-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T1boOEXb3sIxamV/AS5XH3i1GccAttiNkVX85tSYdxd/QbQIi8W2cLOUVdV1Zkp0 g6kj+uLo1xza7FA1Be2s8g== 0000950147-99-001259.txt : 19991117 0000950147-99-001259.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950147-99-001259 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FBR CAPITAL CORP /NV/ CENTRAL INDEX KEY: 0000836937 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 133465289 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-58694 FILM NUMBER: 99751592 BUSINESS ADDRESS: STREET 1: 20 EAST UNIVERSITY STREET 2: SUITE 304 CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6029675800 MAIL ADDRESS: STREET 1: 20 EAST UNIVERSITY STREET 2: SUITE 304 CITY: TEMPE STATE: AZ ZIP: 85281 FORMER COMPANY: FORMER CONFORMED NAME: BARRIE RICHARD FRAGRANCES INC DATE OF NAME CHANGE: 19920703 10QSB 1 QUARTERLY REPORT FOR PERIOD ENDING 9-30-99 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File number 33-58694 VITRIX, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 13-3465289 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 20 East University, Suite 304, Tempe, Arizona 85281 --------------------------------------------------- (Address of principal executive offices) (480) 967-5800 --------------------------- (Issuer's telephone number) FBR Capital Corporation ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: At November 12, 1999, the issuer had outstanding 14,441,031 shares of Common Stock, par value $.005 per share. Transitional Small Business Disclosure Format: Yes [ ] No [X] PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS VITRIX, INC. BALANCE SHEETS SEPTEMBER 30, JUNE 30, 1999 1999 ----------- --------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 434,397 $ 376,365 Accounts receivable - trade, net 37,754 42,596 Inventory 41,804 28,397 Prepaid expenses and other current assets 40,285 10,591 ----------- --------- TOTAL CURRENT ASSETS 554,240 457,949 PROPERTY AND EQUIPMENT, NET 65,873 60,865 ----------- --------- TOTAL ASSETS $ 620,113 $ 518,814 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 29,228 $ 28,848 Accounts payable 119,728 146,084 Accrued liabilities 66,528 64,125 Deferred revenue 15,875 13,235 ----------- --------- TOTAL CURRENT LIABILITIES 231,359 252,292 LONG-TERM DEBT, LESS CURRENT PORTION 12,377 14,466 ----------- --------- TOTAL LIABILITIES 243,736 266,758 ----------- --------- COMMITMENTS: -- -- STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value, 10,000,000 shares authorized, issued and outstanding 100,000 100,000 Common stock, $.005 par value, 16,666,667 shares authorized, 14,441,031 and 13,241,031 shares issued and outstanding 72,205 66,205 Contributed capital 1,261,968 956,468 Accumulated deficit (1,057,796) (870,617) ----------- --------- TOTAL STOCKHOLDERS' EQUITY 376,377 252,056 ----------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 620,113 $ 518,814 =========== ========= The Accompanying Notes are an Integral Part of the Financial Statements 2 VITRIX, INC. STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1999 1998 ------------ ------------ Revenues: Product sales $ 199,291 $ 120,363 Services revenue 3,378 4,500 ------------ ------------ TOTAL REVENUES 202,669 124,863 COST OF REVENUES 65,562 37,330 ------------ ------------ GROSS PROFIT 137,107 87,533 ------------ ------------ COSTS AND EXPENSES: Sales and marketing 97,042 44,229 Research and development 101,884 34,989 General and administrative 126,472 36,316 ------------ ------------ TOTAL COSTS AND EXPENSES 325,398 115,534 ------------ ------------ NET LOSS FROM OPERATIONS (188,921) (28,001) ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (2,108) (7,583) Interest income 3,220 1,033 ------------ ------------ 1,112 (6,550) ------------ ------------ NET LOSS $ (187,179) $ (34,551) ============ ============ BASIC LOSS PER SHARE $ (0.01) $ (0.00) ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 23,345,379 14,012,820 ============ ============ The Accompanying Notes are an Integral Part of the Financial Statements 3 VITRIX, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED JUNE 30, 1999 AND THE THREE MONTH PERIOD ENDED SEPTEMBER 30,1999 (Unaudited)
PREFERRED STOCK COMMON STOCK --------------------- --------------------- CONTRIBUTED ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL ---------- -------- ---------- -------- ---------- ----------- --------- Balance at June 30, 1998 7,536,681 75,367 6,476,139 32,381 387,873 (601,315) (105,694) Conversion of related party debt and interest 1,463,319 14,633 1,257,404 6,287 243,650 -- 264,570 Sale of stock, net of costs of $9,063 1,000,000 10,000 859,283 4,296 176,622 -- 190,918 Merger with Vitrix Incorporated 4,648,205 23,241 148,323 171,564 Net loss -- -- -- -- -- (269,302) (269,302) ---------- -------- ---------- -------- ---------- ----------- --------- Balance at June 30, 1999 10,000,000 $100,000 13,241,031 $ 66,205 $ 956,468 $ (870,617) $ 252,056 Issuance of stock options -- -- -- -- 11,500 -- 11,500 Sale of common stock -- -- 1,200,000 6,000 294,000 -- 300,000 Net loss -- -- -- -- -- (187,179) (187,179) ---------- -------- ---------- -------- ---------- ----------- --------- Balance at September 30, 1999 10,000,000 $100,000 14,441,031 $ 72,205 $1,261,968 $(1,057,796) $ 376,377 ========== ======== ========== ======== ========== =========== =========
The Accompanying Notes are an Integral Part of the Financial Statements 4 VITRIX, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, ---------------------- 1999 1998 --------- -------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Net Loss $(187,179) $(34,551) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 7,773 5,512 Stocks options issued for services 11,500 -- Changes in Assets and Liabilities: Accounts receivable-trade 4,842 (7,606) Inventory (13,407) 733 Prepaid expenses and other current assets (29,694) -- Accounts payable (26,356) (14,176) Accrued liabilities 2,403 3,103 Deferred revenue 2,640 -- --------- -------- NET CASH USED BY OPERATING ACTIVITIES (227,478) (46,985) --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (12,781) -- --------- -------- NET CASH USED BY INVESTING ACTIVITIES (12,781) -- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of capital leases (1,709) -- Proceeds from issuance of stock 300,000 -- --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 298,291 -- --------- -------- Net change in cash and cash equivalents 58,032 (46,985) Cash and cash equivalents at beginning of period 376,365 96,775 --------- -------- Cash and cash equivalents at end of period $ 434,397 $ 49,790 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 1,376 $ 83 ========= ======== Income taxes paid $ -- $ -- ========= ======== NONCASH INVESTING AND FINANCING ACTIVITIES: Issuance of stock options for services $ 11,500 $ -- ========= ======== The Accompanying Notes are an Integral Part of the Financial Statements 5 VITRIX, INC. NOTE TO FINANCIAL STATEMENTS (UNAUDITED) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND INTERIM FINANCIAL STATEMENTS The accompanying financial statements of Vitrix, Inc. ("Vitrix" or the "Company") have been prepared in accordance with generally accepted accounting principles ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission, and are unaudited. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three-month period ended September 30, 1999 may not be indicative of the results for the entire year. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999. LOSS PER SHARE: Basic loss per share of common stock was computed by dividing the net loss by the weighted average number of shares outstanding of common and preferred stock. The common and preferred stock amounts in the accompanying financial statements have been restated to give effect to the exchange ratio established in the Exchange Agreement, dated April 15, 1999, between FBR Capital Corporation and Vitrix Incorporated . The preferred stock was included in the calculation due to its automatic conversion into common stock at such time as the Company has sufficient authorized common stock to issue the shares Diluted earnings per share are computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are options and warrants that are freely exercisable into common stock at less than the prevailing market price. Dilutive securities are not included in the weighted average number of shares when inclusion would increase the earnings per share or decrease the loss per share. STOCKHOLDERS' EQUITY: During the quarter ended September 30, 1999, the Company completed a private placement of $300,000 of common stock and common stock warrants. The securities were issued under an Agreement with one institutional investor and certain members of the Company's Board of Directors and officers. The offering consisted of 1,200,000 shares of common stock and warrants to purchase an aggregate of 600,000 shares of common stock. The warrants are exercisable at $.35 per share for a period of three years. On October 8, 1999, the Company completed a private placement of an additional $200,000 of common stock and common stock warrants under the same Agreement and terms. The Agreement also provides for a minimum additional funding of $100,000, with an option to increase the additional funding up to $500,000, prior to January 15, 2000, subject to certain provisions. SUBSEQUENT EVENTS: The Company changed its name from FBR Capital Corporation to Vitrix, Inc. pursuant to approval by a vote of the Company's shareholders at its annual meeting held on October 7, 1999. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 REVENUES. Revenue for three month period ended September 30, 1999, rose 62% to $202,669, compared to revenue of $124,863 for the three month period September 30, 1998. This growth was principally the result of an increased customer demand for its bundled software and hardware solutions, which resulted in an increase in sales volume. The Company also added additional inside salespersons and increased its advertising and promotional expenditures over the previous period. GROSS PROFIT. Gross profit as a percentage of revenues was 68% in the first fiscal quarter of 1999, compared to 70% in the similar period in 1998. The decrease in gross profit as a percentage of revenues was primarily attributable to an increase in the proportion of bundled software and hardware solutions sales to software-only solutions sales. The average gross profit per unit sold on software and hardware units is lower than the average gross profit margin on software-only solutions. EXPENSES. Sales and marketing expenses were $97,042, or 48% of revenues, in the first fiscal quarter of 1999, compared to $44,229, or 35% of revenues, in the similar period in 1998. The increase in sales and marketing expense is attributable to increased labor costs resulting from the hiring of additional salespeople and increased advertising and promotional expense. Research and development expenses were $101,884, or 50% of revenues, in the first fiscal quarter of 1999, compared to $34,989, or 28% of revenues, in the similar period in 1998. The increase in research and development expense is attributable to increased labor costs as a result of the Company's commitment to enhance existing products and develop new products. General and administrative expenses were $126,472, or 62% of revenues, in the first fiscal quarter of 1999, compared to $36,316, or 29% of revenues, in the similar period in 1998. The increase in general and administrative expenses is primarily attributable to the hiring of additional management personnel. LIQUIDITY AND CAPITAL RESOURCES Working capital as of September 30, 1999 was $322,881, compared to $32,777 at September 30, 1998. Cash and cash equivalents at those dates amounted to $434,397 and $49,790, respectively. OPERATIONS. Net cash used by operations increased to $227,478 in the first fiscal quarter of 1999, compared to net cash used by operations of $46,985 in the similar period in 1998. The decrease was attributable to an increase in the net loss, inventory and prepaid expenses and a decrease in accounts payable. INVESTMENT ACTIVITIES. For the fiscal quarter ended September 30, 1999, the Company used $12,781 to purchase property and equipment. FINANCING ACTIVITIES. The Company raised $300,000 through a private placement of Common Stock in the first fiscal quarter ended September 30, 1999. 7 The Company believes that, with its current working capital and funds generated through operations, it will have sufficient working capital to address the anticipated growth of demand and market for its products for the next 12 months. The Company may, however, seek to obtain additional capital through a line of credit at a financial institution or through additional debt or equity offerings during this time period. The raising of additional capital in public markets will primarily be dependent upon prevailing market conditions and the demand for the Company's products and services. No assurance can be given that the Company will be able to raise additional capital, or that such capital, if available, will be on acceptable terms. YEAR 2000 COMPLIANCE The Company has reviewed its computer systems to identify those areas that could be adversely affected by the Year 2000 ("Y2K") issue. The Y2K issue is the result of computer programs being written using two digits rather than four to define the applicable year. The Company has determined that all of its information systems are Y2K compliant. The compliance effort to date has resulted in immaterial cost to the Company. Although the Company expects that any future expenditures made in connection with Y2K conversions will not be material, the Company may experience material unanticipated problems and costs caused by undetected errors or defects in its systems. The Company believes that some of its customers may be impacted by the Y2K problem, which could in turn negatively impact the Company sales efforts with respect to such customers and the Company's results of operations. The Company has completed an inquiry of key vendors to assess their Y2K readiness. Based on this inquiry, the Company is not aware of any problems that would materially affect its business, results of operations or financial condition. However, the inability of such vendors to meet Y2K requirements could materially impact the Company's ability to procure materials from these vendors and to meet its obligations to supply products to its customers. The Company has formulated a contingency plan to address the possible effects of problems encountered as a result of Y2K issues. The Company expects the costs of this plan to be immaterial. The Company's products are all Y2K 2000 compliant. FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-QSB contains certain forward-looking statements and information which the Company believes are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. The Company wishes to caution the reader that these forward-looking statements that are not historical facts, are only predictions. No assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these projections and other forward-looking statements are based upon a variety of assumptions relating to the business of the Company, which, although considered reasonable by the 8 Company, may not be realized. Because of the number and range of assumptions underlying the Company's projections and forward-looking statements, many of which are subject to significant uncertainties and contingencies that are beyond the reasonable control of the Company, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this report. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. Therefore, the actual experience of the Company and the results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward-looking statements should not be regarded as a representation by the Company or any other person that these estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is from time to time involved in legal proceedings arising from the normal course of business. As of the date of this report, the Company is not currently involved in any legal proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 22, 1999, the Company completed a private placement of $300,000 of common stock and common stock warrants. The securities were issued under an Agreement with one institutional investor and certain members of the Company's Board of Directors and officers. The offering consisted of 1,200,000 shares of common stock and warrants to purchase an aggregate of 600,000 shares of common stock. The warrants are exercisable at $.35 per share for a period of three years. On October 8, 1999, the Company completed a private placement of an additional $200,000 of common stock and common stock warrants under the same Agreement and terms. The Agreement also provides for a minimum additional funding of $100,000, with an option to increase the additional funding up to $500,000, prior to January 15, 2000, subject to certain conditions. The common stock and warrants issued in the private offering were issued in reliance on the exemption provided under Section 4(2) of the Securities Act of 1933 and Regulation D thereunder. The proceeds from the private offerings are being used for general working capital needs. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 7, 1999 the Company held its annual meeting of shareholders at which 13,921,677, or 60% of the 23,241,031 common and preferred shares outstanding were represented by proxy or in person. The following persons were elected to the board of directors with shares voted as follows: Election of Directors For Withheld - --------------------- --- -------- Michael A. Wolf 13,921,677 -- Todd P. Belfer 13,921,677 -- Lise Lambert 13,921,677 -- Philip R. Shumway 13,921,677 -- Hamid Shojaee 13,921,677 -- Bahan Sadegh 13,921,677 -- At that meeting, the shareholders also approved the proposed amendment to the Articles of Incorporation to change the Company's name to "Vitrix, Inc." and to increase the authorized shares of common stock from 16,666,667 to 50,000,000 shares. The shareholders also approved the proposal to adopt the Company's 1999 Equity Compensation Plan. Shareholders voted 13,921,677 shares for approval of the above proposals with no shares withheld or abstained. ITEM 5. OTHER INFORMATION Effective October 31, 1999, Philip R. Shumway resigned as President and Chief Executive Officer of the Company to pursue other business interests. Michael A. Wolf, Chairman of the Board of Directors, has agreed to serve as acting President and Chief Executive Officer until such time as the Company completes its search for a new President and Chief Executive Officer. