL INJURY - LIMITATION OF LIABILITY AND MUTUAL INDEMNIFICATION
--5--
<PAGE>
(A) Tenant shall indemnify, defend and hold harmless Landlord and its
officers, directors, partners, employees, attorneys and agents,
(collectively, the" Tenant Indemnitees") from and against any and all
liability, claims, demands, causes of action, judgments, costs,
expenses, and all losses and damages for bodily injury, death and
property damage arising from any activity in the Premises even if
resulting from the negligent act or omission, (but not willful
misconduct), of any of the Tenant Indemnitees, and from all costs,
attorney fees and disbursements, and liabilities incurred in the
defense of any such claim. Upon notice from Landlord, Tenant shall
defend any such claim demand, cause of action or suit at Tenant's
expense by counsel satisfactory to Landlord in its reasonable
discretion. The provision of this subsection (A) shall survive the
expiration or earlier termination of this Lease.
(B) Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, partners, employees, attorneys and agents,
(collectively, the "Landlord Indenmitees") from and against any and all
liability, claims, demands, causes of action, judgments, costs,
expenses, and all losses and damages for bodily injury, death and
property damage arising from any activity in or about the Building
(other than the Premises) even if resulting from the negligent act or
omission, (but not willful misconduct), of any of the Landlord
Indemnitees, and from all costs, attorney fees and disbursements, and
liabilities incurred in the defense of any such claim. Upon notice from
Tenant, Landlord shall defend any such claim demand, cause of action or
suit at Landlord's expense by counsel satisfactory to Tenant in its
reasonable discretion. The provision of this subsection (B) shall
survive the expiration or earlier termination of this Lease.
14. PROPERTY DAMAGE - MUTUAL WAIVER OF LIABILITY. Except for specific
obligations to repair damage or destruction to the leased premises as set
forth in this lease, landlord and tenant are hereby mutually released
from any and all claims of any nature now or hereafter arising from or on
account of damage or destruction to the Leased Premises or the Building
or to any personal property of any of the foregoing contained therein or
thereon, whether such damage or destruction is caused by, arises or results
from fire, other perils or any other cause whatsoever. Landlord and Tenant
each agree to look to their respective insurance carriers for protection
against any such damage or destruction to any of their respective real or
personal property and do hereby waive all rights of subrogation.
15. LIABILITY OF LANDLORD LIMITED TO INTEREST IN PROPERTY. In the event of a
default, breach or violation by Landlord (which term includes Landlord's
officers, directors, employees, agents or representatives) of any of
Landlord's obligations under this Lease, Landlord's liability to the
Tenant shall be limited to its ownership interest in the Property.
16. TENANT INSURANCE. Tenant agrees to purchase, in advance, and to carry in
full force and effect, adequate insurance with a carrier acceptable to
Landlord including at a minimum the following interest:
A. "All Risk" fire and casualty insurance, including endorsements for
extended coverage, vandalism and malicious mischief, and water damage
covering the full replacement value of all of Tenant's fixtures and
personal property owned by Tenant that Tenant has a right to remove
from the Leased Premises at the termination of the Lease.
B. Commercial Liability Insurance covering all acts of Tenant, within the
Leased Premises and the Building in a total combined single limit
coverage amount of not less than $1,000,000 for personal injury, death
and property damage.
C. Such other or additional insurance coverage as Landlord shall, from time
to time, deem reasonably necessary, notice of which shall be given to
Tenant.
D. Such insurance policies shall, unless Landlord shall otherwise agree,
include a waiver of subrogation endorsement.
All such insurance shall name Landlord as an additional insured and shall
not be cancelable within less than thirty (30) days written notice to
Landlord by the insurer. Certificates of all such insurance shall be
delivered to the Landlord prior to the occupancy of the Leased Premises by
Tenants at least thirty (30) days prior to the termination date of any
existing policy.
17. FIRE OR OTHER CASUALTIES. If the Building is substantially damaged or
destroyed by fire or other casualty, the Landlord shall have the right to
terminate this Lease, provided it gives written notice thereof to the
Tenant within ninety (90) days after such damage or destruction. If a
portion of the Leased Premises is damaged by fire or other casualty, and
Landlord elects not to terminate this Lease, the Landlord shall within a
reasonable time and at its own expense, restore the Leased Premises,
exclusive of any alterations or other changes made to the Leased Premises
at any time by or at the direction or request of Tenant, to as near the
condition which existed immediately prior to such damage or destruction as
reasonably possible. In the event Landlord so elects to restore the Leased
Premises, rent shall abate during such period of time as the Leased Premises
are unusable in proportion that the unusable portion of the Leased
Premises shall bear to the entire Leased Premises. If the substantial
destruction to the Building or to that portion of the Building subject to
this Lease and the Leased Premises cannot be substantially restored within
180 days from the time of such damage or destruction, then the Tenant
shall have the right to terminate this Lease. The Landlord shall not be
--6--
<PAGE>
responsible to the Tenant for damages to or destruction of any furniture,
equipment, alterations or other changes made or installed in, on or about
the Leased Premises regardless of the cause or the damage or destruction.
18. EMINENT DOMAIN. If the entire Building or that portion of the Building
which includes all or substantially all of the Leased Premises is
permanently taken by eminent domain, this Lease shall automatically
terminate as of the date of such taking. If any portion of the Building is
taken by eminent domain, Landlord shall also have the right to terminate
this Lease by giving written notice thereof to Tenant within ninety (90)
days after the date of taking. If only a portion of the Leased Premises is
taken by eminent domain and Landlord elects not to terminate this Lease,
Landlord shall, at its expense, restore the Leased Premises, exclusive of
any improvements or other changes made to the premises by Tenant, to as
near the condition which existed immediately prior to the date of taking as
reasonably possible. Rent shall abate during such period of time as the
Leased Premises are unusable in proportion that the unusable portion of the
Leased Premises shall bear to the entire Leased Premises and upon completion
of restoration necessary adjustments shall be made in the Annual Base
Rent, additional rent or other costs to reflect a reduction in the size of
the Leased Premises and/or the total rentable area of the Building. Tenant
shall have no right to any of the award or payment made in connection with
such taking provided, however, that Tenant shall be entitled to recover any
separate amount for Tenant fixtures and/or relocation costs provided under
appropriate statutes, ordinances or regulations. Tenant shall have the
---------------------
right to pursue compensation in connection with any such taking provided
------------------------------------------------------------------------
that any award to which Landlord is entitled shall not be reduced as a
----------------------------------------------------------------------
result thereof.
---------------
19. RULES AND REGULATIONS. Tenant shall use the Leased Premises and the public
and common areas in the Building in accordance with such roles,
regulations and procedures as may, from time to time, be made by, the
Landlord for the general safety, comfort and convenience of the owners,
occupants and tenants of the Building and shall cause Tenant's
employees and invitees to abide by such rules and regulations.
20. WASTE. Tenant shall use due care in the use of heat, water and
electricity, the use of the Leased Premises and the public and common
areas in the Building and without qualifying the foregoing, shall not
neglect or misuse water fixtures, electric lights and heating.
21. RUBBISH AND DEBRIS. No rubbish, dirt, overshoes, mats, umbrellas or objects
of any kind shall be put in the public or common areas in the Building
by Tenant.
22. HAZARDOUS SUBSTANCES.
A. Tenant hereby represents that Tenant uses only those Hazardous Materials
(as defined below) set forth on Exhibit C hereto, in the conduct of its
business on the Premises. Otherwise, Tenant does not and shall not use
or permit the use of the Premises for any purpose relating to the
storage and use of Hazardous Materials. Tenant shall not, in any event,
generate, manufacture, produce, release, discharge or dispose of on, in
or under the Premises or the property of which the Premises are a part
(the "Property"), or transport to or from the Premises or the Property,
any Hazardous Materials, or allow any other person or entity to do so.
B. Tenant shall comply with all local, state or federal laws, ordinances or
regulations relating to Hazardous Materials and above ground and
underground storage tanks on, in, under or about the Premises.