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith pursuant to Regulation SB: NO. DESCRIPTION --- ----------- 3.1 Certificate of Amendment to the Articles of Incorporation, dated October 7, 1999 10.1 Lease Agreement, dated September 3, 1999 between LAFP Phoenix, Inc, as Lessor, and the Registrant as Lessee 10.2 Securities Purchase Agreement, dated September 21, 1999 between Circle F Ventures, LLC and the Registrant 10.3 Severance Agreement and General Release, dated October 25, 1999 between Philip R. Shumway and the Registrant 27 Financial Data Schedule (b) Reports on Form 8-K No reports were filed on Form 8-K during the quarter ended September 30, 1999. 10 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VITRIX, INC. Dated: November 12, 1999 By /s/ Michael A. Wolf ------------------------------------ Michael A. Wolf President and Chief Executive Officer EX-3.1 2 CERTIFICATE OF AMEND. TO ARTICLES OF INC. CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF FBR CAPITAL CORPORATION --------------------------------------------------------- Pursuant to Section 78.390 of the Nevada Revised Statutes --------------------------------------------------------- The undersigned, being the President and the Secretary of FBR Capital Corporation, a corporation organized and existing under the laws of the State of Nevada, (the "Corporation") do hereby certify: 1. The name of the Corporation is FBR Capital Corporation. 2. The total number of outstanding shares of the Common Stock the Corporation having voting power as of September 15, 1999 was 13,241,031 and the total number of votes entitled to be cast by the holders of all said outstanding shares of the Common Stock was 13,241,031; and the total number of outstanding shares of the Preferred Stock the Corporation having voting power as of September 15, 1999 was 10,000,000 and the total number of votes entitled to be cast by the holders of all said outstanding shares of the Preferred Stock was 10,000,000. 3. The amendments set forth below were adopted, pursuant to Section 78.390 of the Nevada Revised Statutes, by the affirmative vote of stockholders owning at least a majority of the outstanding shares entitled to vote therein given at the annual meeting of the stockholders. 4. That Article First be removed in its entirety and the following be inserted in lien thereof: "FIRST, The name of the Corporation is Vitrix, Inc." 5. That Article Fourth be removed in its entirety and the following be inserted in lieu thereof: "FOURTH: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 60,000,000 shares, consisting of (i) 50,000,000 shares of Common Stock, $0.01 par value per share (the "Common Stock"), and (ii) 10,000,000 shares of Preferred Stock, $0.01 par value per share (the "Preferred Stock")." IN WITNESS WHEREOF, we have executed this Certificate of Amendment to the Articles of Incorporation this 7th day of October, 1999. FBR CAPITAL CORPORATION By /s/ Philip R. Shumway -------------------------------- Philip R. Shumway President and Secretary State of Arizona ) ) ss. County of Maricopa ) On this 7th day of October, 1999, before me personally came Philip R. Shumway, the President and Secretary of FBR Capital Corporation, a Nevada corporation, who acknowledged that he executed the above instrument. /s/ Dorothy Ann Gabbard ----------------------------------- Notary Public My Commission Expires: May 19, ???? - ------------------------------- EX-10.1 3 OFFICE LEASE AGREEMENT OFFICE LEASE AGREEMENT ---------------------------------------------- FBR CAPITAL CORPORATION, D/B/A VITRIX ---------------------------------------------- 51 West Third Street Tempe, Arizona 85281 TABLE OF CONTENTS PAGE ---- Article 1. Summary and definition of certain lease provisions and exhibits 1 Article 2. Premises; right to use common areas............................ 4 Article 3. Term........................................................... 5 Article 4. Minimum monthly rent........................................... 5 Article 5. Additional rent; expense stop.................................. 5 Article 6. Parking........................................................ 9 Article 7. Rent Tax and Personal Property Taxes........................... 9 Article 8. Payment of rent; late charges.................................. 9 Article 9. Security Deposit............................................... 10 Article 10. condition of the premises...................................... 11 Article 11. Tenant improvements and alterations............................ 11 Article 12. Fixtures; personal property; and surrender of premises......... 12 Article 13. Liens.......................................................... 13 Article 14. Use of Premises; rules and regulations......................... 14 Article 15. rights reserved by landlord.................................... 15 Article 16. Quiet Enjoyment................................................ 16 Article 17. Maintenance and Repair......................................... 17 Article 18. Utilities and janitorial services.............................. 18 Article 19. Entry and Inspection........................................... 19 Article 20. Tenant's insurance and indemnification of landlord............. 19 Article 21. Landlord's insurance........................................... 22 Article 22. Damage and destruction of premises............................. 23 Article 23. Eminent Domain................................................. 25 Article 24. Assignment and Subletting...................................... 25 Article 25. Sale of Premises by Landlord................................... 27 Article 26. Subordination; recognition and attornment...................... 28 Article 27. Landlord's default and right to cure........................... 28 i Article 28. Estoppel Certificates.......................................... 29 Article 29. Tenant's default and landlord's remedies....................... 29 Article 30. Tenant's recourse.............................................. 32 Article 31. Holding over................................................... 32 Article 32. General provisions............................................. 32 Article 33. Notices........................................................ 34 Article 34. Broker's commissions........................................... 35 Addendum to Office Lease Agreement EXHIBIT A Floor Plan of the Building indicating Premises EXHIBIT B Rules and Regulations EXHIBIT C Lease Guarantee (Intentionally Omitted) EXHIBIT D Tenant Improvement Work Letter EXHIBIT E Parking EXHIBIT F Confirmation of Commencement Date RIDER 1 Renewal Option RIDER 2 Landlord Concessions RIDER 3 Expansion Right RIDER 4 Janitorial Cleaning Services ii OFFICE LEASE AGREEMENT FBR CAPITAL CORPORATION, d/b/a Vitrix, a Nevada corporation Hayden Square THIS OFFICE LEASE AGREEMENT, dated September 5th, 1999, is made and entered into by LAFP PHOENIX, INC. a California corporation (the "Landlord"), and FBR CAPITAL CORPORATION, d/b/a Vitrix, a Nevada corporation, (the "Tenant"). In consideration of the mutual promises and representations set forth in this Lease, the Landlord and Tenant agree as follows: y ARTICLE 1. SUMMARY AND DEFINITION OF CERTAIN LEASE PROVISIONS AND EXHIBITS 1.1 The following terms and provisions of this Lease, as amplified and modified by other terms and provisions hereof, are included in this Section 1.1 for summary and definitional purposes only. If there is any conflict or inconsistency between any term or provision in this Section 1.1 and any other term or provision of this Lease, the other term or provision of this Lease shall control: (a) Landlord: LAFP PHOENIX, INC. (b) Address of Landlord Lowe Enterprises Commercial Group for Notices: 11209 N. Tatum Boulevard Suite B-208 Phoenix, Arizona 85028 Attention: Kent D. Merselis with a copy to: Lowe Enterprises Investment Management, Inc. 145 S. State College Blvd., #145 Brea, California 92821 Attention: Lynda Cook (c) Tenant: FBR CAPITAL CORPORATION, d/b/a Vitrix (d) Address of Tenant for Notices: Before Commencement Date: 20 East University, Suite 304 Tempe, Arizona 85281 1 From and after Commencement Date: 51 West Third Street, Suite 310 Tempe, Arizona 85281 (e) Lease Term: Five (5) years plus the remainder of any partial calendar month in which the Lease Term commences, beginning on the Commencement Date and ending on the Expiration Date. (f) Commencement Date: December 1, 1999 (subject to delay per Exhibit D) (see Article 3). (g) Expiration Date: November 30, 2004 (subject to delay per Exhibit D) (see Article 3). (h) Building: The office buildings known as Hayden Square located at 310, 350, 404 and 410 S. Mill Avenue and 51 W. Third Street, Tempe, Arizona 85281 (the "Building"), containing approximately 106,449 rentable square feet. (i) Premises: Suite 310 on the third floor of the Building as shown on Exhibit A, containing approximately 5,651 rentable square feet which includes approximately 5,046 usable square feet. All references to "rentable" or "useable" square feet, footage or area, shall be deemed measured, as the case may be, in accordance with American National Standard Z65.1-1996, as published by BOMA International. Landlord has the right to measure the Premises following delivery of the Premises to Tenant. If the number of rentable square feet in the Premises, based on the aforementioned BOMA standards is more or less than stated herein, the Minimum Monthly Rent set forth in Section 1.1(j) and Tenant's Pro Rata Share set forth in Section 1.1(k) shall be adjusted by Landlord to conform to the actual rentable square feet. (j) Minimum Monthly Rent: Subject to completion of the Tenant Improvements by Landlord, rent shall be payable commencing on December 1, 1999 and on the first day of each month thereafter until November 30, 2004 (see Article 4) according to the following schedule: Equal monthly installments of $10,477.90 for the first through twelfth months of the Lease Term (rental rate of $22.25 FSG per rentable square foot); Equal monthly installments of $10,948.81 for the thirteenth through twenty fourth months of the Lease Term (rental rate of $23.25 FSG per rentable square foot); and Equal monthly installments of $11,302.00 for the twenty-fifth through thirty-sixth months of the Lease Term (rental rate of $24.00 FSG per rentable square foot). Equal monthly installments of $11,772.92 for the thirty-seventh through forty-eighth months of the Lease Term (rental rate of $25.00 FSG per rentable square foot); and 2 Equal monthly installments of $12,126.10 for the forty-ninth through sixtieth months of the Lease Term (rental rate of $25.75 per rentable square foot). (k) Tenant's Pro Rata Share: Approximately 5.3% (see Article 5). The actual amount of Tenant's Pro Rata Share shall be determined after the Commencement Date, and may be adjusted from time to time thereafter, based upon the actual amount of rentable square feet in the Building and the Premises. Upon any expansion of the Premises, Tenant's Pro Rata Share shall be increased to reflect the inclusion of the additional square feet comprising the expanded Premises. Tenant's Pro Rata Share shall be the percentage calculated as follows: the rentable square feet comprising the Premises divided by the total number of rentable square feet in the Building provided, however, that during any period in which any portion of the Building is unusable as a result of casualty or condemnation, the rentable square footage of the Building shall be deemed to be the rentable square footage of the Building immediately prior to such casualty or condemnation. (l) Expense Stop: The Operating Costs for the Building for Operating Year 1999 (the "Base Year"), computed based on the Building being 95% leased and occupied. (see Section 5.2). (m) Security Deposit: $12,126.10 (see Article 9). (n) Building Hours: Monday through Friday 7 a.m. to 6 p.m. Saturday 8 a.m. to 12 Noon Excluding Sundays and legal holidays. After Hours usage of HVAC shall be billed at the rate of $8.00 per hour. Notwithstanding any provision of this Lease to the contrary, Tenant shall have access to the Premises twenty-four (24) hours a day, seven (7) days a week, three hundred sixty-five (365) days a year. (o) Parking: (see Article 6). (p) Tenant Improvement Allowance: See Exhibit D. (q) Tenant Improvements: See Exhibit D. (r) Broker(s): Grubb & Ellis ("Landlord's Broker") shall be entitled to receive a brokerage commission in connection with this Lease. The amount of such commission and other matters are addressed in a separate written agreement. The brokerage commission shall be paid solely by Landlord. 1.2 The following addenda, exhibits (the "Exhibits"), and riders (the "Riders") are attached hereto and incorporated herein by this reference: Addendum to Office Lease Agreement (the "Addendum"), dated of even date herewith, consisting of 1 page. 3 EXHIBIT A Floor Plan of the Building indicating Premises EXHIBIT B Rules and Regulations EXHIBIT C Lease Guarantee (Intentionally Omitted) EXHIBIT D Tenant Improvement Work Letter EXHIBIT E Parking EXHIBIT F Confirmation of Commencement Date RIDER 1 Renewal Option RIDER 2 Landlord Concessions RIDER 3 Expansion Right RIDER 4 Janitorial Cleaning Services 1.3 The Office Lease Agreement, the Addendum, the Exhibits, the Riders and any schedules are collectively referred to herein as the "Lease." ARTICLE 2. PREMISES; RIGHT TO USE COMMON AREAS 2.1 Landlord leases to Tenant and Tenant leases from Landlord the Premises, for and subject to the rents, terms, conditions, covenants, and provisions set forth in this Lease. This Lease is subject to all liens, encumbrances, ground leases, easements, restrictions, covenants and other matters of record, the Rules and Regulations described in Section 14.2 and the Parking Rules and Regulations described in Exhibit E. Tenant and Tenant's agents, contractors, customers, directors, employees, invitees, officers, and patrons (collectively, the "Tenant's Permittees") have a non-exclusive privilege and license to use, during the Lease Term, the Common Areas in common with all other tenants, occupants, and authorized users thereof and their respective permittees. For purposes of this Lease, (a) "Land" consists of the parcel of land containing the Building and (b) "Common Areas" consist of those areas within the Building and Land not leased to any tenant and which are intended by Landlord to be available for the use, benefit, and enjoyment of all occupants of the Building. While the Automobile Parking Area described in Article 6 and Exhibit E is partially located within the Land, it is subject to use by multiple parties as provided therein and is therefore not a "Common Area". 2.2 As used in this Lease, "Interior Common Facilities" means lobbies, corridors, hallways, elevator foyers, restrooms, mail rooms, mechanical and electrical rooms, janitor closets, and other similar facilities used by tenants or for the benefit of tenants on a non-exclusive basis. 4 ARTICLE 3. TERM 3.1 The Lease Term, the Commencement Date and the Expiration Date are as set forth in Article 1. Even though the Lease Term does not commence until the Commencement Date, this Lease shall be in full force and effect as a binding obligation of the parties from and after the date of this Lease. ARTICLE 4. MINIMUM MONTHLY RENT 4.1 Tenant shall pay to Landlord, without deduction, setoff, prior notice, or demand, for the use and occupancy of the Premises, the Minimum Monthly Rent, payable in advance on the first day of each and every calendar month during the Lease Term. If the Lease Term commences on a date other than the first day of a calendar month, the Minimum Monthly Rent for that month (if applicable) shall be prorated on a per diem basis (based on a 30-day month) and be paid to Landlord within five (5) days after the Commencement Date. Tenant's obligation to pay the Minimum Monthly Rent and the Additional Rent are independent of any other term, covenant, condition, or provision herein contained. Minimum Monthly Rent, and Additional Rent as defined in Article 5 may be referred to collectively as "Rent". ARTICLE 5. ADDITIONAL RENT; EXPENSE STOP 5.1 Commencing with the calendar year after the Base Year, Tenant shall pay, as "Additional Rent," Tenant's Pro Rata Share of Operating Costs during each Operating Year of the Lease Term, less the Expense Stop. Tenant's Pro Rata Share of Operating Costs shall be the percentage set forth in Section 1.1(k) of the Operating Costs (as defined in Section 5.4) for the applicable Operating Year (as defined in Section 5.4(c)), and shall be calculated on the basis of the number of rentable square feet included in the Premises. If the Lease Term begins or ends anytime other than the first or last day of an Operating Year, Operating Costs and Tenant's Pro Rata Share thereof shall be prorated appropriately. 5.2 The Minimum Monthly Rent includes an amount equal to one-twelfth (1/12) of the Expense Stop. Prior to the end of each Operating Year, Landlord shall provide Tenant with a written statement of Landlord's estimate of Tenant's Pro Rata Share of Operating Costs for the next succeeding Operating Year. If the estimate of Tenant's Pro Rata Share of the Operating Costs exceeds the Expense Stop, Tenant shall pay Landlord, in addition to and concurrently with each payment of the Minimum Monthly Rent for the next Operating Year, an amount equal to one-twelfth (1/12) of the amount by which Landlord's estimate of Tenant's Pro Rata Share of Operating Costs exceeds the Expense Stop. Landlord may provide Tenant with a revised estimate of Tenant's Pro Rata Share of Operating Costs for the current Operating Year and adjust the required monthly payment to reflect the revised estimate. 5 5.3 Within ninety (90) days after the end of each Operating Year, Landlord shall provide Tenant with a statement showing the actual Operating Costs for the preceding Operating Year and any adjustments to be made as a result thereof. If Tenant's Pro Rata Share of the actual Operating Costs paid or incurred by Landlord during such Operating Year (less the Expense Stop) exceeds the estimates of Operating Costs paid by Tenant during the same Operating Year, Tenant shall remit the excess at the time the next succeeding payment of Minimum Monthly Rent is payable (or within ten (10) days if the Lease Term has expired or been terminated). If Tenant's Pro Rata Share of the actual Operating Costs paid or incurred by Landlord during such Operating Year is less than the estimated amounts paid by Tenant, Landlord shall apply such excess to payments next falling due under this Article (or refund the same to Tenant or credit amounts due from Tenant if the Lease Term has expired or been terminated), provided, however, if such excess amounts exceed the amount to be paid by Tenant over a three (3) month period, Landlord shall refund such excess to Tenant within thirty (30) days. In no event shall the Minimum Monthly Rent be reduced below that set forth in Section 1.1(j). 