C. Tenant and/or Landlord shall promptly notify the other should Tenant
--------------- ---------
and/or Landlord receive notice of or otherwise become aware of any (i)
---------------
pending or threatened environmental regulatory action against Tenant,
the Premises or the Property; (ii) claims made or threatened by any
third party relating to any loss or injury resulting from any Hazardous
Material; or (iii) release or discharge or threatened release or
discharge of any Hazardous Material in, on, under or about the Premises
or the Property.
D. Tenant and/or Landlord shall promptly deliver copies of any documents
---------------
relating to any governmental proceeding relating to Hazardous Materials
and all engineering reports, test reports and laboratory analyses
concerning the Hazardous Materials to the other party.
----------------
E. Tenant shall promptly and thoroughly investigate suspected Hazardous
Materials contamination of the Premises or the Property or the ground
water of the Property, resulting from Tenant's use of the Premises.
F. Upon reasonable request, Landlord shall have the right, at Tenant's
------------------------
expense, to require an audit of Tenant's operation on the Premises to
ensure compliance with environmental laws and regulations and this
Section 22. Upon receipt of written notice from Landlord, Tenant shall
promptly correct any violations and/or deficiencies cited in the audit.
G. If an Event of Tenant Default occurs, Landlord, at Tenant's expense,
------
shall have the right to cause to be conducted an investigation of the
Premises for Hazardous Materials and Tenant shall forthwith remove,
repair, clean up or detoxify any Hazardous Materials from the Premises,
the Property, or ground water of the Property resulting from Tenant's
use, whether or not such actions are required by law.
--7--
<PAGE>
H. Tenant shall permit Landlord or its agents to inspect the Premises at any
reasonable times and agree to fully cooperate with Landlord in determining
compliance with this Section 22.
I. Tenant shall protect, indemnify and hold harmless Landlord, its
directors, officers, employees, agents, successors and assigns from and
against any and all loss, damage, cost, expense or liability (including
attorney's fees and costs) arising directly or indirectly out of Tenant's
use of the Premises, or from the conduct of Tenant's business or
attributable to Tenant's failure to comply with this Section 22, including
without limitation (i) all foreseeable consequential damages; and (ii) the
costs of any required or necessary repair, clean up, or detoxification of
the Premises or the Property and the preparation and implementation of any
closure, remedial or other required plans. This indemnity shall survive
termination or cancellation of this Lease for any reason.
J. "Hazardous Materials" shall mean any flammable explosives, radioactive
materials, hazardous wastes, toxic substances or related materials,
including, without limitation, any substance defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "toxic substances", "contaminants" or "pollutants" under any
applicable federal or state laws or regulations.
23. VENDING MACHINES. No vending machines shall be installed in the Leased
Premises without the written consent of Landlord.
24. LESSOR'S RIGHT TO ENTER PREMISES. Landlord, or its authorized agents or
attorneys, may at any reasonable time, during normal business hours with
prior notice except in cases of emergency, enter the Leased Premises to
inspect, make repairs and improvements and/or changes in the Leased Premises
or other premises in the Building as Landlord may deem proper. Landlord's
reserved rights hereunder shall include, without limitation, free
unhampered and unobstructed access to Building airways, equipment ducts,
under floor heater ducts, stairways, access panels and all cleaning and
utility services. There shall be no diminution of rent or injury to
business caused by Landlord's exercise of the rights reserved by Landlord
in this paragraph.
25. SECURITY OF LEASED PREMISES. Tenant assumes full responsibility for
protecting the Leased Premises from theft, robbery and pilferage, which
includes keeping doors locked and other means of entry to the Leased
Premises closed and secured after normal business hours.
26. REPAIRS. Tenant shall promptly pay to Landlord upon request an amount equal
to any cost incurred by Landlord in repairing the Leased Premises and/or
public and common areas in the Building when such repairs were made
necessary by the negligence or of misuse by the Tenant.
27. LEASE TO BE SUBORDINATE. Landlord may cause this Lease to be made subject
and subordinate to all ground or underlying leases, mortgages and
restrictions which may now or hereafter affect the Building and to all
renewals and extensions thereof. For confirmation of such subordination,
Tenant shall execute promptly any subordination agreement requested by
Landlord. Tenant hereby irrevocably constitutes and appoints Landlord as
Tenant's agent to execute any such subordination agreement or agreements for
or on behalf of Tenant. Such subordination is subject to Tenant enjoying the
quiet possession of the Leased Premises if any Ground Landlord or Mortgagee
becomes landlord hereunder provided that Tenant is not then in default
hereunder or does not default in the future. Landlord shall utilize best
efforts to obtain a Non-Disturbance Agreement from existing Lender. Non-
Disturbance Agreement from future lender is conditioned upon subordination
agreement from Tenant.
28. BROKERAGE. Tenant and Landlord respectively represent and warrant to the
other that no brokers were retain, used or referred to with respect to this
Lease and/or leasing, except for BGK Asset Management Corp. who represents
Landlord, and no other claims for commissions or fees are valid or warranted
with respect to our connection with this Lease and that each shall defend,
indemnify and hold the other harmless from any and all costs, claims or
causes of action for such commissions or fees resulting from its own acts.
29. ESTOPPEL CERTIFICATE. Tenant agrees that at any time and from time to
time upon not less than five (5) days prior written notice by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing:
A. Certifying that this Lease is unmodified and in full force and effect if
there have been modifications, that this Lease is in full force and
effect as modified and stating the modifications.
B. Stating the dates to which the rent and other charges hereunder have
been paid by Tenant.
C. Stating whether or not, to the best knowledge of Tenant, Landlord is in
default in the performance of any covenants, agreements or conditions
contained in this Lease and if so, specifying each such default of which
Tenant may have knowledge.
D. Responding to such other matters as Landlord reasonably requests. Any
such statement delivered pursuant hereto may be relied upon by any owner
or prospective purchaser of the Building, any
--8--
<PAGE>
prospective mortgagee of the Building or Landlord's interest therein or
any prospective assignee of any such mortgagee.
30. TENANT TO SURRENDER PREMISES IN GOOD CONDITION. Upon the expiration or
termination of the lease term, Tenant shall at its expense:
A. Remove Tenant's goods and effects and those of all persons claiming
through Tenant;
B. Quit and deliver up the Leased Premises to Landlord peaceably and
quietly in as good order and condition as the same were on the date the
lease term commenced or were thereafter in place by Lessor, reasonable
wear and tear and damages from fire and other casualties excepted; and
Any property left in the Leased Premises after the expiration or termination
of the Lease Term shall be deemed to have been abandoned and shall be deemed
the property of Landlord to be disposed of as Landlord sees fit.
31. HOLDING OVER. Tenant agrees that no holding over by Tenant after the
expiration of this Lease Agreement whether with or without the consent of
Landlord, shall operate to extend and renew this Lease Agreement. The
monthly rental which had been payable at the time immediately prior to such
holding over times 1.50 shall be the monthly rental rate for any additional
period. Such tenancy shall be subject to all the terms and conditions of
this Lease. Upon holding over, Tenant's month-to-month tenancy shall
continue until such tenancy shall be terminated by Landlord or until said
Tenant shall have given to Landlord a written notice of at least one (1)
month prior to the date of the termination of such monthly tenancy of his
intention to terminate such tenancy and shall, at the expiration of such
month, have vacated and surrendered possession of said premises to said
Landlord.