5.4 As used herein: (a) "Operating Costs" means and includes: (1) Those expenses paid or incurred by Landlord (whether directly or through independent contractors) for managing, maintaining, operating, and repairing the Building, the Common Areas and the Land, and the personal property used in conjunction therewith, including, but not limited to, the cost of utilities, (including, but not limited to, steam, electricity, water, sewer, gas, and other utility charges); services, supplies, repairs, and replacements, or other expenses for managing, maintaining, operating, or repairing the Building, the Common Areas and the Land (including, but not limited to, any structural repairs and replacements, provided, however, that any such costs shall be amortized with interest over the useful life of the alteration or improvement in accordance with generally accepted accounting principles); costs (including interest) associated with any financing incurred in connection with repairing, replacing or maintaining the Building or other capital repair items amortized in accordance with generally accepted accounting principles; insurance (including, without limitation, the coverage described in Article 21, and all other coverage obtained by Landlord as set forth in this Lease, whether by separate policy, inclusion in a blanket policy, or self insurance, in which case the reasonable value of self insurance shall be included in Operating Costs), amortization (over the reasonable life of the item) of the cost of installation of capital investment items which are installed primarily for the purpose of reducing Operating Costs or which may be required by any governmental authority); trash and rubbish removal; janitorial services; compensation (including employment taxes, similar government charges, unemployment insurance costs, vacation allowances, and the cost of providing disability insurance or benefits, pensions, profit sharing benefits, hospitalization, retirement, or other fringe benefits and any other expense imposed on Landlord or its contractors or subcontractors, pursuant to law or pursuant to any collective bargaining agreement covering such employees) of all persons who perform duties in connection with the operation, maintenance, management, and repair of the Building, the Common Areas, and the Land; all costs of uniforms, supplies, and materials used in connection with the operation and maintenance of the Premises, the Building, the Common Areas, and the Land (excluding persons above the level of property manager); reasonable attorney fees and costs (including, but not limited to, fees and costs in connection with the appeal or contest of real 6 estate or other taxes or levies), management fees, and legal and accounting expenses as may be ordinarily incurred in the operation and maintenance of an office building; Landlord's Parking User Expenses for the Building (as defined in EXHIBIT E); and any other expense or charge whether or not hereinabove described which, in accordance with consistently applied generally accepted accounting and management principles would be considered an expense of managing, maintaining, operating, or repairing the Building, the Common Areas and the Land; and (2) All impositions, taxes, assessments (special or otherwise), and other governmental levies and charges of any and every kind, ordinary or extraordinary, foreseen or unforeseen, assessed or imposed, upon or with respect to the ownership of, or other taxable interest attributable to, the Building, the Common Areas, the Land, and any improvements, fixtures, equipment, and other property of Landlord, real or personal, located in, or used in connection with, the operation of the Building, the Common Areas, and the Land and any tax which shall be imposed on any interest or excise in addition to or in lieu of the foregoing real or personal property taxes. Notwithstanding anything to the contrary contained in this Section 5.4(a), in the event the Building is not occupied to the extent of 95% of its rentable square footage during any Operating Year, an adjustment shall be made by Landlord in calculating the Operating Costs for such Operating Year so that the Operating Costs shall be adjusted to the amount that would have been incurred had the Building been occupied to a level of 95% occupancy during such Operating Year. If Landlord shall obtain any abatement, refund or rebate of any real property taxes, Landlord shall promptly forward to Tenant its pro rata share of such abatement, refund or rebate less Tenant's pro rata share of the costs and the fees incurred by Landlord in obtaining such abatement, refund or rebate. (b) Operating Costs do not include (a) depreciation (except as provided in Section 5.4(a)(1)); (b) interest on and amortization of debts (except as provided in Section 5.4(a)(1)); (c) leasehold improvements located in the premises leased by other tenants of the Building, including redecorating made for other tenants of the Building; (d) brokerage commissions and advertising expenses for procuring tenants for the Building or the Property; (e) refinancing costs; (f) the cost of any repair, replacement or addition which would be required to be capitalized under general accepted accounting principles (except as provided in Section 5.4(a)(1)); (g) the cost of any item included in Operating Costs under Section 5.4(a)(1) above to the extent that such cost is reimbursed or paid directly by an insurance company, condemnor, a tenant of the Building or any other party; (h) income, estate, and inheritance taxes levied against Landlord, (i) the cost of performing special services (including decorative painting of premises leased by other tenants of the Building) furnished to other tenants and not furnished to Tenant or costs in providing a materially greater level or amount of services to other tenants than furnished to Tenant; (j) amounts paid for legal, arbitration, accounting, brokerage or other professional services in connection with the leasing of space or in connection with disputes with tenants, former tenants or other occupants of the Building; (k) the amount by which any expense paid to a related corporation, entity or person is in excess of the amount which would be paid in the absence of such relationship; (l) any rent or other charges payable under any ground lease or other lease superior to the Lease; (m) the amount by which marketing or advertising costs substantially exceed usual and customary costs for similar buildings located in the Phoenix, Arizona metropolitan area; (n) Insurance premiums to the extent any tenant causes Landlord's existing insurance premiums to increase or requires Landlord to purchase additional insurance, but only to 7 the extent Landlord does not recover such increases from such tenant; (o) any costs, fines or penalties due to Landlord's violation of any governmental rule or authority (except for expenses incurred in connection with minor repairs or modifications to the Building to conform to the requirements of applicable law); (p) all costs and expenses associated with the removal and clean up of Hazardous Materials caused directly and exclusively by Landlord; (q) the cost of repair or other work (including rebuilding) occasioned by casualty or condemnation; (r) landlord's financing costs; (s) costs and expenses for sculptures, paintings or other works of art, including costs incurred with respect to the purchase, ownership, leasing, showing, promotion, repair and/or maintenance of such works of art; (t) costs of a capital nature, including, without limitation, capital improvements, capital repairs, capital equipment and capital tools, to the extent not amortized over the reasonably anticipated useful life of such item; (u) contributions to charitable organizations; (v) costs incurred in removing the property of former tenants or occupants of the Building; or (w) costs incurred as a result of any so-called "Y2K" problems. (c) "Operating Year" means a year beginning January 1 and ending December 31. 5.5 The determination and statement of expenses shall be made by Landlord and a copy of such statements shall be made available to Tenant upon demand, not more frequently than annually. 5.6 Notwithstanding anything in this Lease to the contrary, no failure by Landlord to give notices or statements of Operating Costs within the time specified, and no grant of "free rent" or fee concessions, shall waive Landlord's right to require payment (or to recover underpayments) by Tenant of Tenant's Pro Rata Share of Operating Costs in excess of the Expense Stop. Notwithstanding the preceding sentence, if (a) Landlord has failed to furnish Tenant with a statement of Operating Costs within two (2) years after the date such statement is due and (b) Tenant has provided written notice to Landlord of such failure, and (c) Landlord has failed to provide such statement within ten (10) business days after receipt of such notice, then Landlord shall be deemed to have waived its right to require Tenant to pay excess Operating Costs per rentable square foot for the Operating Year for which Landlord has failed to provide such statement of Operating Costs. The failure by Tenant to complete the inspection permitted in Section 5.7 below within six (6) months after receipt by Tenant of a statement of Operating Costs shall be deemed a waiver of Tenant's right to require Landlord to refund to Tenant any overpayment by Tenant of Operating Costs paid pursuant to such statement. 5.7 Landlord shall, if requested by Tenant within six (6) months after Tenant's receipt of Landlord's itemized statement of Operating Costs, furnish Tenant any and all reasonable backup information and documentation pertaining to any component Operating Costs contained in that statement. In addition, Tenant or its authorized agent shall have the right, within six (6) months after receipt of Landlord's itemized statement of Operating Costs, upon ten (10) days prior written notice to Landlord, to inspect, at Landlord's main accounting offices, Landlord's books and records regarding Operating Costs. Landlord agrees to maintain its books and records at its main accounting offices for a minimum of six (6) months following the expiration of each accounting year to which such books and records pertain. In the event that it shall be determined following Tenant's audit that Landlord has overstated Tenant's pro rata share of Operating 8 Costs by four percent (4%) or more during any one (1) Operating Year, then Landlord shall pay for the reasonable costs of the audit. Any refund due Tenant shall be payable in any event. ARTICLE 6. PARKING 6.1 Landlord shall operate and maintain or cause to be maintained and operated the Automobile Parking Area (as defined in EXHIBIT E) for the benefit and use of all tenants of the Building, and their permittees. Landlord's and Tenant's rights and responsibilities with respect to the Automobile Parking Area are as set forth in EXHIBIT E. ARTICLE 7. RENT TAX AND PERSONAL PROPERTY TAXES 7.1 Tenant shall pay to Landlord, in addition to, and simultaneously with, any other amounts payable to Landlord under this Lease, a sum equal to the aggregate of any municipal, county, state, or federal excise, sales, use, or transaction privilege taxes now or hereafter legally levied or imposed against, or on account of, any or all amounts payable under this Lease by Tenant or the receipt thereof by Landlord (except taxes which are commonly franchise, gift, estate, inheritance, conveyance, transfer or income taxes). 7.2 Tenant shall pay, prior to delinquency, all taxes levied upon fixtures, furnishings, equipment, and personal property placed on the Premises by Tenant. If any or all of Tenant's fixtures, furnishings, equipment, or personal property shall be assessed and taxed with Landlord's real property, Tenant shall reimburse Landlord for such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to the Tenant's property. ARTICLE 8. PAYMENT OF RENT; LATE CHARGES 8.1 Tenant shall pay the Minimum Monthly Rent and all other charges herein specified to Landlord at the address set forth in Section 1.1(b) of this Lease, or to another person and at another address as Landlord from time to time designates in writing. 8.2 Minimum Monthly Rent, Additional Rent or other charges payable by Tenant to Landlord under the terms of this Lease not received within ten (10) days after written notice that the same is past due (the "Delinquency Date") shall, automatically, and without notice, incur a one-time late charge of 5% of the delinquent amount; provided, however, Landlord shall not be required to give Tenant such notice in connection with the third failure of Tenant to pay Minimum Monthly Rent, Additional Rent or other charges when due and each subsequent occurrence during any sixty (60) month period during the Term or any renewal or extension of the Term. The parties acknowledge that this is a reasonable fee to compensate Landlord for its additional costs to process delinquencies, and is not a penalty. Further, any Minimum Monthly Rent, Additional Rent, or other 9 charges payable by Tenant to Landlord and not paid prior to the Delinquency Date shall bear interest from the Delinquency Date at the "Delinquency Interest Rate" as that term is defined below. The term "Delinquency Interest Rate" as used in this Lease means the greater of (i) five percentage points over the interest rate publicly announced from time to time by Bank of America, Arizona (BOA), or its successor, as its prime rate and if such term is no longer utilized, the interest rate utilized by BOA, or its successor, to replace the prime rate, or (ii) 15% per annum. Notwithstanding the above, if the Delinquency Interest Rate exceeds the maximum interest rate allowed by law, the Delinquency Rate shall be reduced to the highest rate allowed by law. 8.3 Landlord's right to receive (and receipt of) late charges or interest for delinquent amounts shall not limit or restrict Landlord's other rights and remedies. Landlord's acceptance of partial payments of amounts due, or payments without inclusion of late charges or interest shall not be deemed to limit, restrict, or waive Landlord's right to collect the full amounts due and all accrued late charges and interest; nor shall any endorsement or statement on any check or on any letter accompanying any check or payment as Minimum Monthly Rent or Additional Rent be deemed an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of any unpaid or owing Minimum Monthly Rent or Additional Rent or to pursue any other remedy set forth in this Lease. Receipt of a check shall not be deemed to constitute payment unless the check is honored by the bank upon which it is drawn, and late charges and interest shall accrue from the original due date if a check is dishonored. Landlord may require that all payments be made by cashier's check. No receipt of money by Landlord from Tenant after the termination of this Lease, after the service of any notice relating to the termination of this Lease, after the commencement of any suit, or after final judgment for possession of the Premises, shall reinstate, continue or extend the Lease Term or affect any such notice, demand, suit or judgment. ARTICLE 9. SECURITY DEPOSIT 9.1 Tenant shall, upon execution of this Lease, deposit with Landlord the Security Deposit, as security for the full and faithful performance of each and every term, condition, covenant, and provision of this Lease. 9.2 If Tenant defaults in any of the terms, conditions, covenants, and provisions of this Lease, including, but not limited to, the payment of Minimum Monthly Rent, Additional Rent, or other charges, Landlord may, but need not, use, apply, or retain the whole, or any part, of the Security Deposit, not as liquidated damages, but for the payment of any Minimum Monthly Rent, Additional Rent or charge then due or for any other sum which Landlord may spend, or be required to spend, by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant, no later than five (5) calendar days following written demand, shall deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant's failure to do so shall be a material breach of this Lease, entitling Landlord to invoke any and all of its other remedies available for default hereunder. Should Tenant fully and faithfully comply with all of the terms, conditions, covenants, and provisions of this Lease, the Security Deposit, or any balance of the Security Deposit, shall be returned to Tenant or, at the option of Landlord, to 10 the last assignee of Tenant's interest in this Lease within ten (10) days after the Expiration Date and surrender of the Premises by Tenant in full compliance with this Lease. Landlord's rights regarding the Security Deposit are in addition to and do not preclude any other rights, remedies, or recoveries available to Landlord by law or pursuant to this Lease. Tenant acknowledges that the Security Deposit is not an advance payment of Minimum Monthly Rent, Additional Rent, or any other charges owing under the Lease, and is not a payment of "last month's rent." The payment by Tenant of the Security Deposit to Landlord does not constitute a payment or performance by Tenant of any sums owing pursuant to this Lease except the Security Deposit required by this Article 9. 9.3 Tenant agrees that, if Landlord sells or exchanges Landlord's interest in the Premises during the Lease Term, Landlord may pay, transfer, or assign the Security Deposit to any subsequent owner, and in that event Tenant does hereby agree to release Landlord from all liability for the return of the Security Deposit. Landlord shall not be required to maintain such funds in a segregated account, but may deposit such funds in any general account of Landlord, provided that such commingling in no way affects Landlord's obligations to Tenant regarding such funds hereunder. Tenant shall not be entitled to any interest on the Security Deposit. ARTICLE 10. CONDITION OF THE PREMISES 10.1 As of the Commencement Date, but subject to the terms and conditions of Exhibit "D" attached hereto, Tenant has had the opportunity fully to inspect the Premises and accepts the Premises "AS IS." Landlord makes no warranty as to the condition of the Premises. Notwithstanding the foregoing, Landlord represents and warrants to Tenant that on the date of delivery of possession of the Premises to Tenant, all work performed by Landlord in the Premises and on the floor of the Building where the Premises are located shall be in compliance with all governmental rules, orders, regulations and requirements then in effect, including the Americans With Disabilities Act. Landlord's liability under the foregoing warranty shall be limited to the repair and/or replacement, as the case may be, of defective parts and, in no event, shall Landlord be liable for special or consequential damages. In the event of a breach of the foregoing warranty, Landlord shall commence and thereafter diligently pursue to completion such corrective work as may be required for the Common Areas on the Floor of the Building where the Premises are located to comply with all governmental rules, orders, regulations and requirements then in effect, including the Americans With Disabilities Act. All such corrective work shall be performed by Landlord at its sole cost and expense and shall not be included within the Operating Costs. Tenant shall have no responsibilities with respect to compliance of the Building or the Common Areas with the Americans With Disabilities Act. ARTICLE 11. TENANT IMPROVEMENTS AND ALTERATIONS 11.1 Landlord and Tenant agree to the construction of tenant improvements in and for the Premises in accordance with the terms and conditions set forth in Exhibit D (the "Tenant Improvements"). 11 11.2 Following the completion of the Tenant Improvements described in Section 11.1, Tenant may place partitions and fixtures and may make improvements and other alterations to the interior of the Premises at Tenant's expense, provided, however, that Tenant shall not be permitted to do any structural work or work that affects the structural integrity of the Building; and further provided, however, that prior to commencing any such work, Tenant shall first obtain the written consent of Landlord to the proposed work, by submitting to Landlord for Landlord's approval (a) complete plans and specifications for the proposed work (which consent shall not be unreasonably withheld, conditioned or delayed); (b) the proposed architect and/or contractor(s) for such alterations and/or improvements; (c) the materials used in connection with such alterations, including, without limitation, paint, carpeting, wall or window coverings and the use of carpet glues and other chemicals for installation of such materials; and (d) evidence of Tenant's financial ability to complete the construction. Such submissions to Landlord shall be made at least ten (10) days prior to the commencement of any construction in the Premises. Landlord may require that the work be done by Landlord's own employees, its construction contractors, or under Landlord's direction, but at the expense of Tenant; and Landlord may, as a condition to consenting to such work, require that Tenant provide financial security adequate in Landlord's judgment so that the improvements or other alterations to the Premises will be completed in a good, workmanlike and lien free manner. Landlord may also require that any work done to the interior of the Premises be subject to the supervision of Landlord or its designee. All such improvements or alterations must conform to and be in substantial accordance in quality and appearance with the quality and appearance of improvements in a first-class, Class A, institutional grade office building. All such improvements shall be the property of Landlord. In the event Landlord consents to the use by Tenant of its own architect and/or contractor for the installation of any such alterations or improvements, prior to the commencement of such work, Tenant shall provide Landlord with evidence that Tenant's contractor has procured worker's compensation, liability and property damage insurance (naming Landlord as an additional insured) in a form and in an amount reasonably approved by Landlord, and evidence that Tenant's architect and/or contractor has procured the necessary permits, certificates and approvals from the appropriate governmental authorities. Tenant acknowledges and agrees that any review by Landlord of Tenant's plans and specifications and/or right of approval exercised by Landlord with respect to Tenant's architect and/or contractor is for Landlord's benefit only and Landlord shall not, by virtue of such review or right of approval, be deemed to make any representation, warranty or acknowledgment to Tenant or to any other person or entity as to the adequacy of Tenant's plans and specifications or as to the ability, capability or reputation of Tenant's architect and/or contractor. ARTICLE 12. FIXTURES; PERSONAL PROPERTY; AND SURRENDER OF PREMISES 12.1 All trade fixtures installed by Tenant and movable furniture that is not permanently affixed to the Premises shall remain the property of Tenant and may be removed by Tenant not later than the Expiration Date or the earlier termination of (a) the Lease Term or (b) Tenant's right to possession provided that Tenant is not in default hereunder at the time of the proposed removal and further provided that there is no Minimum Monthly Rent, Additional Rent or other charges then due but unpaid hereunder. Tenant shall promptly repair, at its own 12 expense, any damage resulting from such removal. If Tenant intentionally fails to remove its personal property, trade fixtures, and moveable furniture upon the Expiration Date or the earlier termination of the Lease Term or Tenant's right to possession, the same shall be deemed abandoned and shall become the property of Landlord. Notwithstanding the foregoing, at any time during the Lease Term or thereafter Landlord may require Tenant to remove any personal property placed in the Premises by Tenant or by others at Tenant's direction or with Tenant's actual or implied consent, if the same is inherently dangerous, illegal, or actually or potentially an environmental hazard, and repair any damage caused thereby. 12.2 All cabinetry, built-in appliances, wall coverings, floor coverings, window coverings, electrical and plumbing fixtures and conduits, lighting, and other special fixtures that may be placed upon, installed in, or attached to the Premises by Tenant shall, at the Expiration Date or earlier termination of this Lease for any reason, be the property of Landlord and remain upon and be surrendered with the Premises, without disturbance, molestation, or injury unless Landlord, at the time it gives approval for the installation of such items, notifies Tenant that such items shall be required to be removed, in which case Tenant shall remove the same prior to the Expiration Date or earlier termination of the Lease Term and repair any damage caused thereby. 12.3 At the Expiration Date or upon the earlier termination of the Lease Term or Tenant's right to possession, Tenant shall surrender the Premises in good order and condition, reasonable wear and tear and casualty damage excepted, and shall deliver all keys to Landlord. Tenant shall further surrender to Landlord any Automobile Parking Areas cards issued under Article 6. ARTICLE 13. LIENS Except for work performed by Landlord on Tenant's behalf, Tenant shall keep the Premises, the Building and the Land free from any liens arising out of work performed, material furnished, or obligations incurred due to Tenant's actions, the actions of Tenant's employees, agents or contractors or the failure of Tenant to comply with any law excluding, however, security interests in Tenant's personal property subordinate to Landlord's lien rights. In the event any such lien does attach against the Premises, the Building, or the Land, and Tenant does not discharge the lien or post bond (which under law would prevent foreclosure or execution under the lien) within ten (10) days after demand by Landlord, such event shall be a default by Tenant under this Lease and, in addition to Landlord's other rights and remedies, Landlord may take any action necessary to discharge the lien. Tenant shall pay Landlord upon demand all costs or expenses (including reasonable attorney's fees and costs, whether or not suit be instituted) incurred by Landlord by reason of attachment or discharge of such lien and shall indemnify, defend and hold Landlord harmless for, from and against any and all liability, claims, or losses arising out of attachment of such lien. 13 ARTICLE 14. USE OF PREMISES; RULES AND REGULATIONS 14.1 Without the prior approval of Landlord, Tenant shall not use the Premises for any use other than for general business office purposes. 14.2 Tenant agrees to: (a) Comply with all statutes, ordinances, rules, regulations, and orders of all municipal, state, and federal authorities now in force or which may hereafter be in force pertaining to the use of the Premises. Tenant shall not use or permit the Premises to be used in whole or in part for any purpose or use in violation of any of the laws, ordinances, regulations, or rules of any public authority at any time applicable thereto; (b) Keep the Premises in a neat, sanitary, and orderly condition, free of debris, and shall not deposit or allow Tenant's Permittees to deposit trash, waste, or debris within Common Areas except within designated areas; (c) Not commit, or allow Tenant's Permittees to commit, any waste upon the Premises, Building, Common Areas or Land; (d) Not engage, or allow Tenant's Permittees to engage, in any activity which will increase the existing premium rate of insurance on the Premises, Building or Building Common Areas or cause a cancellation of any insurance policy or permit to remain in or about any such area any article that may be prohibited by standard form fire insurance policies; (e) Not use, or allow Tenant's Permittees to use, the Premises, Building or Common Areas for or carry on or permit any offensive, noisy, or dangerous trade, business, manufacture, or occupation, or any nuisance or anything against public policy, or interfere with the business of or disturb the quiet enjoyment of any other tenant in the Building or Project; (f) Not use the exterior of the roof or walls of the Premises or the Building for any purpose or allow Tenant's Permittees to do so; (g) Not display anything in any windows unless and until Landlord has consented thereto; (h) Not use or allow Tenant's Permittees to use the Common Areas for purposes other than the purposes intended for such areas; and (i) Faithfully observe and comply (and cause Tenant's Permittees to observe and comply) with the Rules and Regulations printed on Exhibit B to this Lease (the "Rules and Regulations"), the Parking Rules and Regulations described in Article 6, and all reasonable and non-discriminatory modifications of and additions thereto that are applied in a commercially reasonable manner. 14 (j) Neither Landlord nor Tenant shall use, generate, manufacture, store, or dispose of, in, under, or about the Premises, the Building, or the Land, or transport to or from the Premises, the Building or the Land, any Hazardous Materials. For purposes of this Lease, "Hazardous Materials" includes, but is not limited to: (i) flammable, explosive, or radioactive materials, hazardous wastes, toxic substances, or related materials; (ii) all substances defined as "hazardous substances," "hazardous materials," "toxic substances," or "hazardous chemical substances or mixtures" in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, et seq., as amended by Superfund Amendments and Reauthorization Act of 1986; the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1901, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601, et seq.; (iii) those substances listed in the United States Department of Transportation Table (49 CFR 172.10 and amendments thereto) or by the Environmental Protection Agency (or any successor agent) as hazardous substances (40 CFR Part 302 and amendments thereto); (iv) any material, waste, or substance which is (A) petroleum, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant to ss. 311 of the Clean Water Act, 33 U.S.C. S 1251 et seq. (33 U.S.C. ss. 1321) or listed pursuant to the Clean Water Act (33 U.S.C. ss. 1317); (E) flammable explosives; or (F) radioactive materials; and (v) all substances defined as "hazardous wastes" in Arizona Revised Statutes ss. 36-3501(16). 14.3 Tenant shall be solely responsible for, and shall indemnify, defend and hold harmless Landlord, its directors, officers, employees, agents, successors, and assigns for, from and against, any loss, damage, cost, expense, or liability directly or indirectly arising out of or attributable to Tenant's and Tenant's Permittees' use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Premises, the Building or the Land, including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repairs, cleanup or detoxification of the Premises, the Building, the Land, or the Project, and the preparation and implementation of any closure, remedial, or other required plans; and (c) all reasonable costs and expenses incurred by Landlord in connection with clauses (a) and (b) of this Section 14.3, including but not limited to reasonable attorneys' fees. Notwithstanding the foregoing, Tenant may use in the Premises those Hazardous Materials which are customarily used for general office purposes (i.e., copier toner, liquid paper, glue, ink, and Landlord approved cleaning solvents) so long as they are used, stored, disposed of and handled in reasonably customary quantities for office use and in compliance with all applicable codes, laws, ordinances, rules, regulations, and all amendments or supplements in effect from time to time. Tenant's obligations hereunder shall survive the termination or earlier expiration of this Lease. ARTICLE 15. RIGHTS RESERVED BY LANDLORD In addition to all other rights, Landlord has the following rights, exercisable without notice and without liability to Tenant and without effecting an eviction, constructive or actual, and without giving right to any claim for set off or abatement of Rent: 15 (a) To decorate and to make repairs, alterations, additions, changes, or improvements, whether structural or otherwise, in and about the Building, or any part thereof (except the Premises without first obtaining the prior written consent of Tenant, which consent shall not be unreasonably withheld, conditioned or delayed), and, subject to obtaining Tenant's consent, for such purposes to enter upon the Premises and during the continuance of any of said work to temporarily close doors, entryways, public space, and corridors in the Building, to interrupt or temporarily suspend Building services and facilities and to change the number of floors, the size, dimensions, arrangement, and location of entrances or passageways, doors and doorways, corridors, elevators, stairs, toilets, or other Interior Common Facilities or Common Areas, so long as the Premises are reasonably accessible and provided that Landlord uses commercially reasonable efforts to prevent any material disruption in the conduct of Tenant's business in the Premises; (b) To change, rearrange, add to, or subtract from the Common Areas, provided Tenant shall always have adequate access to the Premises; (c) To grant to anyone the exclusive right to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted herein; (d) To approve the weight, size, and location of safes and other heavy equipment and articles in and about the Premises and the Building, and to require all such items and furniture and similar items to be moved into and out of the Building and Premises only at such times and in such manner as Landlord shall direct in writing. Movements of Tenant's property into or out of the Building and within the Building are entirely at the risk and responsibility of Tenant and Landlord reserves the right to require permits before allowing any such property to be moved into or out of the Building; (e) To prohibit the placing of vending or dispensing machines of any kind in or about the Premises without the prior written permission of Landlord; (f) To take all such reasonable measures as Landlord may deem advisable for the security of the Building and its occupants, including without limitation, the search of all persons entering or leaving the Building, the evacuation of the Building for cause, suspected cause, or for drill purposes, the temporary denial of access to the Building, and the closing of the Building after regular working hours; ARTICLE 16. QUIET ENJOYMENT Landlord agrees that upon Tenant's paying the Rent and keeping and performing all of the terms, conditions, covenants, and provisions of this Lease, Landlord (and no one claiming through Landlord) will do nothing that will prevent Tenant from peaceably and quietly enjoying, holding, and occupying the Premises during the Lease Term. This covenant shall not extend to any disturbance, act, or condition brought about by any other tenant or occupant in the Building and shall be subject to the rights of Landlord set forth in this Lease. 16 ARTICLE 17. MAINTENANCE AND REPAIR 17.1 Subject to Articles 15, 22 and 23 and Tenant's obligations under Sections 17.2 and 17.3, Landlord shall maintain the Premises and Building in good and tenantable condition and repair, reasonable wear and tear excepted. Tenant waives all rights to make repairs at the expense of Landlord. Landlord's maintenance and repair costs under this Section 17.1 are deemed to be Operating Costs. The foregoing notwithstanding, Landlord shall not be liable to Tenant for failure to make repairs as required herein unless Tenant has previously notified Landlord, in writing, of the need for such repairs and Landlord has failed to commence said repairs within a reasonable time (but in no event less than thirty (30) days) following receipt of Tenant's written notification, or such lesser period as shall be reasonable in the event of a bona fide emergency. Landlord acknowledges that the failure of the HVAC or building electrical systems shall be deemed a bona fide emergency. Landlord shall have no obligation to alter, remodel, improve, renovate, decorate, or paint the Premises at any time during the Lease Term. 17.2 If Landlord would be required to perform any maintenance or make any repairs under Section 17.1 because of: (a) modifications to the roof, walls, foundation, and floor of the Building from that set forth in Landlord's plans and specifications which are required by Tenant's design for improvements, alterations and additions; (b) installation of Tenant's improvements, fixtures, or equipment; (c) a negligent or wrongful act of Tenant or Tenant's Permittees; or (d) Tenant's failure to perform any of Tenant's obligations under this Lease, Landlord may perform the maintenance or repairs and Tenant shall reimburse Landlord the cost thereof plus a reasonable amount (not to exceed ten percent (10%) of the cost for the maintenance or repair) for Landlord's overhead (to the extent all such sums are not received by Landlord from insurance proceeds) upon receipt of a statement from Landlord. Landlord's costs under this Section 17.2 shall not be an Operating Cost for purposes of Article 5. 