32. DEFAULT. The occurrence of any of the following events shall constitute a
default by Tenant under this Lease:
A. If Tenant shall fail to pay any amounts to be paid by it hereunder,
including but not limited to Base Annual Rent and additional rent and
such default shall continue for a period of seven (7) days after Landlord
has given Tenant written notice of such failure to pay; or
B. If Tenant fails to perform or observe any of Tenant's other obligations,
covenants or agreements herein or hereunder, and such failure shall
continue for a period of twenty (20) days after Landlord has given Tenant
written notice thereof; or
C. If Tenant makes a general assignment for the benefits of creditors, or,
subject to the rights of a Trustee in Bankruptcy files, or has filed
against it, a petition in bankruptcy under the Bankruptcy Reform Act of
1978 or under any other applicable law of the United States of America or
any state thereof, consents to the appointment of a trustee or receive
for Tenant or for its property, or if Tenant takes any action for the
purpose of effecting or consenting to any of the foregoing; or
D. The abandonment or vacating of the Premises by Tenant.
Upon the occurrence of any of the foregoing defaults, Landlord may, but with no
obligation to do so, immediately re-enter the Leased Premises and remove all
persons and property therefrom. Landlord shall have the right to keep this Lease
in full force and effect, or, at its option, terminate this Lease as to all
future rights of Tenant. Tenant hereby expressly waives the service of any
notice in writing of Landlord's intent to re-enter the Leased Premises. Tenant
shall be liable to Landlord against all loss of rents and other damages which it
may incur by reason of such default, including all attorney's fees and expenses
incurred in enforcing any of the terms or this Lease. If Tenant defaults before
expiration or termination of the term of this Lease, and Landlord elects to
terminate this Lease, Landlord may accelerate Tenant's financial obligation
hereunder; upon such acceleration, the entire Annual Base Rent and additional
rent and other costs as reasonably determined by the Landlord due for the
balance of the term hereof shall be immediately due and payable. In the event
Landlord re-enters the Leased Premises as set forth herein, and, whether it
elects to keep this Lease in effect or terminate it, Landlord may re-let the
Leased Premises for such rent and upon such terms as are not unreasonable under
the circumstances. In such event, Tenant also shall be liable for all costs,
expenses and damages incurred or sustained by Landlord in re-letting the Leased
Premises including, without limitation, deficiency in rent, attorney's fees,
expenses of placing the Leased Premises in first class rentable condition,
brokerage fees, tenant allowances, improvements or payment of any other tenant
inducement. Landlord shall have the right to commence one or more actions to
enforce the terms hereof and the commencement and prosecution of one action
shall not be deemed a waiver or an estoppel from commencing one or more actions
from time to time in the future. Provisions contained in this section shall be
in addition to and shall not prevent the enforcement of any claim Landlord may
have against Tenant for anticipatory breach of the unexpired term of this Lease.
All rights and remedies of Landlord under this Lease shall be cumulative and
shall not be exclusive of any other rights and remedies provided to Landlord
under applicable law.
33. RIGHT TO CURE DEFAULTS. If Tenant defaults in the observance or performance
of any of Tenant's covenants, agreements or obligations hereunder wherein
the default can be cured by the expenditure of money,
--9--
<PAGE>
Landlord may, but without obligation, and without limiting any other
remedies which it may have by reason of such default, cure the default,
charge the cost thereof to Tenant and Tenant shall pay the same forthwith
upon demand. If Landlord is required to commence a legal action to recover
such sums from the Tenant, Landlord shall also have the right to recover all
interest costs (two percent (2%) above prime) and attorney's fees in
------------------------------
connection with such litigation.
34. USE OF THE TERMS "LANDLORD" AND "TENANT". The terms "Landlord" and "Tenant"
wherever use in this Lease, shall be construed to mean plural in all cases
where there is more than one Landlord or Tenant and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships or individuals, men or women, shall in all cased
be assumed as though in each case fully expressed. In addition, where
relevant in this Lease and especially in connection with the provisions of
this Lease relating to personal injury, limitation of liability,
indemnification, property damage and insurance, "Landlord" shall mean
Landlord, its respective employees, agents, invitees, licensees, customers,
clients, partners and shareholders and "Tenant" shall man its employees,
agents, business invitees, licensees, customers and clients, family members,
guests, trespassers, partners and shareholders.
35. LANDLORD'S CONSENT. Unless it is expressly stated herein that, as to any
particular required consent, Landlord's consent shall not be unreasonably
withheld, Landlord's consent need be given only at Landlord's sole
discretion.
36. EXECUTION BY LESSOR. Submission of this instrument to Tenant, or Tenant's
agents or attorneys, for examination or signature does not constitute or
imply an offer to lease, reservation of space, or option to lease, and this
Lease shall have no binding effect until execution hereof by both Landlord
and Tenant.
37. CONTINUANCE OF AGREEMENT. This Agreement shall be binding upon and inure for
the benefit of the parties hereto and subject to the restrictions and
limitations herein contained, their respective heirs, successors and
assigns.
39. SEVERABILITY. The provisions of this Lease are expressly severable, and
the unenforceability of any provision or provisions hereof shall not
affect or impair the enforceability of any other provision or provisions.
40. MEMORANDUM LEASE. Tenant and Landlord shall, upon the written request of the
other, execute a memorandum or short form lease, in a form suitable for
recording. Said Memorandum Lease shall be dated on the date and year of the
execution of this Lease and shall disclose the parties, the terms of the
Lease, the legal description of the Demised Premises and may contain, in
addition to the foregoing, such other terms and conditions as Landlord or
Tenant, as the case may be, may require.
41. WAIVER OF COVENANTS. Failure of Landlord to insist, in any one or more
instances, upon strict performance of any term, covenant or condition of
this Lease, or to exercise any option herein contained, shall not be
construed as a waiver, or a relinquishment for the future of such term,
covenant, condition or option, but the same shall continue and remain
in full force and effect. The receipt by Landlord of rents wills knowledge
of a breach in any of the terms, covenants and conditions of this Lease to
be kept or performed by Tenant shall not be deemed a waiver of such
breach, and Landlord shall not be deemed to have waived any provision of
this Lease unless expressed in writing and signed by Landlord.
42. NOTICES. Any notice or demand which, under the terms of this Lease or
under any statute must or may be given or made by the parties hereto, shall
be in writing, and may he given or made by personal delivery or mailing the
same by registered mail, addressed to the other party at the address
mentioned below. Either party, however, may designate in writing such new
or other address to which such notice or demand shall hereafter be so
given, made or mailed. Any notice given hereunder by mail shall be deemed
delivered when deposited in the United States mails, certified mail, return
receipt requested, postage prepaid, and addressed as herein provided:
Landlord: G & P Resorts, Inc.
-------------------
BGK ASSET MANAGEMENT CORP.
6301 Indian School Road NE, Ste. 890
Albuquerque, NM 87110
Tenant: To the Premises
--10--
<PAGE>
43. RIGHT TO RELOCATE. If the Premises are less than 2,000 square feet in
area, Landlord reserves the right, at its option and upon given thirty (30)
days notice to Tenant, to transfer and remove Tenant from the Premises to
any other available space in the Building of equal size and area. Landlord
shall bear the expense of moving Tenant's furniture, fixtures, telephone
service, and other personal property as well as the expense of any
renovations or alterations necessary to make the new space similar in
arrangement and layout to the original Premises.
44. AMENDMENTS. This Lease may be amended only by a writing executed by both
parties hereto.
45. MISCELLANEOUS. This Lease shall be construed according to the laws of the
State of New Mexico. The captions in this Lease are for convenience only
and are not part of this Lease.
46. REPRESENTATIONS. This Lease constitutes the final agreement of the parties
hereto and supersedes all negotiations, representations or agreements,
whether written or oral, made prior to the execution hereof. Landlord makes
no representations or warranties regarding the Leased Premises or of
Landlord's or Tenant's rights, obligations, or duties with respect thereto
other than those expressly set forth in this Lease. By execution of this
Lease, Tenant acknowledges that no representations or warranties have been
made by Landlord (or Landlord's agents, representatives, or employees, or by
anyone acting on behalf of Landlord or under contract with Landlord) upon
which Tenant has relied in executing this Lease other than such
representations or warranties that are expressly set forth herein.
47. ATTORNEY'S FEES. In any proceeding brought by either Landlord or Tenant
-----------------------------------------------------------------------
against the other relating to this Lease, a reasonable attorney's fee to
------------------------------------------------------------------------
be fixed by the court in such proceeding, shall be added to and made a part
---------------------------------------------------------------------------
of the costs recovered in such proceeding by the prevailing party therein.