17.3 Tenant agrees to: (a) Pay Landlord's cost of maintenance and repair, including additional costs for maintenance, repair or janitorial services that exceed the level of such services that Landlord is otherwise required to perform or provide hereunder, in connection with any special leasehold improvements. Landlord's costs under this subsection will not be deemed an Operating Cost; (b) Repair or, to the extent repair is not feasible, replace all ceiling and wall finishes (including painting) and floor or window coverings which require repair or replacement during the Lease Term, at Tenant's sole cost; (c) Indemnify, defend and hold Landlord harmless for, from and against any and all liability, obligations, claims, costs, damages, expenses, or attorneys' fees incurred or sustained as a result of any damage, injury, or destruction of the Premises, Building or Common Areas arising from the negligence or willful misconduct of Tenant or Tenant's Permittees. 17 17.4 Notwithstanding anything in this Lease to the contrary, to the extent the terms and provisions of Article 22 conflict with, or are inconsistent with, the terms and provisions of this Article 17, the terms and provisions of Article 22 shall control and prevail. ARTICLE 18. UTILITIES AND JANITORIAL SERVICES 18.1 Landlord agrees to furnish to the Premises during Building Hours as defined in Article 1, and subject to the Rules and Regulations, heat and air conditioning required in Landlord's judgment for normal use and occupation of the Premises and janitorial services for the Premises and Common Areas. Landlord further agrees to furnish hot and cold water to those areas provided for general use of all tenants in the Building, as well as electricity suitable for the intended use of the Premises, 24 hours a day, 7 days a week, 365 days a year. If the Building includes an elevator, Landlord will use diligent efforts to provide continuous elevator service for the Building, but Landlord does not guarantee that all elevators will be operational at all times. 18.2 As used in this Article 18, "Excess Consumption" means the consumption of electrical current (including current in excess of 120 volts), water, heat, cooling, or compressed air (if compressed air is furnished by Landlord) in excess of that which would be provided to the Premises were the Premises to be (a) used as general office space during Building Hours; and (b) equipped only with typewriters, desk calculators, normal office computer equipment, dictation equipment, and copying machines with power requirements of 30 amperes or less. Tenant will not, without the prior written consent of Landlord, use any apparatus or device in the Premises, including but without limitation thereto, duplicating machines, electronic data processing machines, punch card machines, and machines using electrical current in excess of 110 volts, which will in any way result in Excess Consumption; or connect, except through existing electrical outlets, water pipes, ducts or airpipes (if any) in the Premises, any apparatus or device for the purpose of using electric current, water, heating, cooling, or air. If Tenant shall require electric current, water, heating, cooling, or air which will result in Excess Consumption, Tenant shall first procure the consent of Landlord to the use thereof, and Landlord may cause separate meters to be installed to measure Excess Consumption or establish another basis for determining the amount of Excess Consumption. Tenant agrees to pay for the cost of the Excess Consumption based on Landlord's cost, plus any additional expense incurred in installing meters or keeping account of the Excess Consumption, including (but not limited to) depreciation, accelerated depreciation and additional maintenance, at the same time as payment of the Minimum Monthly Rent is made. In lieu of the foregoing with respect to excess Consumption of heating and/or cooling, Landlord may establish and modify from time to time, a per hour charge for providing such service. Tenant further agrees to pay Landlord the costs, if any, to upgrade existing mechanical, electrical, plumbing, and air facilities, if required to provide Excess Consumption, upon receipt of a statement therefor. Excess Consumption costs will not be an Operating Cost for purposes of Article 5. 18 18.3 Landlord shall not be liable for damages nor shall rent or other charges abate in the event of any failure or interruption of any utility or service supplied to the Premises or Building by a regulated utility or municipality, or any failure of a Building system supplying any such service to the Premises and no such failure or interruption shall entitle Tenant to terminate this Lease. ARTICLE 19. ENTRY AND INSPECTION 19.1 Landlord and Landlord's agents shall have the right to enter into and upon the Premises at all reasonable times upon reasonable prior written notice to Tenant except where such entry shall occur at the request of Tenant, in which event no notice shall be required, or upon notice practical under the circumstances in the event of an emergency, for the purpose of inspecting the same; performing Landlord's maintenance and repair obligations under this Lease; maintaining or making repairs, alterations, or additions to any other portion of the Building, including the erection and maintenance of such scaffolding, canopy, fences and props as may be required; posting notices of nonliability for alterations, additions, or repairs, or of the availability of the Premises for lease or sale; or exhibiting the Premises to potential tenants and purchasers. Tenant shall permit Landlord, at any time within one hundred eighty (180) days prior to the Expiration Date, to show the Premises to prospective tenants during regular Building Hours and upon twenty-four (24) hours prior notice to Tenant. 19.2 If Tenant shall not be personally present to open and permit an entry into said Premises, at any time, when for any reason an entry therein shall be necessary or permissible, Landlord or Landlord's agents may use a master key to enter, without rendering Landlord or such agents liable therefor, and without in any manner affecting the obligations and covenants of this Lease. Landlord shall be permitted to take any action under this Article without causing any abatement of rent or liability to Tenant for any loss of occupation or quiet enjoyment of the Premises, nor shall such action by Landlord be deemed an actual or constructive eviction. ARTICLE 20. TENANT'S INSURANCE AND INDEMNIFICATION OF LANDLORD 20.1 All merchandise, furniture, and other personal property and fixtures belonging to Tenant and all persons claiming by or through Tenant shall be placed and remain on the Premises at Tenant's sole risk, unless the damage is caused by the negligence or willful misconduct of Landlord. Tenant hereby waives all claims against Landlord for loss, injury or damage to all persons and property on the Premises or the Common Areas from theft, fire, water, gas, or otherwise, including sprinkler leakage or bursting pipes, unless the damage is caused by the negligence or willful misconduct of Landlord. 19 20.2 Tenant shall secure and maintain, at its own expense throughout the term of this Lease, and for the additional time periods specified below, the following minimum types and amounts of insurance, in form and with companies acceptable to Landlord, insuring Tenant, its employees, agents and designees: (a) WORKERS' COMPENSATION INSURANCE, the amount and scope of which shall be the GREATER of (1) the insurance currently maintained by Tenant, or (2) the amount and scope required by statute or other governing law. (b) EMPLOYER'S LIABILITY INSURANCE in amounts equal to the GREATER of (1) the insurance currently maintained by Tenant, OR (2) the following: Bodily Injury by accident - $500,000.00 each accident Bodily Injury by disease - $500,000.00 policy limit Bodily Injury by disease - $500,000.00 each employee (c) COMMERCIAL GENERAL LIABILITY INSURANCE on an occurrence basis, without claims-made features, with bodily injury and property damage coverage in an amount equal to the GREATER of (1) the insurance currently maintained by Tenant, or (2) $1,000,000.00 each occurrence and $2,000,000.00 in the aggregate; and such insurance shall include the following coverages: (1) Premises and Operations coverage with X, C, and U exclusions for explosion, collapse, and underground property damage under both premises/operations and contractual liability coverage parts deleted, if applicable; (2) Owners and Contractors Protective coverage; (3) Products and Completed Operations coverage; (4) Blanket Contractual coverage, including both oral and written contracts; (5) Personal Injury coverage; (6) Broad Form Property Damage coverage, including completed operations. (d) All Risk Property Insurance, including coverage for vandalism, malicious mischief and sprinkler leakage, insuring fixtures, glass, equipment, merchandize, inventory and personal property in, and all other contents of, the Premises, and (if any) all mechanical, plumbing, heating, ventilating, air condition, electrical, telecommunication and other equipment, systems and facilities located on the Premises. Such insurance shall be in an amount equal to 100% of the replacement value thereof from time to time (and Tenant shall re-determine the same as frequently as necessary in order to comply herewith). The proceeds of such insurance, so long as this Lease remains in effect, shall be used to repair and/or replace the fixtures, glass, equipment, merchandise, inventory and personal property in and all other contents of the Premises, and 20 (if any) all mechanical, plumbing, heating, ventilating, air conditioning, electrical, telecommunication and other equipment, systems and facilities so insured. (e) Business Income Insurance sufficient to cover, for a period of not less than one year, all rental, expense and other payment obligations of Tenant under this Lease, including, without limitation, Base Rent and adjustments thereto and Taxes, Operating Expenses, and all other costs, fees, charges, and payments which would be borne by or due from Tenant under this Lease if the Premises and Tenant's business were fully open and operating. 20.3 All insurance policies maintained to provide the coverages required to be maintained by Tenant hereunder shall be: (a) Placed with insurance companies authorized to do business in the state in which the Premises are located, and with companies rated, at a minimum, "A-" by Best's Key Rating Guide; (b) Endorsed to provide for at least ten (10) days' advance written notice to Landlord of cancellation due to non-payment and thirty (30) days' advance written notice to Landlord of material modification or cancellation for any reason other than non-payment; and (c) Endorsed to stipulate that coverages afforded under such policies are primary insurance as respects Landlord and that any other insurance maintained by Landlord are excess and non-contributing with the insurance required hereunder. 20.4 NO ENDORSEMENT LIMITING OR EXCLUDING A REQUIRED COVERAGE IS PERMITTED. 20.5 Tenant shall deliver to Landlord, upon execution of this Agreement, written evidence of the insurance coverages required herein. Tenant shall deliver to Landlord, no less than fifteen (15) days prior to the expiration of any required coverage, written evidence of the renewal or replacement of such coverage. Landlord's failure, at any time, to object to Tenant's failure to provide the specified insurance or written evidence thereof (either as to the type or amount of such insurance) shall not be deemed as a waiver of Tenant's obligations under this Section. 20.6 Upon execution of this Agreement, Tenant shall provide certificates evidencing the coverages required herein, including additional insured endorsements as required. 20.7 If Tenant fails to furnish and maintain the insurance required by this section, Landlord may (but is not required to) purchase such insurance on behalf of Tenant, and the Tenant shall pay the cost thereof to Landlord upon demand and shall furnish to Tenant any information needed to obtain such insurance. 20.8 The insurance requirements in this section shall not in any way limit, in either scope or amount, the indemnity obligations separately owed by Tenant to Landlord under this Lease. 21 20.9 TENANT HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD LANDLORD AND ANY SUBSIDIARY, PARENT OR AFFILIATE CORPORATIONS OF LANDLORD AND ALL OF THEIR DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES (COLLECTIVELY, "INDEMNITEES") HARMLESS FOR, FROM, AND AGAINST ALL LOSSES, CLAIMS, LIABILITIES, INJURIES, COSTS AND EXPENSES, THAT ANY INDEMNITEE MAY INCUR BY REASON OF ANY INJURY OR DAMAGE SUSTAINED TO ANY PERSON OR PROPERTY ARISING OUT OF OR OCCURRING IN CONNECTION WITH THE ALLEGED OR ACTUAL ACTS, ERRORS, OR OMISSIONS OF TENANT, TENANT'S PERMITTEES, OR ANY FIRM OR ANY OTHER PERSON DIRECTLY EMPLOYED BY TENANT, OR ANY OF THEM, THROUGHOUT THE TERM OF THIS LEASE, OR ANY ACTIVITY ASSOCIATED THEREWITH OR RELATED THERETO. TENANT'S DUTY TO DEFEND AND INDEMNIFY INDEMNITEES SHALL EXIST EVEN IF THE ALLEGED INJURIES OR DAMAGES SUSTAINED BY THE CLAIMANT ARE THE RESULT IN PART OF INDEMNITEES' ACTIVE OR PASSIVE NEGLIGENCE, BUT THE DUTY TO DEFEND AND INDEMNIFY INDEMNITEES SHALL NOT EXTEND TO INJURIES OR DAMAGES THAT ARE THE RESULT OF INDEMNITEES' NEGLIGENCE OR WILLFUL MISCONDUCT. TENANT'S DUTY TO DEFEND IS SEPARATE AND DISTINCT FROM THE DUTY TO INDEMNIFY AND SHALL IMMEDIATELY ARISE WHEN A CLAIM IS ASSERTED AGAINST INDEMNITEES IN CONNECTION WITH THE PERFORMANCE OF TENANT, OR THOSE FOR WHOM TENANT IS LIABLE, IN CONNECTION WITH THIS AGREEMENT, AND REGARDLESS OF WHETHER OTHERS MAY OWE INDEMNITEES A DUTY OF DEFENSE AND/OR INDEMNITY. THE INDEMNITY RIGHTS AND OBLIGATIONS IDENTIFIED IN THIS LEASE SHALL BE, AND ARE, THE ONLY INDEMNITY RIGHTS AND OBLIGATIONS BETWEEN THE PARTIES, IN LAW OR EQUITY, ARISING OUT OF OR RELATED TO TENANT UNDER THIS LEASE OR ANY CLAIMS ASSERTED IN RELATION THERETO. ARTICLE 21. LANDLORD'S INSURANCE 21.1 Landlord shall maintain Special Form (Causes of Loss) including vandalism and malicious mischief, sprinkler leakage damage, and flood and boiler explosion endorsements throughout the Lease Term on the Building (including the Premises and the permanent Tenant Improvements but excluding Tenant's trade fixtures and personal property) in an amount equal to 100% of the insurable replacement value with no coinsurance penalty and may name the holder of any mortgage or deed of trust and any ground lessor as additional insured. At Landlord's option, the policy of insurance may include a business interruption insurance endorsement for loss of rents. So long as Landlord's net worth is greater than $10,000,000 (as reflected on Landlord's financial statements prepared in accordance with generally accepted accounting principles consistently applied), Landlord may elect to self insure and otherwise retain the risk with respect to liability insurance required to be maintained by Landlord for liability not exceeding $250,000. Landlord may elect to self insure or otherwise retain the risk in connection with the casualty insurance required to be maintained by Landlord hereunder in an amount not to exceed 10% of the replacement value of the Building. Landlord shall not include as an Operating Expense an imputed premium or charge for self-insurance or risk retention or any 22 deductible in connection with any amount with respect to which Landlord elects to self-insure or retain the risk. The cost of the insurance obtained under this Section 21.1 shall be an Operating Cost under Article 5 of this Lease. If, however, during the Lease Term, premiums for Special Form (Causes of Loss) insurance are or may be calculated by rating the premises of individual tenants within the Building and it is determined that the rate for the Premises, due to Tenant's special fixtures, special leasehold improvements, business or otherwise, is in excess of the average rate attributable to all premises in the Building, Tenant agrees to pay Landlord no later than five (5) calendar days following demand the difference between the premium attributable to the Premises and that premium which would be attributable to the Premises were the Premises rated at the average rate. If the Building is rated as a whole and it is determined that the premium, due to Tenant's special fixtures, special leasehold improvements or business, is in excess of the premium which would have been charged, but for Tenant's fixtures, improvements, or business, Tenant agrees to pay Landlord such excess. Tenant shall have no rights in said policy procured by Landlord under this Section 21.1 and shall not be entitled to be named as insured thereunder. 21.2 Landlord shall not be responsible or liable to Tenant for any claims for loss or damage caused by the acts or omissions of any persons occupying any space elsewhere in the Building or any party in control of all or any part of the area outside the Building. 21.3 Landlord agrees to maintain commercial general liability insurance with a general aggregate limit of not less than $3,000,000.00 for bodily injury, personal injury and property damage. Landlord's cost of insurance shall be included as a capital Operating Cost of ARTICLE 5. 