--------------------------------------------------------------------------
48. TIME. It is understood and agreed between the parties hereto that time is
of the essence in all of the terms and provisions of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant respectfully have duly signed and sealed
these presents the day and year first above written.
LANDLORD
BGK ASSET MANAGEMENT CORP.
Agent for G&P Resorts, Inc.
---------------------------
DATE: 8/12/97 By: /s/ Linda C. Gutierrez
------------------------- -----------------------------
Linda C. Gutierrez, President
TENANT
N.M. MORTGAGE COMPANY, INC.
DATE: By: /s/ Ron Baca
------------------------- -----------------------------
Ron Baca, President
--11--
<PAGE>
STATE OF NEW MEXICO )
----------- )SS.
COUNTY OF BERNALILLO )
----------
It is hereby acknowledged that,the above Lease was sworn to and executed
before me on this 11th day of August, 1997 by Ron Baca as President of or and on
behalf of N.M. Mortgage Company Inc. Tenant.
/s/ Notary Public
-------------------
Notary Public
My Commission Expires:
1/4/97
- ----------------------
[Official Seal of Notary Public]
STATE OF NEW MEXICO )
------------ )SS.
COUNTY OF BERNALILLO )
-----------
It is hereby acknowledged that,the above Lease was sworn to and executed
before me on this 12th day of Aug. 1997, by Linda C. Gutierrez as President of
or and on behalf of BGK Asset Management Corp.
/s/ Genoveva R. Keith
---------------------
Notary Public
My Commission Expires:
July 21, 1998
- ----------------------
--12--
<PAGE>
Exhibit 10.8
SUBLEASE AGREEMENT
By and Between
The Ryland Group, Inc.
and
Loraca International, Inc.
This Sublease is entered into this 14th day of June, 1999, between The Ryland
Group, Inc., a Maryland Corporation ("Sublessor") and Loraca International,
Inc., A Nevada Corporation ("Sublessee")
Sublessor is the Tenant under a Lease from AAA Oregon ("Landlord"), dated April
25, 1997 (the "Lease"). The Lease covers property in the building located at Six
SW CenterPointe Drive, Suite 360. Lake Oswego, OR 97035. A complete copy of the
Lease is attached hereto as Exhibit A.
Sublessee wishes to sublease from Sublessor all of the premises covered by the
Lease.
NOW, THEREFORE, Sublessor hereby subleases the premises described in the
attached Exhibit B as part of Exhibit "A" (the "Premises"), an area of
approximately 4,023 square feet, and Sublessee agrees to sublease the Premises
from Sublessor on the following terms:
1. Term The term of this Sublease shall commence to occur
the later of:
A: June 19, 1999 or
B: 15 days after Landlord approval,
and shall continue through and including June 30, 2002 as
stated in the Lease.
2. Rent Sublessee shall pay to Sublessor base rent in accordance
with the following schedule:
<TABLE>
<S> <C>
June 1999 $206.73 per day upon occupancy.
July 1999 - February 2000 $6,202.00 per month full service.
March 2000 Free
April 2000 - June 2000 $6,202.00 per month full service.
July 2000 - December 2001 $6,537.00 per month full service.
January 2001 Free
February 2001 - October 2001 $6,537.00 per month full service.
November 2001 Free
December 2001 - April 2002 $6,537.00 per month full service.
May 2002 Free
June 2002 $6,537.00 per month full service.
</TABLE>
Rent is payable in advance on the first (1/st/) day of each
month in accordance with the Lease terms. Sublessee shall pay
to the Sublessor all rent, operating expenses, and other
charges required to be paid by Sublessor under the Lease.
3. Sublease Sublessee shall pay the sum of $6.537.00 to the Sublessor,
upon execution of this Sublease, as Sublease consideration to
be applied as last months rent. Sublessor may apply the
sublease consideration to pay the cost of performing any
obligation which Sublessee fails to perform within the time
required by this Sublease, but such application by Sublessor
shall not be the exclusive remedy for Sublessee's default. If
the sublease consideration is applied by Sublessor, Sublessee
shall on demand pay the sum necessary to replenish the
sublease consideration to its original amount. To the extent
not applied by Sublessor to cure defaults by Sublessee, the
sublease consideration shall be applied against the rent
payable for the last month of the term. The sublease
consideration shall not he refundable.
1
<PAGE>
4. Obligations Sublessee shall perform all of the obligations of Tenant
of Sublessee under the Lease (except the obligation to pay rent and
other obligations inconsistent with this Sublease) as if
Sublessee were the Tenant under the Lease and Sublessor
was the Landlord under the Lease. The terms of the Lease
are hereby expressly incorporated as part of this
Sublease. In the event Sublessee fails to comply with such
terms, or the terms of this Sublease, Sublessor shall be
entitled to all of the remedies granted to Landlord in the
Lease, together with any other rights Sublessor might
otherwise have. All provisions in the Lease dealing with
indemnity and liability shall be applicable as between
Sublessor and Sublessee and Sublessee and the Landlord
under the Lease. Sublessee shall name both Sublessor and
the Landlord and Landlord's managing agent under the Lease
as named insured in the insurance policies it is required
to obtain hereunder.
5. Representations Sublessor represents and warrants that the Lease is in
of Sublessor good standing and that Sublessor has, to the best of its
knowledge, complied with all of its obligations thereunder
through the date hereof. So long as Sublessee is not in
default hereunder, Sublessor shall make all rental and
other payments required by the Lease.
6. Condition of Unless otherwise expressly provided herein, the Premises
Premises are leased as is in the condition now existing with no
additional work to be performed by Sublessor or Landlord.
(Sublessee has the right to use the existing phone switch
and equipment located in Suite 360 through the end of this
sublease period.)
7. Notices With respect to notices between Sublessor and Sublessee,
the addresses for notice shall be the addresses stated in
this Sublease.
8. Additional This Sublease incorporates the terms and conditions
Provisions contained in the following Exhibits: Exhibit A - The Lease
2
<PAGE>
IN WITNESS THEREOF, the parties have executed this Sublease as of the date
first above written.
SUBLESSOR:
Address for notices:
<TABLE>
<S> <C>
Brian P. McGowan, Vice President, Financial Operations By: Brian P. McGowan
The Ryland Group, Inc., A Maryland Corporation --------------------------------------
21800 Burbank Blvd., Suite 300 Its: Vice President, Financial Operations
Woodland Hills, CA 91367 --------------------------------------
Signature: /s/ Brian P. McGowan
--------------------------------------
Date: 6/14/99
--------------------------------------
SUBLESSEE:
Address for notices:
Bernard A. Guy By: Bernard A. Guy
Loraca International, Inc., A Nevada Corporation --------------------------------------
c/o New Mortgage Millenium Its: Vice President
6 SW CenterPointe Drive, Suite 360 --------------------------------------
Lake Oswego, OR 97035 Signature: /s/ Bernard A. Guy
--------------------------------------
Date: 6/16/99
--------------------------------------
</TABLE>
CONSENT
The undersigned Landlord under the Lease hereby consents to the foregoing
Sublease conditioned upon the following to which Sublessor agrees:
1. Sublessee's agreement to perform Sublessor's obligations under the Lease
during the Sublease term is for the benefit of both Sublessor and Landlord.
2. Sublessee's agreements to perform such obligations shall not relieve
Sublessor of its primary and unconditional liability for payment of rental
and other charges and performance of Sublessor's obligations as Tenant under
the Lease during the full term of the Lease.
<TABLE>
<S> <C>
LANDLORD: SUBLESSOR:
By: Roger L. Graybeal By: Brian P. McGowan
---------------------------- ---------------------------------------
Its: President Its: Vice President, Financial Operations
---------------------------- ---------------------------------------
Signature: /s/ Roger L. Graybeal Signature: /s/ Brian P. McGowan
---------------------------- ---------------------------------------
Date: 6/18/99 Date: 6/14/99
---------------------------- ---------------------------------------
</TABLE>
3
<PAGE>
EXHIBIT 10.9
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of
December 30, 1998 (the "Effective Date"), by and among NMMC, Inc., a New Mexico
corporation ("Seller"), and Raeaca Corp., a New Mexico corporation ("Buyer").
A. Seller is engaged in the business of mortgage banking (the
"Business").
B. Seller and Buyer desire to provide for the sale and transfer to Buyer
of certain of the assets used in connection with the operation of the Business.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Assets. Subject to and in reliance upon the representations,
------
warranties and agreements herein set forth, and subject to the terms and
conditions herein contained, Seller agrees to sell, assign, transfer and deliver
to Buyer on the Closing Date (as hereinafter defined), and Buyer agrees on the
Closing Date to purchase, (i) all of Seller's right, title and interest in those
certain assets set forth on Schedule 1.1 attached hereto; and (ii) any and all
------------
claims, choses in action, and rights against third parties if and to the extent
that they relate to the Assets (collectively, the "Assets").
1.2 Liabilities.
-----------
(a) The Assets shall be sold and conveyed to Buyer free and
clear of all debts, mortgages, liens, deeds of trust, security interests,
pledges, restrictions, prior assignments, charges, claims, defects in title and
encumbrances of any kind or type whatsoever (collectively, the "Security
Interests") except: (i) for liens for taxes not yet due and payable; and (ii)
for those obligations of Seller, if any, which Buyer expressly assumes at the
Closing as set forth on Schedule 1.2 attached hereto. The Security Interests
------------
referred to in the foregoing clauses (i) and (ii) are collectively referred to
herein as "Permitted Encumbrances."
(b) Except as otherwise specifically provided herein, Buyer
shall not assume or be liable for any other liability or obligation of Seller
relating to or arising out of the Assets. Seller shall retain and shall
hereafter pay, satisfy, and fulfill all such obligations and liabilities
relating to or arising out of the Assets not expressly assumed by Buyer
hereunder as they become due, without any charge or cost to Buyer, and Seller,
hereby agrees to indemnify
<PAGE>
and hold Buyer and its successors and assigns harmless from and against any and
all such liabilities in accordance with the terms of Article IX below.
1.3 Purchase Price and Method of Payment. The purchase price to
------------------------------------
be paid for the Assets shall be Five Hundred Thousand Dollars ($500,000) (the
"Purchase Price"). The Purchase Price shall be satisfied in full through the
assignment by Buyer to Seller of that certain Series 1995-B Bond number H195-B,
in the face amount of One Million Eighty-Three Thousand Five Hundred Sixty-Nine
and 48/100 Dollars ($1,083,569.48) (the "Bond"), by execution and delivery to
the Seller of the Irrevocable Bond Power in the form attached hereto as Exhibit
-------
A. Notwithstanding the foregoing, Buyer shall expressly retain all right, title
- -
and interest in and to all interest generated by the Bond (the "Interest") for a
period of sixty (60) months following the Closing Date hereof (the "Interest
Period"). Thereafter Seller shall be entitled to all Interest. Seller shall in
good faith assist Buyer in obtaining the Interest due to Buyer during the
Interest Period. The allocation of the Purchase Price among the Assets shall be
as specified at Schedule 1.3 hereto. Buyer and Seller each further agree to
------------
reflect such allocation in any tax returns they file.
1.4 Closing. The date, place and the time of Closing (herein
-------
referred to as the "Closing Date") shall be December 30, 1998 at 10:00 A.M. at
the offices of Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1600,
San Diego, California 92121.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth on the Schedule of Exceptions attached as Exhibit
-------
B hereto, as of the Closing Date Seller represents and warrants to Buyer as
- -
follows:
2.1 Status and Authority. Seller is a corporation duly
--------------------
organized, validly existing and in good standing under the laws of the State of
New Mexico . Seller is duly qualified to do business in California and each
other state in which it does business and is in good standing in each such
jurisdiction. Seller has the requisite authority to enter into and complete the
transactions contemplated by this Agreement.
2.2 Necessary Action. All actions and proceedings necessary to
----------------
be taken by or on the part of Seller in connection with the transactions
contemplated by this Agreement have been duly and validly taken, and this
Agreement has been duly and validly authorized, executed, and delivered by
Seller and constitutes the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with and subject to its terms.
2.3 No Defaults. Neither the execution, delivery and performance
-----------
by Seller of this Agreement nor the consummation by Seller of the transactions
contemplated hereby is an event that, of itself or with the giving of notice or
the passage of time or both, will: (a) conflict with the provisions of the
articles of incorporation, as amended, bylaws, as amended, or other
organizational documents of Seller; (b) constitute a violation of, conflict with
or result in any
<PAGE>
breach of or any default under, result in any termination or modification of, or
cause any acceleration of any obligation under, any contract, mortgage,
agreement, lease or other instrument to which Seller is a party, or by which any
of the Assets may be affected, or result in the creation of any Security
Interest upon any of the Assets; (c) violate any judgment, decree, order, law,
rule or regulation applicable to Seller, the Business or any of the Assets; or
(d) result in the creation or imposition of any lien, charge or encumbrance
against the Assets.
2.4 Breach. Seller is not in violation or breach of any of the
------
terms, conditions or provisions of any mortgage or deed of trust or other
contract, lease, instrument, court order, judgment, arbitration award, or decree
relating to or affecting the Assets and Seller has not received any notices of
such violations or breaches.
2.5 Liabilities. There are no liabilities or obligations of
-----------
Seller relating to the Assets, whether known or unknown, due or not yet due,
liquidated or unliquidated, fixed, contingent or otherwise, including penalty,
acceleration or forfeiture clauses in any contract.
2.6 Taxes and Fees. Seller has filed all applicable federal,
--------------
state, local and foreign tax returns required to be filed to date, in accordance
with provisions of law pertaining thereto, and has paid all taxes, interest,
penalties and assessments (including without limitation income, withholding,
excise, unemployment, Social Security, occupation, transfer, franchise,
property, sales and use taxes, import duties or charges, regulatory fees and all
penalties and interest in respect thereof) required to have been paid to date
with respect to or involving the Business or the Assets. Seller has not been
advised that any of its tax returns, have been or are being audited as of the
date hereof.
2.7 Compliance. All reports and filings required to be filed by
----------
Seller with respect to the Assets have been timely filed. All such reports and
filings are accurate and complete, and from the date hereof will be filed on a
timely basis. Seller is not aware of any facts and Seller has not received any
communication from any governmental authority indicating that Seller is not in
compliance with all requirements of applicable statutes, regulations and
ordinances.
2.8 Approvals and Consents. The only approvals or consents of
----------------------
persons or entities not a party to this Agreement that are legally or
contractually required to be obtained by Seller in connection with the
consummation of the transactions contemplated by this Agreement are those which
are listed and described on Schedule 2.8. Except as set forth in the preceding
------------
sentence, no permit, license, or authorization of, or filing with, any
governmental regulatory authority or agency is required in connection with the
execution, delivery and performance of this Agreement, or the consummation of
the transactions contemplated hereby.
2.9 Condition of Assets. Except as listed and described on
-------------------
Schedule 2.9: (i) Seller has good, valid and marketable title to all of the
- ------------
Assets, in each case, free and clear of all Security Interests of every kind or
character (other than Permitted Encumbrances); (ii) all accounts receivable are
bona fide, current and collectable, and arose in the ordinary course of business
and (iii) all of the Assets are in good operating condition and repair, ordinary
wear and
<PAGE>
tear excepted, are free from defects and damage, have been maintained in
accordance with industry standards, do not require any repairs other than normal
routine maintenance, are functioning in the manner and for the purposes for
which they were intended. Seller shall convey to Buyer at the Closing good and
marketable title to the Assets, subject only to Permitted Encumbrances.
2.10 Compliance with Law and Regulations. The Assets and Seller
-----------------------------------
(with respect to the Assets) are in compliance in all material respects with all
requirements of law, and all requirements of all governmental bodies or agencies
having jurisdiction over any of them, the operation of the Business and the use
of its properties and assets (including the Assets). Without limiting the
foregoing, Seller has paid all monies and obtained all licenses, permits and
authorizations necessary or required for the operation of the Business and the
use of the Assets. Seller has properly filed all reports and other documents
required to be filed with any government or subdivision or agency thereof.