21.4 Subject to the following provisions, Tenant hereby waives any right of recovery from Landlord and Landlord's partners, agents, officers, directors, and employees, and Landlord hereby waives any right of recovery from Tenant and Tenant's Permittees, for any loss or damage (including consequential loss) resulting from any of the perils required to be insured against by either's property insurance coverage policy. The parties shall give their respective insurance carriers notice of this waiver and shall secure an endorsement from each carrier to the effect that the waivers given under this Section 21.4 shall not adversely affect or impair the policies of insurance or prejudice the right of the named insured on the policy to recover thereunder. A waiver given under this Section 21.4 shall apply only to losses occurring during the time that such an endorsement is in effect and to the extent it applies. ARTICLE 22. DAMAGE AND DESTRUCTION OF PREMISES 22.1 In the event of (a) fire or other casualty damage to the Premises or the Building during the Lease Term which requires repairs to either the Premises or the Building, or (b) the Premises or Building being declared unsafe or unfit for occupancy by any authorized public authority for any reason other than Tenant's act, use or occupation, which declaration requires repairs to either the Premises or the Building, Landlord shall commence to make said repairs within sixty (60) days of written notice by Tenant of the necessity therefor and diligently proceed therewith to completion, except as provided in Section 22.2. The Minimum Monthly Rent shall be proportionately reduced while such repairs are 23 being made, based upon the extent to which the making of such repairs shall interfere with the business carried on by Tenant in the Premises. Landlord shall have no obligation to repair, restore, or replace Tenant's trade fixtures or other personal property and Tenant shall be solely responsible therefor. Further, so long as Landlord has maintained in force the insurance required to be maintained by it hereunder, Landlord shall not be obligated to make repairs to the extent that the cost thereof exceeds the insurance proceeds available to the Landlord (exclusive of any amounts with respect to which Landlord has elected to self-insure or otherwise retain the risk). 22.2 Landlord's obligation to repair the Premises shall, however, be subject to the following provisions of this Section 22.2. If (a) during the last year of the Lease Term (subject to Tenant's exercise of its option to extend the Lease Term) the Premises or the Building is damaged as a result of fire or any other insured casualty, or (b) the Premises are damaged to the extent of 25% or more of replacement value, or (c) the Premises or the Building is damaged or destroyed as a result of a casualty not insured against, or (d) the Building shall be damaged or destroyed by fire or other cause to the extent of 20% or more of the Building's replacement value, then Landlord shall have the right, to be exercised by notice in writing to Tenant given within ninety (90) days from said occurrence, to cancel and terminate this Lease. Upon notice to Tenant, the Lease Term shall expire by lapse of time upon the third day after such notice is given, and Tenant shall vacate the Premises and surrender the same to Landlord within ten (10) days thereafter. If Landlord elects to terminate this Lease under this Section, all Rents shall be prorated as of the date of damage or destruction and Landlord thereupon shall be released from all further liability or obligation to Tenant. If Landlord, however, elects to make said repairs, and provided Landlord uses due diligence in making said repairs, this Lease shall continue in full force and effect and the Minimum Monthly Rent shall be proportionately reduced as provided in Section 22.1. 22.3 With respect to any destruction (including any destruction necessary in order to make repairs) which Landlord is obligated to repair or may elect to repair under the terms of this Article, Tenant waives any statutory or other right Tenant may have to cancel this Lease as a result of such destruction and no such destruction shall annul or void this Lease. The provisions of this Article shall supersede the obligations of Landlord to make repairs under Section 17.1 of the Lease. 22.4 Unless the Lease is terminated under this Article, upon substantial completion of Landlord's restoration obligations, the Minimum Monthly Rent shall be restored to the amounts which would have been in effect but for the damage or destruction. 22.5 Notwithstanding the provisions of this Article 22, if the Premises or any other portion of the Building are damaged by fire or other casualty resulting from the negligent act or omission or willful misconduct of Tenant or any of Tenants Permittees, then Minimum Monthly Rent shall not be reduced during the repair of the damage; and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Premises or the Building caused thereby to the extent that cost and expense is not covered by insurance proceeds. 24 ARTICLE 23. EMINENT DOMAIN As used in this Article, "Taking" means a taking of or damage to the Premises or Building or any part thereof by exercise of the power of eminent domain, condemnation or sale under the threat of or in lieu of eminent domain or condemnation. If the whole of the Building or the whole of the Premises shall be acquired by the Taking, or if the whole of the Automobile Parking Area is acquired by a Taking, then this Lease shall terminate as of the date of taking of possession by the Taking authority. If more than 10% of the value of the Building is acquired by a Taking, whether or not any portion of the Premises is so taken, Landlord shall have the right to terminate this Lease as of the date of the taking of possession by the Taking authority by giving Tenant ninety (90) days' written notice of Landlord's intent to terminate this Lease. If more than 25% of the value of the Premises is acquired in a Taking, Landlord may terminate this Lease upon notice to Tenant within ninety (90) days prior to the effective date of such Taking. If less than 25% of the value of the Premises is acquired in a Taking and the award required is sufficient to restore the Premises, subject to Landlord's right to terminate this Lease in this Article 23, Landlord shall promptly restore the Premises to a condition comparable to its condition at the time of such condemnation less the portion acquired in the Taking, this Lease shall continue in full force and effect with respect to that part not acquired, and the Minimum Monthly Rent shall be reduced in the proportion that the Rentable Square Footage of the Premises after the taking bears to the Rentable Square Footage of the Premises before the Taking. The Taking of a part of the Automobile Parking Areas shall not affect this Lease so long as Landlord can provide the parking spaces described in Section 1.1(o), if any, and reasonable visitor parking within the previously existing and/or substitute Automobile Parking Area. In the event of a Taking as hereinbefore provided, whether whole or partial, the Tenant shall not be entitled to any part of the award, as damages or otherwise, for diminution in value or loss of the leasehold, reversion or fee, and Landlord is entitled to receive the full amount of such award. Tenant expressly waives any right or claim to all or part of any condemnation award or compensation thereof. Tenant shall have no claim against Landlord or the Taking authority for the value of the unexpired Lease Term if the Lease is terminated under this Article. Although all damages in the event of any condemnation belong to the Landlord, Tenant shall have the right to claim and recover from the condemning authority, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of Tenant's moving or relocation expenses. If this Lease is totally or partially terminated under this Article, all rents shall be prorated as of the date of Taking including refunds for amounts paid in advance by Tenant. ARTICLE 24. ASSIGNMENT AND SUBLETTING 24.1 Tenant agrees not to transfer or assign this Lease, or any interest therein, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, including spaces in the Automobile Parking Area, without Landlord's prior written consent which shall not be unreasonably withheld, conditioned or delayed. Tenant's request for Landlord's consent shall 25 include for the assignee or subtenant (as applicable) copies of audited (if available) financial statements, credit reports, information about principals and an operating history. Landlord's consent shall be deemed to be reasonably withheld if any of the foregoing materials are not supplied, or if Tenant fails to supply additional information reasonably and customarily requested by Landlord. In the event Tenant desires to transfer or assign this Lease or any interest therein or to sublet the Premises or any portion thereof, Tenant shall, by notice in writing, advise Landlord of Tenant's intention, from, on and after a stated date (which shall not be less than thirty (30) days after the date of Tenant's notice), to transfer or assign this Lease or to sublet any portion of the Premises for the balance or any portion of the Lease Term. Tenant's notice shall include all the terms of the proposed transfer, assignment or sublease and shall state the consideration therefor. In such event, Landlord shall have the right, to be exercised by giving written notice to Tenant within thirty (30) days after receipt of Tenant's notice, to recapture the space described in Tenant's notice and such recapture notice shall, if given, cancel and terminate this Lease with respect to the space therein described as of the date stated in Landlord's notice. If this Lease is canceled with respect to less than the entire Premises, the Minimum Monthly Rent shall be equitably adjusted by Landlord with due consideration of the size, location, type, and quality of the portion of the Premises so remaining after the "recapture," and this Lease, as so amended, shall continue thereafter in full force and effect. If Landlord, upon receiving Tenant's notice with respect to any such space, shall not exercise its right to recapture such space, Landlord will not unreasonably withhold its consent to Tenant's assignment of the Lease or subletting such space to the party identified in Tenant's notice. Any assignment or subletting hereunder shall not release or discharge Tenant of or from any liability, whether past, present or future, under this Lease, and Tenant shall continue to be fully liable thereunder. Consent by Landlord to one assignment, subletting, occupation, or use by another person shall not be deemed to be a consent to any subsequent assignment, subletting, occupation, or use by another person. Any attempted transfer, assignment, or subletting without the prior written consent of Landlord shall be void. Tenant shall pay Landlord a processing fee of $200.00. 24.2 For the purposes of this Article 24, an assignment shall be deemed to include the following: (a) if Tenant is a partnership, a withdrawal or change (voluntary, involuntary, by operation of law or otherwise) of any of the partners thereof, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) by any partner thereof of such partner's interest in Tenant, or the dissolution of the partnership; (b) if Tenant consists of more than one person, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) from one person to the other or others; (c) if Tenant (or a constituent partner or member of Tenant) is a corporation, any dissolution, merger, consolidation or reorganization of Tenant (or such constituent partner), or any change in the ownership (voluntary, involuntary, by operation of law, creation of new stock or otherwise) of 20% or more of its capital stock from the ownership existing on the Commencement Date; (d) if Tenant is an unincorporated association, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) of any interest in such unincorporated association; or (e) if Tenant is a limited liability company, a withdrawal or change of any of the members thereof, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) by any member of such member's interest in Tenant, or the dissolution of the limited liability company; or (f) the sale of 20% or more in value of the assets of Tenant. Notwithstanding the foregoing, if Tenant is a corporation (i) whose stock is regularly traded on a national stock exchange, or is regularly traded in the over-the-counter market 26 and quoted on NASDAQ, or (ii) determines to hereafter sell its stock on a national stock exchange or over-the-counter market, then the transfer of stock (a) to a corporation that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Tenant; (b) in the event of the merger or consolidation of Tenant with another corporation, regardless of quantity, shall not constitute an assignment for the purposes of this Lease, (collectively, the "PERMITTED TRANSFERS"). 24.3 In the event Tenant assigns its interest in this Lease or sublets the Premises, the Minimum Monthly Rent shall be increased effective as of the date of such assignment or subletting to one-half (1/2) of the additional rent and total other consideration payable by any such assignee or sublessee pursuant to such assignment or sublease that such assignee or sublessee is paying rent in excess of the Minimum Monthly Rent as adjusted. Notwithstanding the foregoing, in no event shall the Minimum Monthly Rent after any such assignment or subletting be less than the Minimum Monthly Rent. 24.4 If Landlord consents to an assignment, sublease or other transfer by Tenant of all or any portion of Tenant's interest under this Lease, Tenant shall execute and deliver to Landlord, and cause the transferee to execute and deliver to Landlord, an instrument in the form and substance acceptable to Landlord in which (a) the transferee adopts this Lease and assumes and agrees to perform, jointly and severally with Tenant, all of the obligations of Tenant hereunder, (b) Tenant acknowledges that it remains primarily liable for the payment of Minimum Monthly Rent, Additional Rent and other obligations under this Lease, (c) Tenant subordinates to Landlord's statutory lien, contract lien and security interest, any liens, security interests or other rights which Tenant may claim with respect to any property of transferee and (d) the transferee agrees to use and occupy the Premises solely for the purposes specified in herein and otherwise in strict accordance with this Lease. 24.5 The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases, or may, at the option of Landlord, operate as an assignment to Landlord of any or all such subleases. ARTICLE 25. SALE OF PREMISES BY LANDLORD In the event of any sale of the Building or the Land or any assignment of this Lease by Landlord (or a successor in title), if the assignee or purchaser assumes the obligations of Landlord herein in writing, Landlord (or such successor) shall automatically be entirely freed and relieved of all liability under any and all of Landlord's covenants and obligations contained in or derived from this Lease or arising out of any act, occurrence, or omission occurring after such sale or assignment; and the assignee or purchaser shall be deemed, without any further agreement between the parties, to have assumed and agreed to carry out any and all of the covenants and obligations of Landlord under this Lease, and shall be substituted as Landlord for all purposes from and after the sale or assignment. 27 ARTICLE 26. SUBORDINATION; RECOGNITION AND ATTORNMENT Tenant's interest under this Lease is subordinate to all terms of, and all liens and interests arising under, any ground lease, deed of trust, or mortgage now or hereafter placed on the Landlord's interest in the Premises, the Building, or the Land. Tenant further consents to an assignment of Landlord's interest in this Lease to Landlord's lender as required under such financing. If the Premises or the Building is sold as a result of a default under the mortgage, or pursuant to a transfer in lieu of foreclosure, or a ground lease is terminated because of the default of the lessee under such ground lease, Tenant shall, at the mortgagee's, purchaser's or ground lessor's sole election, attorn to the mortgagee, purchaser or ground lessor, and if so requested, enter into a new lease for the remainder of the Lease Term. This Article is self-operative; however, Tenant agrees to execute and deliver, if Landlord or any mortgagee, purchaser, or ground lessor should so request, such further instruments necessary to subordinate this Lease to a lien of any mortgage, deed of trust, or ground lease to acknowledge the consent to assignment and to affirm the attornment provisions set forth herein. As long as Tenant is not in default of any term or condition of this Lease, any transferee, lender, ground lessor or purchase shall recognize this Lease and the rights of Tenant hereunder. ARTICLE 27. LANDLORD'S DEFAULT AND RIGHT TO CURE In the event of breach, default, or noncompliance hereunder by Landlord, Tenant agrees, before exercising any right or remedy available to it, to give Landlord written notice of the claimed breach, default, or noncompliance which sets forth facts in sufficient detail for Landlord to assess and evaluate such claim. If prior to its giving such notice Tenant has been notified in writing (by way of Notice of Assignment of Rents and Leases, or otherwise) of the address of a lender which has furnished financing that is secured by realty mortgage or deed of trust on the Premises or the Building or of a ground lessor, concurrently with giving the notice to Landlord, Tenant agrees to also give notice to such lender and/or ground lessor in the manner provided in Section 33 below. Subject to earlier time periods to cure set forth in other sections of this Lease (including such time period as is reasonable in the event of a bona fide emergency), for the thirty (30) days following such notice (or such longer period of time as may be reasonably required to cure a matter which, due to its nature, cannot reasonably be remedied within thirty (30) days), Landlord shall have the right to cure the breach, default, or noncompliance involved. If Landlord has failed to cure a default within said period, any such lender and/or ground lessor shall have an additional ten (10) days within which to cure the same or, if such default cannot be cured within that period, such additional time as may be reasonably necessary if within such ten (10) day period said lender and/or ground lessor has commenced and is diligently pursuing the actions or remedies necessary to cure the breach, default, or noncompliance involved (including, but not limited to, commencement and prosecution of proceedings to foreclosure or otherwise exercise its rights under its mortgage or other security instrument or ground lease, if necessary, to effect such cure), in which event this Lease shall not be terminated by Tenant so long as such actions or remedies are being diligently pursued by said lender and/or ground lessor. If Tenant fails to give notice to Landlord and any lender and/or ground lessor of a 28 default within six (6) months after Tenant first has knowledge of the occurrence of the events pursuant to which the default arises or would occur with notice as provided above, thereafter Tenant shall have no right to deem the same a default hereunder. ARTICLE 28. ESTOPPEL CERTIFICATES Tenant agrees at any time and from time to time upon request by Landlord, to execute, acknowledge, and deliver to Landlord within ten (10) calendar days of demand by Landlord a statement in writing certifying (a) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating such modifications), (b) the dates to which the Minimum Monthly Rent, Additional Rent and other charges have been paid in advance, if any, (c) Tenant's acceptance and possession of the Premises, (d) the Commencement and Expiration Dates, (e) the Minimum Monthly Rent provided under the Lease, (f) that Landlord is not in default under this Lease (or if Tenant claims such default, the nature thereof), (g) that Tenant claims no offsets against the Rent, and (h) such other information as may be requested with respect to the provisions of this Lease or the tenancy created by this Lease. Tenant acknowledges that any such statement delivered pursuant to this Article may be relied upon by third parties with regard to the sale or financing of the Premises or the Building. ARTICLE 29. TENANT'S DEFAULT AND LANDLORD'S REMEDIES 29.1 The following shall constitute a default by Tenant under this Lease: (a) if Tenant fails to pay any installment of the Minimum Monthly Rent within ten (10) days after written notice that the same is past due or, if Landlord has previously provided notice two (2) times in such sixty (60) month period during the Term (or any additional sixty (60) month period during a Renewal Term, if any), when such amounts are due; or (b) if Tenant fails to pay any installment of Additional Rent herein provided or any other sum required by this Lease to be paid to Landlord, or any part thereof, within ten (10) days of written notice that the same is past due or, if Landlord has previously provided such notice two (2) times in such sixty (60) month period, when such amounts are due; or (c) if Tenant fails to perform any other covenants or obligations to be performed by Tenant under this Lease and such failure shall continue for ten (10) days after notice thereof from Landlord to Tenant, or if such failure shall continue for thirty (30) days after notice thereof from Landlord to Tenant if such default cannot reasonably be cured within ten (10) days; or (d) if a petition or proceeding under the Federal Bankruptcy Act or any other applicable state or federal law relating to bankruptcy or reorganization or other relief for debtors is filed or commenced by or against Tenant or any guarantor of this Lease, and if against Tenant, said proceedings shall not be dismissed within twenty (20) days following commencement thereof; or (e) if Tenant or any guarantor of this Lease is adjudged insolvent, makes an assignment for the benefit of its creditors or enters into an arrangement with its creditors; or (f) if a writ of 29 attachment or execution is levied on the leasehold estate hereby created and is not released or satisfied within twenty (20) days thereafter; or (g) if a receiver is appointed in any proceeding or action to which Tenant is a party with authority to take possession or control of the Premises or the business conducted thereon by Tenant or the property of any guarantor of this Lease and such receiver is not discharged within a period of twenty (20) days after his appointment. 29.2 Upon a default of Tenant as defined in Section 29.1, Landlord or Landlord's agents and employees shall have the right and option to: (a) Prosecute and maintain an action or actions, as often as Landlord deems advisable, for collection of Minimum Monthly Rent, Additional Rent, other charges, and damages as the same accrue, without entering into possession and without terminating this Lease. No judgment obtained shall constitute a merger or otherwise bar prosecution of subsequent actions for Minimum Monthly Rent, Additional Rent, other charges, and damages as they accrue. (b) Immediately or at any time thereafter reenter and take possession of the Premises and remove Tenant or Tenant's Permittees and any or all of their property from the Premises. Reentry and removal may be effected by summary proceedings or any other action or proceedings at law, by force or otherwise. Landlord shall not be liable in any way in connection with any action taken under this paragraph. No action taken, commenced, or prosecuted by Landlord, no execution on any judgment and no act or forbearance on the part of Landlord in taking or accepting possession of the Premises shall be construed as an election to terminate this Lease unless Landlord expressly exercises this option under Section 29.2(c). Upon taking possession of the Premises Landlord may from time to time, without termination of this Lease, relet the Premises or any part thereof as agent for Tenant for such rental terms and conditions (which may be for a term extending beyond the Lease Term) as Landlord, in its sole discretion, may deem advisable, with the right to make alterations and repairs to said Premises required for reletting. The rents received by Landlord from such reletting shall be applied first to the payment of any costs of reletting and second to the payment of Rent and other charges due and unpaid hereunder. The residue, if any, shall be held by Landlord and applied in payment of future Rent and other charges as the same may become due and payable hereunder. If the rents received from such reletting during any month are insufficient to reimburse Landlord for any costs of reletting or Rent and other charges due and payable hereunder, Tenant shall pay any deficiency to Landlord. Such deficiency shall be calculated and paid monthly. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. (c) Elect to terminate this Lease by written notice to Tenant. In the event of such termination, Tenant shall immediately surrender possession of the Premises. If Tenant fails or refuses to surrender the Premises, Landlord may take possession in accordance with Section 29.2(b). Should Landlord terminate this Lease, Tenant shall have no further interest in this Lease or in the Premises, and the Landlord may recover from Tenant all damages it may incur by reason of Tenant's default, including (1) the cost of reletting the Premises, and (2) the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to rent reserved in this Lease for the remainder of the Lease Term over the then reasonable rental value of the Premises for the remainder of the Lease Term, all of which amounts shall be immediately due and payable at Landlord's election from Tenant to Landlord. 30 (d) Obtain the appointment of a receiver in any court of competent jurisdiction, and the receiver may take possession of any personal property belonging to Tenant and used in the conduct of the business of Tenant being carried on in the Premises. Tenant agrees that the entry upon the Premises or possession of said personal property by said receiver shall not constitute an eviction of Tenant from the Premises or any portion thereof, and Tenant agrees to indemnify, defend and hold Landlord harmless for, from and against any claim of any character by any person arising out of or in any way connected with the entry by said receiver in taking possession of the Premises or said personal property. 29.3 No act or conduct of the Landlord, whether consisting of reentry, taking possession, or reletting the Premises or obtaining appointment of a receiver or accepting the keys to the Premises, or otherwise, prior to the expiration of the Lease Term shall be deemed to be or constitute an acceptance of the surrender of the Premises by the Landlord or an election to terminate this Lease unless Landlord exercises its election under Section 29.2(c) of this Lease. Such acceptance or election by Landlord shall only be effected, and must be evidenced, by written acknowledgement of acceptance of surrender or notice of election to terminate signed by Landlord. 29.4 Tenant agrees that in the event it is due to render performance in accordance with any term, condition, covenant, or provision of this Lease and it fails to render such performance within ten (10) days after written notification from Landlord that such performance is past due, in accordance with the notice provision hereof or immediately if required for protection of the Premises, in addition to all of Landlord's other rights and remedies, Landlord shall have the right, but not the obligation, to render such performance and to charge all costs and expenses incurred in connection therewith to Tenant. All amounts so charged together with interest thereon at the Delinquency Interest Rate shall be considered Additional Rent and shall be due and payable immediately to Landlord within ten (10) days after presentment of a statement to Tenant indicating the amount and nature of such cost or expense. 29.5 No remedy herein conferred upon Landlord shall be considered exclusive of any other remedy, but the same shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Landlord may exercise its remedies in any order or combination selected by Landlord in its sole discretion. No delay or omission of Landlord to exercise any right or power arising from any default shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. 31 ARTICLE 30. TENANT'S RECOURSE Anything in this Lease to the contrary notwithstanding, Tenant agrees to look solely to the estate and property of Landlord in the Land and the Building, subject to prior rights of any mortgagee of the Land and Building or any part thereof, for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord under this Lease. Tenant agrees that it is prohibited from using any other procedures for the satisfaction of Tenants' remedies. Neither Landlord nor any partner thereof nor any of their respective officers, directors, employees, heirs, successors, or assigns, shall have any personal liability of any kind or nature, directly or indirectly, under or in connection with this Lease. ARTICLE 31. HOLDING OVER If Tenant holds over after the Expiration Date or any extension thereof, Tenant shall be a tenant at sufferance; the Minimum Monthly Rent shall be one and one-half (1 1/2) times the sum of (i) the Minimum Monthly Rent payable immediately prior to the Expiration Date, plus (ii) any amounts due under Article 5; and except as expressly modified by this Article 31, the terms, covenants and conditions of this Lease shall apply to such holdover tenancy. Tenant shall further indemnify, defend and hold Landlord harmless for, from and against any and all liability, obligations, claims, losses, expenses, or attorneys' fees incurred by Landlord as a result of any unauthorized holdover by Tenant or any other failure of Tenant to deliver the Premises when and as required by this Lease, including consequential damages and lost opportunities. ARTICLE 32. GENERAL PROVISIONS 32.1 This Lease is construed in accordance with the laws of the State of Arizona, and venue for resolution of any dispute arising under this Lease lies exclusively in Maricopa County, Arizona. 32.2 If Tenant is composed of more than one person or entity, then the obligations of such entities or parties are joint and several. 32.3 If any term, condition, covenant, or provision of this Lease is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, conditions, covenants, and provisions hereof shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 32 32.4 The various headings and numbers herein and the grouping of the provisions of this Lease into separate articles and sections are for the purpose of convenience only and are not be considered a part hereof. 32.5 Time is of the essence of this Lease. 32.6 In the event either party initiates legal proceedings (including arbitration or alternative dispute resolution) or retains an attorney to enforce any right or obligation under this Lease or to obtain relief for the breach of any covenant hereof, the party ultimately prevailing in such proceedings or the non-defaulting party shall be entitled to recover all costs and reasonable attorney fees, and in the event of legal proceedings the same shall be determined by the court and not by a jury and shall be included in any judgment or award obtained. If Landlord is involuntarily made a party defendant to any litigation concerning this Lease or the Premises by reason of any act or omission of Tenant, Tenant shall indemnify, defend and hold Landlord harmless for, from and against all liability by reason thereof, including Landlord's reasonable costs and attorney fees. 32.7 This Lease, and any Exhibit or Addendum attached hereto, set forth all the terms, conditions, covenants, provisions, promises, agreements, and undertakings, either oral or written, between the Landlord and Tenant. No subsequent alteration, amendment, change, or addition to this Lease is binding upon Landlord or Tenant unless reduced to writing and signed by both parties. If a term, condition, covenant, or provision of the Addendum and this Lease are in conflict, the terms, conditions, covenants, and provisions of the Addendum govern. 32.8 Subject to Article 24, the covenants herein contained shall apply to and bind the heirs, successors, executors, personal representatives, legal representatives, administrators, and assigns of all the parties hereto. 32.9 No term, condition, covenant, or provision of this Lease shall be waived except by written waiver of Landlord, and the forbearance or indulgence by Landlord in any regard whatsoever shall not constitute a waiver of the term, condition, covenant, or provision to be performed by Tenant to which the same shall apply, and until complete performance by Tenant of such term, condition, covenant, or provision, Landlord shall be entitled to invoke any remedy available under this Lease or by law despite such forbearance or indulgence. The waiver by Landlord of any breach or term, condition, covenant, or provision hereof shall apply to and be limited to the specific instance involved and shall not be deemed to apply to any other instance or to any subsequent breach of the same or any other term, condition, covenant, or provision hereof. Acceptance of rent by Landlord during a period in which Tenant is in default in any respect other than payment of rent shall not be deemed a waiver of the other default. Any payment made in arrears shall be credited to the oldest amount outstanding and no contrary application will waive this right. 32.10 The use of a singular term in this Lease shall include the plural and the use of the masculine, feminine, or neuter genders shall include all others. 32.11 If Landlord shall so request in connection with a proposed sale of, or a financing to be secured by a lien on, all or any part of the Building, Tenant shall, within thirty (30) days after receipt of such request, deliver to 33 Landlord its most current financial statements including a balance sheet, a statement of income and expenses, and a statement of cash flow, all in reasonable detail and prepared according to generally accepted accounting principles, consistently applied. Year-end statements shall be reviewed by a certified public accountant and interim statements shall be certified by Tenant, if Tenant is an individual, by the chief financial officer of Tenant, if Tenant is a corporation, by the manager or a member of Tenant if Tenant is a limited liability company or by a general partner of Tenant, if Tenant is a partnership. Tenant shall supply Landlord with audited financial statements only if Tenant prepares audited financial statements in the ordinary course of its business. 32.12 Landlord's submission of a copy of this Lease form (or any other term sheet or proposal) to any person, including Tenant, shall not be deemed to be an offer to lease or the creation of a lease unless and until this Lease has been fully signed and delivered by Landlord. 32.13 Every term, condition, covenant, and provision of this Lease, having been negotiated in detail and at length by both parties, shall be construed simply according to its fair meaning and not strictly for or against Landlord or Tenant. 32.14 If the time for the performance of any obligation under this Lease expires on a Saturday, Sunday, or legal holiday, the time for performance shall be extended to the next succeeding day which is not a Saturday, Sunday, or legal holiday. 32.15 If requested by Landlord, Landlord and Tenant shall execute written documentation with signatures acknowledged by a notary public, to evidence when and if Landlord or Tenant has met certain obligations under this Lease. 32.16 All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of this Lease shall survive the expiration or earlier termination of this Lease, including, without limitation, all payment obligations with respect to Minimum Monthly Rent, Additional Rent and all obligations concerning the condition of the Premises. 32.17 No copy of this Lease, nor any memorandum thereof, shall be recorded by Tenant; and any breach by Tenant of this paragraph shall constitute an immediate default by Tenant entitling Landlord to involve any and all of Landlord's remedies available for default. ARTICLE 33. NOTICES Wherever in this Lease it is required or permitted that notice or demand be given or served by either party to or on the other, such notice or demand shall be in writing and shall be given or served and shall not be deemed to have been duly given or served unless (a) in writing; (b) either (1) delivered personally, (2) deposited with the United States Postal Service, as certified mail, return receipt requested, bearing adequate postage, or (3) sent by overnight express courier (including, without limitation, Federal Express, DHL Worldwide Express, Airborne Express, United States Postal Service Express Mail) with a request that the addressee sign a receipt evidencing delivery; and (c) addressed to the party at its address in Section 1.1. Either party may change such address by written 34 notice to the other. Service of any notice or demand shall be deemed completed no later than forty-eight (48) hours after deposit thereof, if deposited with the United States Postal Service, or upon receipt if delivered by overnight courier or in person. ARTICLE 34. BROKER'S COMMISSIONS Tenant represents and warrants to Landlord that no party other than the Broker(s), identified in Section 1.1(r), is due any brokerage commissions or finder's fees in connection with this Lease, and that Tenant has dealt with no broker other than the Broker(s) identified in Section 1.1(r). Tenant shall indemnify, defend and hold Landlord harmless for, from and against all liabilities arising from any such claims, including any attorneys' fees incurred by Landlord in connection therewith. Landlord represents and warrants to Tenant that no party other than the Broker(s), identified in Section 1.1(r), is due any brokerage commissions or finder's fees in connection with this Lease, and that Landlord has dealt with no broker other than the Broker(s) identified in Section 1.1(r). Landlord shall indemnify, defend and hold Tenant harmless for, from and against all liabilities arising from any such claims, including any attorneys' fees incurred by Tenant in connection therewith. IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day and year first above written. LANDLORD TENANT LOWE ENTERPRISES INVESTMENT FBR CAPITAL CORPORATION, MANAGEMENT, INC. as authorized agent d/b/a Vitrix, for LAFP PHOENIX, INC., a California a Nevada corporation corporation By: /s/ Tom Rollins By: /s/ Philip R. Shumway -------------------------------- -------------------------------- Name: Tom Rollins Name: Philip R. Shumway Its: Vice President Its: President 35 ADDENDUM TO OFFICE LEASE AGREEMENT 35. AGREEMENT This Addendum is attached to and incorporated by reference in that certain Office Lease Agreement, dated September 3, 1999, by LAFP PHOENIX, INC., a California corporation (the "Landlord"), and FBR CAPITAL CORPORATION, d/b/a Vitrix, a Nevada corporation (the "Tenant"). The Office Lease Agreement, the exhibits and riders thereto, and this Addendum shall constitute one agreement (the "Lease"). In the event of any conflict or inconsistency between the terms, conditions, covenants, and provisions of this Addendum and the terms, conditions, covenants, and provisions of the Lease or its exhibits, then the terms, conditions, covenants, and provisions of this Addendum control. 