Seller has not received any notice, not heretofore complied with, from any
federal, state or municipal authority or any insurance or inspection body that
any of its properties, facilities, equipment or business procedures or practices
fails to comply with any applicable law, ordinance, regulation or requirement of
any public authority or body.
2.11 Litigation. There are no suits, judgments, arbitrations,
----------
administrative charges or other legal proceedings, claims or governmental
investigations pending against, or to any Seller's knowledge, threatened
against, the Business or Seller relating to or affecting the Assets nor, is
there any basis for any such suit, arbitration, administrative charge or other
legal proceeding, claim or governmental investigation. Seller has not been
operating under or subject to, or in default with respect to, any order, writ,
injunction or decree of any court or governmental department, commission, board,
agency or instrumentality.
2.12 Brokers. There is no broker or finder or other person, who
-------
would have any valid claim against any of the parties to this Agreement for a
commission or brokerage fee or payment in connection with this Agreement or the
transactions contemplated hereby as a result of any agreement of, or action
taken by, Seller.
2.13 Accuracy of Information. No statement made by any Seller
-----------------------
and no information provided by Seller to Buyer contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein or herein not
misleading. Seller is not aware of any impending or contemplated occurrence or
event that would cause any of the representations and warranties contained
herein not to be true and complete on the date of such event as if made on that
date.
2.14 Insolvency Proceeding. No insolvency proceeding of any
---------------------
character, including, without limitation, bankruptcy, receivership,
reorganization, composition or arrangement with creditors, affecting Seller or
any of its assets or properties is pending or, to Seller's knowledge,
threatened, and Seller has not made any assignment for the benefit of creditors,
nor taken any actions with a view to, or which would constitute the basis for,
the institution of any such insolvency proceedings.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the Closing Date, Buyer represents and warrants to Seller as follows:
3.1 Status. Buyer is a corporation which is duly organized, and
------
validly existing under the laws of the State of New Mexico and is qualified to
do business in the State of New Mexico. Buyer has the requisite power to enter
into and complete the transactions contemplated by this Agreement.
3.2 No Defaults. Neither the execution, delivery and performance
-----------
by Buyer of this Agreement nor the consummation by Buyer of the transactions
contemplated hereby is an event that, of itself or with the giving of notice or
the passage of time or both, will: (a) conflict with the provisions of the
articles of incorporation or bylaws of Buyer; (b) constitute a violation of,
conflict with or result in any breach of or any default under, result in any
termination or modification of, or cause any acceleration of any obligation
under, any material contract, mortgage, indenture, agreement, lease or other
instrument to which Buyer is a party or by which it is bound, or by which it may
be affected; (c) violate any judgment, decree, order, statute, rule or
regulation applicable to Buyer; or (d) result in the creation or imposition of
any lien, charge or encumbrance against the business or the assets of Buyer.
3.3 Corporate Action. All corporate or other actions and
----------------
proceedings necessary to be taken by or on the part of Buyer in connection with
the transactions contemplated by this Agreement have been duly and validly
taken, and this Agreement has been duly and validly authorized, executed and
delivered by Buyer and constitutes the legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with and subject to its terms.
3.4 Brokers. There is no broker or finder or other person who
-------
would have any valid claim against any of the parties to this Agreement for a
commission or brokerage fee or payment in connection with this Agreement or the
transactions contemplated hereby as a result of any agreement of or action taken
by Buyer.
3.5 Litigation. There are no suits, arbitrations, administrative
----------
charges or other legal proceedings, claims or governmental investigations of any
nature pending or, to Buyer's knowledge, threatened against or affecting it that
would affect Buyer's ability to carry out the transactions contemplated by this
Agreement.
3.6 Approvals and Consents. The only approvals or consents of
----------------------
persons or entities not a party to this Agreement that are legally or
contractually required to be obtained by Buyer in connection with the
consummation of the transactions contemplated by this Agreement have been
obtained.
<PAGE>
ARTICLE IV
ITEMS TO BE DELIVERED
4.1 Deliveries by Seller. At the Closing, Seller shall deliver
--------------------
to Buyer duly executed by Seller or such other signatory as may be required by
the nature of the document:
(a) Bills of sale, certificates of title, endorsements,
assignments and other good and sufficient instruments of sale, conveyance and
transfer and assignment, in form and substance satisfactory to Buyer sufficient
to sell, convey, transfer and assign to Buyer all right, title and interest of
Seller to the Assets and to quiet Buyer's title thereto (except as to the
Permitted Encumbrances);
(b) The required consents under Section 2.9; and
(c) Certified copies of resolutions, duly adopted by the
Sole Director of Seller which shall be in full force and effect, authorizing the
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby.
4.2 Deliveries by Buyer. At the Closing, Buyer shall deliver to
-------------------
Seller:
(a) The Purchase Price, which shall be paid in the manner
specified in Section 1.3; and
(b) Certified copies of resolutions, duly adopted by the
Board of Directors and Sole Shareholder of Buyer, which shall be in full force
and effect, authorizing the execution, delivery and performance by Buyer of this
Agreement and the consummation of the transactions contemplated hereby.
ARTICLE V
SURVIVAL; INDEMNIFICATION
5.1 Survival. All representations, warranties, covenants and
--------
agreements contained in this Agreement, or in any Exhibit, Schedule,
certificate, agreement, document or statement delivered pursuant hereto, shall
survive (and not be affected in any respect by) the execution of this Agreement,
any investigation conducted by any party hereto and any other information which
any party may receive for a period of one year following the Closing Date
hereof.
5.2 Basic Provision.
---------------
(a) Seller (sometimes hereinafter an "Indemnifying Party")
hereby agrees to indemnify and hold harmless Buyer, its directors, officers and
employees and all
<PAGE>
persons which directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with Buyer, and their
respective successors and assigns (collectively, the "Buyer Indemnitees") from,
against and in respect of, and to reimburse the Buyer Indemnitees for, the
amount of any and all Deficiencies (as defined in Section 5.3(a)).
(b) Buyer (sometimes hereinafter an "Indemnifying Party")
hereby agrees to indemnify and hold harmless Seller and its directors, officers,
employees and all persons which directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control with
Seller, and their respective successors and assigns (collectively, the "Seller
Indemnitees") from, against and in respect of, and to reimburse the Seller
Indemnitees for, the amount of any and all Deficiencies (as defined in Section
5.3(b)).
5.3 Definition of "Deficiencies".
---------------------------
(a) As used in this Article 5, the term "Deficiencies" when
asserted by Buyer Indemnitees or arising out of a third party claim against
Buyer Indemnitees shall mean any and all losses, damages, liabilities and claims
sustained by the Buyer Indemnitees and arising out of, based upon or resulting
from:
(i) Any misrepresentation, breach of warranty, or
any non-fulfillment of any representation, warranty, covenant, obligation or
agreement on the part of Seller contained in or made pursuant to this Agreement;
(ii) Any error contained in any statement, report,
certificate or other document or instrument delivered to the Buyer Indemnitees
by Seller pursuant to this Agreement or contained in any Exhibit or Schedule
hereto;
(iii) Any failure by Seller to pay or discharge any
liability relating to the Assets that is not expressly assumed by Buyer pursuant
to the provisions of this Agreement;
(iv) Any and all acts, suits, proceedings, demands,
assessments and judgments, and all fees, costs and expenses of any kind, related
or incident to any of the foregoing (including, without limitation, any and all
Legal Expenses (as defined below)).
(b) As used in this Article 5, the term "Deficiencies" when
asserted by Seller Indemnitees or arising out of a third party claim against
Seller Indemnitees shall mean any and all losses, damages, liabilities and
claims sustained by the Seller Indemnitees and arising out of, based upon or
resulting from:
(i) Any misrepresentation, breach of warranty, or
any non-fulfillment of any representation, warranty, covenant, obligation or
agreement on the part of Buyer contained in or made pursuant to this Agreement;
<PAGE>
(ii) Any failure by Buyer to pay or discharge any
liability relating to the Assets that is expressly assumed by Buyer pursuant to
the provisions of this Agreement;
(iii) Any and all acts, suits, proceedings, demands,
assessments and judgments, and all fees, costs and expenses of any kind, related
or incident to any of the foregoing (including, without limitation, any and all
Legal Expenses (as defined below)).
5.4 Procedures for Establishment of Deficiencies.
--------------------------------------------
(a) In the event that any claim shall be asserted by any
third party against the Buyer Indemnitees or Seller Indemnitees (Buyer
Indemnitees or Seller Indemnitees, as the case may be, hereinafter, the
"Indemnities"), which, if sustained, would result in a Deficiency, then the
Indemnities, within a reasonable time after learning of such claim, shall notify
the Indemnifying Party of such claim, and shall extend to the Indemnifying Party
a reasonable opportunity to defend against such claim, at the Indemnifying
Party's sole expense and through legal counsel acceptable to the Indemnities,
provided that the Indemnifying Party proceeds in good faith, expeditiously and
diligently. The Indemnities shall, at their option and expense, have the right
to participate in any defense undertaken by the Indemnifying Party with legal
counsel of their own selection. No settlement or compromise of any claim which
may result in a Deficiency may be made by the Indemnifying Party without the
prior written consent of the Indemnities unless: (A) prior to such settlement or
compromise the Indemnifying Party acknowledges in writing its obligation to pay
in full the amount of the settlement or compromise and all associated expenses;
and (B) the Indemnities are furnished with security reasonably satisfactory to
the Indemnities that the Indemnifying Party will in fact pay such amount and
expenses. No settlement or compromise of any claim which acknowledges any
liability for a violation of law, or purports to impose any non-monetary
obligation on the indemnified party may be entered into without such party's
consent .
(b) In the event that the Indemnities assert the existence
of any Deficiency against the Indemnifying Party, they shall give written notice
to the Indemnifying Party of the nature and amount of the Deficiency asserted.
If within fifteen days after the giving of the written notice by the Indemnities
the Indemnifying Party does not provide written notice to the Indemnities that
the Indemnifying Party intends to contest the assertion by the Indemnities (such
notice by the Indemnifying Party being hereinafter referred to as the "Contest
Notice"), such assertion of the Indemnities shall be deemed accepted and the
amount of the Deficiency shall be deemed established. In the event, however,
that a Contest Notice is given to the Indemnities within said 15-day period,
then the contested assertion of a Deficiency shall be settled by arbitration to
be held in Albuquerque, New Mexico, in accordance with the Commercial Rules of
the American Arbitration Association then existing. The determination of the
arbitrator shall be delivered in writing to the Indemnifying Party and the
Indemnities and shall be final, binding and conclusive upon all of the parties
hereto, and the amount of the Deficiency, if any, determined to exist, shall be
deemed established.
<PAGE>
(c) The Indemnities and the Indemnifying Party may agree in
writing, at any time, as to the existence and amount of a Deficiency, and, upon
the execution of such agreement such Deficiency shall be deemed established.
5.5 Payment of Deficiencies. The Indemnifying Party hereby
-----------------------
agrees to pay the amount of established Deficiencies within fifteen days after
the establishment thereof. The amount of established Deficiencies shall be paid
in cash. Any amounts not paid by the Indemnifying Party when due under this
Section shall bear interest from and after the due date thereof until the date
paid at a rate equal to the lesser of: (a) ten percent (10%) per annum; or (b)
the highest legal rate permitted by applicable law. At the option of the
Indemnities, the Indemnities may offset any Deficiency or any portion thereof
that has not been paid by the Indemnifying Party to the Indemnities against any
obligation the Indemnities, or any of them, may have to the Indemnifying Party.
5.6 Legal Expenses. As used in this Article 5, the term "Legal
--------------
Expenses" shall mean any and all reasonable fees (whether of attorneys,
accountants or other professionals), costs and expenses of any kind reasonably
incurred by any person identified herein and its counsel in investigating,
preparing for, defending against, or providing evidence, producing documents or
taking other action with respect to any threatened or asserted claim.
ARTICLE VI
MISCELLANEOUS
6.1 Expenses. Each party hereto shall bear all of its expenses
--------
incurred in connection with the transactions contemplated by this Agreement,
including without limitation, accounting and legal fees incurred in connection
herewith; provided, however, that Seller shall bear any sales or transfer taxes
-----------------
arising from the transfer of the Assets to Buyer.
6.2 Remedies Cumulative. The remedies provided in this Agreement
-------------------
shall be cumulative and shall not preclude the assertion by any party hereto of
any other rights or the seeking of any other remedies against the other party
hereto.
6.3 Preservation of Records. Buyer covenants that it will
-----------------------
preserve and make available (including the right to inspect and copy) to Seller,
its attorneys and accountants, for a reasonable period of time from and after
the Closing Date and during normal business hours, such of the books, records,
files, correspondence, memoranda and other documents transferred with respect to
the Assets pursuant to this Agreement as Seller may reasonably require in
connection with any legitimate purpose.
6.4 Non-Assignable Contracts. Nothing contained in this
------------------------
Agreement shall be construed as an assignment or an attempted assignment of any
contract which is by law non-assignable without the consent of the other party
or parties thereto, unless such consent shall be given.
<PAGE>
6.5 Further Assurances. From time to time prior to, on and after
------------------
the Closing Date, each party hereto will execute all such instruments and take
all such actions as any other party, being advised by counsel, shall reasonably
request, without payment of further consideration, in connection with carrying
out and effectuating the intent and purpose hereof and all transactions and
things contemplated by this Agreement, including without limitation the
execution and delivery of any and all confirmatory and other instruments in
addition to those to be delivered on the Closing Date, and any and all actions
which may reasonably be necessary or desirable to complete the transactions
contemplated hereby. The parties shall cooperate fully with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their respective obligations under this Agreement.
ARTICLE VII
GENERAL PROVISIONS
7.1 Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, this Agreement shall be binding upon and inure to the benefit
of the parties hereto, and their respective representatives, successors and
assigns.
7.2 Amendments; Waivers. The terms, covenants, representations,
-------------------
warranties and conditions of this Agreement may be changed, amended, modified,
waived, discharged or terminated only by a written instrument executed by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision of this Agreement shall in no manner affect
the right of such party at a later date to enforce the same. No waiver by any
party of any condition or the breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or of the breach of any other
provision, term, covenant, representation or warranty of this Agreement.
7.3 Notices. All notices, requests, demands and other
-------
communications required or permitted under this Agreement shall be in writing
(which shall include notice by telex or facsimile transmission) and shall be
deemed to have been duly made and received when personally served, or when
delivered by Federal Express or a similar overnight courier service, expenses
prepaid, or, if sent by facsimile, addressed as set forth below:
(a) If to Seller then to:
NMMC, Inc.
c/o Nicola P. Ontiveros
5600 Wyoming N.E., Suite 150
Albuquerque, N.M. 87109
<PAGE>
with a copy, given in the manner prescribed above, to:
Mark T. Lee, Esq.
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, CA 92121
(b) If to Buyer, then to:
Raeaca Corp.
c/o Ronald R. Baca
11735 Sky Valley Way N.E.
Albequerque, N.M. 87111
with a copy, given in the manner prescribed above, to:
_________________________
_________________________
_________________________
_________________________
Any party may alter the address to which communications are to be sent by giving
notice of such change of address in conformity with the provisions of this
Section providing for the giving of notice.
7.4 Captions. The captions of Articles and Sections of this
--------
Agreement are for convenience only and shall not control or affect the meaning
or construction of any of the provisions of this Agreement.
7.5 Governing Law. This Agreement and all questions relating to
-------------
its validity, interpretation, performance and enforcement shall be governed by
and construed in accordance with the laws of the State of New Mexico without
giving effect to principles of conflicts of laws.
7.6 Entire Agreement. This Agreement, the Exhibits and Schedules
----------------
hereto and the other documents delivered hereunder constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and supersede all prior agreements, understandings,
inducements or conditions, express or implied, oral or written, relating to the
subject matter hereof, except as herein contained. The express terms hereof
control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof.
<PAGE>
7.7 Execution; Counterparts. This Agreement may be executed in
-----------------------
any number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
7.8 Construction. The headings set forth in this Agreement are
------------
for convenience only and shall not be used in interpreting the text of the
section in which they appear. The parties acknowledge that each party and its
counsel has reviewed and revised this Agreement and that the rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or schedules hereto, or any documents executed in connection
herewith.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their duly authorized signatories, all as of the day and year first
above written.
BUYER:
RAEACA CORP.
By: /s/ [ILLEGIBLE]
----------------------
Its: President
----------------------
SELLER:
NMMC, INC.
By: /s/ [ILLEGIBLE]
----------------------
Its: Secretary
----------------------
<PAGE>
IRREVOCABLE STOCK OR BOND POWER
For Value Received, the undersigned does (do) hereby sell, assign and
transfer to
NMMC, Inc.
- --------------------------------------------------------------------------------
5600 Wyoming NE, Suite 150
- --------------------------------------------------------------------------------
Albuquerque, NM 87109 85-0345083
- --------------------------------------------------------------------------------
Social Security or Taxpayer ID Number
IF STOCK, __________ shares of the _______ stock of ________________________
COMPLETE
THIS PORTION represented by certificate(s) No(s). _____________ inclusive
standing in the name of the undersigned on the books of said
Company.
IF BONDS, __________________________ bonds of _____________________________
COMPLETE
THIS PORTION __________________________________________________________________
in the principal amount of $ _____ No(s). ____________ inclusive
standing in the name of the undersigned on the books of said
Company.
The undersigned does (do) hereby irrevocably constitute and
appoint
____________________________________________ attorney to transfer
the said stock or bond(s) as the case may be, on the books of said
Company, with full power of substitution in the premises.
IMPORTANT: The signature(s) to this power
must correspond with the ^??^ as written
upon the face of the certificate(s) or
bonds(s) in every particular without
FOR OFFICE USE ONLY alteration.
====================================
Raeaca Corp.
____________________________ -----------------------------------------
Title Which Appears On Certificate
/s/ Ron. Baca Ron Baca; President
____________________________ -----------------------------------------
Title Which Appears On Certificate (Person(s) Executing the Power ^????^
====================================
Account No. HI95B1106
------------------------------
Dated ___________________________________
<PAGE>
SCHEDULE 1.1
------------
ASSET LIST
<PAGE>
RAEACA ASSETS PURCHASED FROM NMMC
A/R - Commercial 7,826.74
A/R - Bentree Revenue 1,907.27
A/R - BRTL Wholesale 80,944.41
A/R - Parallel Capital NM 4,524.38
A/R - Heartland Insurance 5,902.27
A/R - REIT 335,259.65
A/R - Southern Pacific Funding 23,532.33
Investment - AIM Holdings, Inc. 49,351.37
----------
509,248.42
==========
<PAGE>
SCHEDULE 1.3
------------
ALLOCATION OF PURCHASE PRICE
<PAGE>
RAEACA ASSETS PURCHASED FROM NMMC
A/R - Commercial 7,826.74
A/R - Bentree Revenue 1,907.27
A/R - BRTL Wholesale 80,944.41
A/R - Parallel Capital NM 4,524.38
A/R - Heartland Insurance 5,902.27
A/R - REIT 335,259.65
A/R - Southern Pacific Funding 23,532.33
Investment - AIM Holdings, Inc. 49,351.37
----------
509,248.42
==========
<PAGE>
Exhibit 10.10
DEMAND PROMISSORY NOTE
----------------------
$701,736.62 December 31, 1998
For value received, LORACA INTERNATIONAL, INC., a Nevada corporation, with
its principal place of business at 5600 Wyoming Blvd., N.E., Suite 150,
Albuquerque, New Mexico 87109, facsimile number (505) 856-0113, together with
its successors and assigns (the "Maker") promises to pay ON DEMAND to the order
of RONALD R. BACA, an individual residing at 11735 Sky Valley Way, N.E.,
Albuquerque, New Mexico 87111, facsimile number (505) 275-0349 (the "Holder"),
the principal amount of Seven Hundred One Thousand Seven Hundred Thirty-Six
Dollars and Sixty-Two Cents ($701,736.62), plus interest, at the rate set forth
below.
1. Interest Rate. The outstanding principal balance shall bear interest from
-------------
the date hereof until paid in full at the rate of eight percent (8%) per annum.
Notwithstanding the provisions of this Note, if the rate of interest payable
hereunder is limited by law, the rate payable hereunder shall be the lesser of
(a) the rate set forth in this Note or (b) the maximum rate permitted by law.
If, however, interest is paid hereunder in excess of the maximum rate of
interest permitted by law, any interest so paid which exceeds such maximum rate
shall automatically be considered a payment of principal and shall automatically
be applied in reduction of principal due on this Note to the extent of such
excess.
2. Prepayment. The full amount due under this Note may be prepaid without
----------
penalty at any time.
3. Payments. All payments of principal, interest and other amounts payable on
--------
or in respect of this Note or the indebtedness evidenced hereby shall be made to
the Holder by wire transfer of immediately available Federal funds to the
Holder's designated account or by such other means as shall be acceptable to
Holder in his sole discretion. All payments on or in respect of this Note or
the indebtedness evidenced hereby shall be made to the Holder without set-off or
counterclaim and free and clear of and without deductions of any kind.
4. Remedies. The failure of Holder to exercise all or any of its rights,
--------
remedies, powers or privileges hereunder in any instance shall not constitute a
waiver thereof in that or in any other instance. If all or any part of the
indebtedness represented by this Note is collected by action at law, or in
bankruptcy, insolvency, receivership or other court proceedings, or if this Note
is placed in the hands of attorneys for collection, the Maker hereby promises to
pay to the Holder, upon written demand by the Holder, in addition to principal,
interest and all (if any) other amounts payable on or in respect of this Note or
the indebtedness evidenced hereby, all court costs and all reasonable attorneys'
fees and other reasonable collection charges and expenses incurred or sustained
by or on behalf of the Holder.
<PAGE>
5. Waiver. The Maker hereby absolutely and irrevocably waives notice of
------
acceptance, presentment, notice of demand, notice of non-payment, protest,
notice of protest, suit and all other conditions precedent in connection with
the delivery, acceptance, collection and/or enforcement of this Note or any
collateral or security therefor.
6. Notices. All notices, demands and other communications to or upon the Maker
-------
pursuant to this Note shall be in writing, either delivered in hand or sent to
the Maker by first-class mail, postage prepaid, or by telex, telegraph or
facsimile transmission, addressed to the Maker at the address set forth at the
beginning of this Note, or to such other address of the Maker as the Maker shall
have designated in a written notice to the Holder.
7. Governing Law. This Note shall be governed by and construed and enforced in
-------------
accordance with the substantive laws of the State of California.
8. Headings; References. All headings used herein are used for convenience
--------------------
only and will not be used to construe or interpret this Note.
IN WITNESS WHEREOF, the Maker being duly authorized has caused this Note to
be issued as of the date first set forth above.
LORACA INTERNATIONAL, INC.
(the "Maker")
By: /s/ Nicola Ontiveros
---------------------------
Nicola Ontiveros
Its: Secretary
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
NNMC, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,826
<SECURITIES> 4,165,365
<RECEIVABLES> 1,071,358
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,245,549
<PP&E> 533,117
<DEPRECIATION> (42,187)
<TOTAL-ASSETS> 5,736,479
<CURRENT-LIABILITIES> 390,655
<BONDS> 0
0
0
<COMMON> 7,000
<OTHER-SE> 5,338,824
<TOTAL-LIABILITY-AND-EQUITY> 5,736,479
<SALES> 115,606
<TOTAL-REVENUES> 115,606
<CGS> 1,353,215
<TOTAL-COSTS> 1,353,215
<OTHER-EXPENSES> (2,391,825)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,154,216
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.16
</TABLE>