36. ACCEPTANCE In conjunction with Section 32.12 of this Lease, the offer to lease the Premises and the obligations, rights, terms, conditions, covenants, and provisions set forth herein shall automatically terminate at 5:00 p.m. (Phoenix, Arizona time) on September 1, 1999 (the "Offer Termination Time"), unless accepted by Tenant prior to the Offer Termination Time by ensuring that Landlord has in Landlord's possession, at Landlord's address referenced in Section 1.1(b) above, four (4) originals of this Lease which have been fully executed by Tenant. 37. RIGHT OF CANCELLATION Provided Tenant is not in default of any of its obligations under this Lease, Tenant shall have the right to cancel this Lease effective upon the last day of the 36th month following the Commencement Date (the "Cancellation Date"). To exercise this right, Tenant must deliver written notice thereof to Landlord no later than 270 days prior to the Cancellation Date and pay to Landlord the Termination Fee no later than 30 days prior to the Cancellation Date. The Termination Fee shall be equal to the sum of (i) Landlord's unamortized leasing costs (including but not limited to, leasing commissions and Tenant Improvements) calculated at 12% per annum and (ii) Minimum Monthly Rent payable for six months for all of the Premises computed based on a rental rate of $25.75 per rentable square foot. 36 EX-10.2 4 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (the "Agreement") is made as of September 21, 1999 (the "Agreement Date"), by and between FBR Capital Corporation, a Nevada corporation (the "Company") with its principal offices at 20 East University, Suite 304, Tempe, Arizona 85281 and Circle F Ventures, LLC, a Georgia limited liability company ("Circle F") with its offices at 14988 N. 78th Way, Scottsdale, AZ 85260. SECTION 1 PURCHASE AND SALE OF COMMON STOCK AND WARRANTS 1.1 PURCHASE AND SALE COMMON STOCK AND WARRANTS. Circle F agrees to purchase from the Company, and the Company agrees to issue and sell to Circle F, on the terms and conditions set forth herein, up to an aggregate of 4,000,000 shares of common stock of the Company ("Common Stock") at a per share price of $.25, together with one warrant to purchase Common Stock (the "Warrants") for every two shares of Common Stock purchased. Circle F hereby agrees to execute a Subscription Agreement and Investor Representation (the "Subscription Agreement"), a copy of which is attached hereto as EXHIBIT A, The Warrants shall have a term of three years and a per share exercise price of $.35. The Common Stock and the Warrants are collectively referred to herein as the "Securities." 1.2 COMPANY PARTICIPATION. The Company agrees to obtain investors (the "Insiders") that will commit to matching the amount invested by Circle F, such that the total investment will comprise 85% from Circle F and 15% from the Insiders, on the same terms as those offered to Circle F. 1.3 SCHEDULE OF FUNDING. The funding of Offering (as defined in the Subscription Agreement) shall be as follows: (a) On or before September 23, 1999, Circle F shall deliver an aggregate of $255,000 to the Company and the Insiders shall deliver an aggregate of $45,000 to the Company. (b) On October 8, 1999, Circle F shall deliver an aggregate of $170,000 to the Company and the Insiders shall deliver an aggregate of $30,000 to the Company. (c) On or by January 15, 2000, Circle F hereby agrees to invest between a minimum of $100,000 and a maximum of $425,000, in its sole discretion. The Insiders shall be required to match Circle F's investment in the same percentage as set forth in the first two fundings (approximately 17.7% of Circle F's investment). This funding is subject to the purchase price and early termination clauses as described below. In the event Circle F elects to fund less than $425,000, the Insiders shall have the option to fund the difference between such amount and the amount actually funded by Circle F. 1.4 PURCHASE PRICE MODIFICATION. If Circle F agrees to provide the third funding ((c) above) between January 1 and January 15, 2000, the purchase price shall be adjusted based on the Company's calendar fourth quarter revenues as follows: (a) REVENUES FOR THE QUARTER LESS THAN $450,000: The purchase price will be adjusted to $.20 per share of common stock and the warrant exercise price adjusted to $.28 per share. (b) REVENUES FOR THE QUARTER GREATER THAN $550,000: The purchase price will be adjusted to $.30 per share of common stock and the warrant exercise price adjusted to $.42 per share. (c) If revenues are between $450,000 and $550,000, no modification will be made the purchase price. All revenue figures will be determined by the Company based on standard accounting practices for interim financial data. 1.5 EARLY TERMINATION OF THE THIRD FUNDING. The Company has the right to terminate this Agreement anytime between the second funding, scheduled to close on October 8, 1999, and December 31, 1999. If the Company chooses to terminate this agreement between this time period, Circle F will have the right to provide the third funding at the purchase price of $.25 per share for a period of 10 days following notification of the Company's desire to terminate this agreement. If the Company chooses early termination and Circle F does not provide the third funding, Circle F will not be obligated to meet the $100,000 minimum investment of the third funding. SECTION 2 CLOSING DATE: DELIVERY 2.1 CLOSING DATE. An initial closing of the purchase and sale of Common Stock and Warrants will be held on or before September 23, 1999, and subsequent closings of the purchase of Common Stock and Warrants will be held on October 8, 1999 and on or before January 15, 2000, on the terms and subject to the conditions set forth herein and in the Subscription Agreement. Any such closing is hereinafter referred to as a "Closing", and the date of any Closing under this Agreement is hereinafter referred to as a "Closing Date." 2.2 DELIVERY. At each Closing, the Company will deliver to Circle F the certificates evidencing the Securities paid for by Circle F in that Closing. Such delivery shall be against payment of the purchase price for the Securities (as set forth herein) by wire transfer of immediately available funds to the Company's bank account (in accordance with instructions furnished by the Company). 2 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Circle F as follows: 3.1 ORGANIZATION AND STANDING The Company is a corporation duly organized and validly existing under and by virtue of the laws of the State of Nevada and is in good standing as a domestic corporation under the laws of said state, and has the requisite corporate power and authority to own its properties and to carry on its business as now being conducted. Except for Vitrix, Inc., the Company has no subsidiaries or direct or indirect ownership in any firm, corporation or business which either, individually or in the aggregate, is material to the business of the Company. The Company is qualified to do business and is in good standing as a foreign corporation in every jurisdiction in which its ownership of property or conduct of business requires it so to be qualified and in which the failure to so qualify would have a material adverse effect on the financial condition or business of the Company. 3.2 CORPORATE POWER: AUTHORIZATION The Company has taken all requisite corporate action to duly authorize, execute and deliver this Agreement, to sell and issue the Securities and to carry out and perform all of its obligations under and as contemplated by this Agreement. This Agreement has been duly executed and delivered by an authorized officer of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally, and except as limited by equitable principles generally. 3.3 ISSUANCE AND DELIVERY The Securities have been duly authorized in accordance with the terms of the Company's Articles of Incorporation and, when issued and delivered in compliance with this Agreement will be duly and validly issued and delivered and will be outstanding, fully paid, nonassessable and free and clear of all pledges, liens, encumbrances and restrictions, except as otherwise noted in Section 9 hereof. No preemptive rights, or other rights to subscribe for or purchase, exist with respect to the issuance and sale of the Securities by the Company pursuant to this Agreement. No further approval or authority of the stockholders or the Board of Directors of the Company will be required for the issuance and sale of the Securities to be sold by the Company as contemplated herein. 3.4 FINANCIAL STATEMENTS The financial statements of the Company for the period ended June 30, 1999 (the "Financial Statements") have been prepared in accordance with United States generally accepted accounting principles ("GAAP") consistently applied and 3 fairly present the financial position of the Company and any subsidiaries at the dates thereof and the results of the Company's operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal adjustments, and to the fact that certain footnote disclosure required by GAAP is not included with such unaudited statements). 3.5 GOVERNMENTAL CONSENTS No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, or local governmental authority on the part of the Company is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement. 3.6 EXEMPT TRANSACTIONS Subject to the accuracy of Circle F's representations and warranties in Section 4 of this Agreement and in the Subscription Agreement, the offer, sale and issuance of the Securities in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933 (the "Securities Act") and from the registration or qualification requirements of the laws of any applicable state or United States jurisdiction. 3.7 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein, since June 30, 1999 there have not been any changes in the assets, liabilities, financial condition, business or operations of the Company from that reflected in the Financial Statements except changes which have not, either individually or in the aggregate had a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and its subsidiaries considered as a whole. 3.8 INTELLECTUAL PROPERTY The Company owns or possesses all rights to use all patents, patent rights, inventions, trademarks, trade names, copyrights, licenses, governmental authorizations, trade secrets and know-how that are necessary for the conduct of its business; neither the Company nor any of its subsidiaries has received any notice of, or has any knowledge of, any infringement of or conflict with asserted rights of others with respect to any patent, patent right, invention, trademarks, trade names, copyrights, licenses, governmental authorizations, trade secret or know-how that, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and its subsidiaries considered as a whole. 3.9 AUTHORIZED CAPITAL STOCK The authorized capital stock of the Company is as set forth in SCHEDULE 3.9 hereof. The issued and outstanding shares of capital stock of the Company have been duly authorized, validly issued and are fully paid and nonassessable; except as set forth in said SCHEDULE 3.9, no warrants, options or other rights 4 to purchase, agreements or other obligations to issue, or agreements or other rights to convert any obligation into, any shares of capital stock of the Company have been granted or entered into by the Company. 3.10 LITIGATION There are no actions, suits, proceedings or investigations pending or, to the best of the Company's knowledge, threatened against the Company or any of its properties before or by any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood (in the judgment of the Company) of an adverse decision that (a) would have a material adverse effect on the Company's properties or assets or the business of the Company as presently conducted or proposed to be conducted or (b) would impair the ability of the Company to perform in any material respect its obligations under this Agreement. The Company is not in default with respect to any judgment, order or decree of any court or governmental agency or instrumentality which, individually or in the aggregate, would have a material adverse effect on the assets, properties or business of the Company and its subsidiaries considered as a whole. 3.11 PREEMPTIVE AND REGISTRATION RIGHTS There are no preemptive rights, rights of first refusal, repurchase rights or any other right of the Company or any third party as to the Securities which have not been satisfied or waived. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS The business and operations of the Company have been and are being conducted in accordance with all applicable laws, rules and regulations of all governmental authorities, except for such violations of applicable laws, rules and regulations which would not, individually or in the aggregate, have a material adverse effect on the assets, properties, financial condition or business of the Company and its subsidiaries considered as a whole. Neither the execution and delivery of, nor the performance or compliance with, this Agreement and the transactions contemplated hereby, will, with or without the giving of notice or the passage of time, (i) result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of the Company pursuant to, any agreement or other instrument to which the Company is a party or by which it or any of its properties, assets or rights is bound or effected, or violate any law, rule, regulation, judgment or decree, except for such breach or default or the imposition of any such lien or encumbrance or violation which, either individually or in the aggregate, would not have a material adverse effect on the assets, properties, financial condition or business of the Company and its subsidiaries considered as a whole or (ii) violate the Articles of Incorporation or Bylaws of the Company. The Company is not in violation of its Articles of Incorporation or Bylaws nor in violation of, or in default under, any lien, indenture, mortgage, lease, agreement, instrument, commitment or arrangement, except for such defaults which would not, individually or in the aggregate, have a material adverse effect on the assets, properties, financial condition or business of the Company and its subsidiaries considered as a whole, or subject to any restriction which would prohibit the Company from entering into or performing its obligations under the Agreement. 5 3.13 BROKERS OR FINDERS To the knowledge of the Company, no person, firm or corporation has or will have, as a result of any act or omission of the Company, any right, interest or valid claim against Circle F for any commission, fee or other compensation as a finder or broker in connection with the transactions contemplated by this Agreement. The Company shall indemnify and hold Circle F harmless for any claims made by any person claiming through the Company for any commission, fee or other compensation concerning the purchase of the Securities. 3.14 COMPLIANCE WITH ENVIRONMENTAL LAWS The Company is not in material violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and, to the best of the Company's knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. To the best of the Company's knowledge, the Company does not have any material liability to any governmental authority or other third party arising under or as a result of any such past or existing statute, law or regulation. 3.15 NO IMPLIED REPRESENTATIONS All of the Company's representations and warranties are contained in this Agreement and no other representations or warranties by the Company shall be implied. 3.16 CONTRACTS All contracts relating to the Company's business, properties and assets are in full force and effect on the date hereof, except for contracts the termination or expiration of which would, individually or in the aggregate, not have a material adverse effect on the business, properties or assets of the Company and its subsidiaries considered as a whole, and neither the Company nor any of its subsidiaries, nor to the Company's knowledge, any other party is in breach of or default under any of such contracts. 3.17 PROPERTIES The Company has good and marketable title to all the properties and assets reflected as owned in the Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, set forth in the notes to such financial statements, or (ii) those which are not material in amount and do not adversely affect the use made and promised to be made of such property by the Company and its subsidiaries. The Company and any applicable subsidiary holds its leased properties under valid and binding leases, with such exceptions as are not materially significant in relation to the business of the Company and the subsidiaries. The Company owns or leases all such properties as are necessary to its operations as now conducted or as proposed to he conducted. 6 3.18 COMPLIANCE The Company has not been advised, and has no reason to believe, that either it or any of its subsidiaries is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business; except where failure to so be in compliance would not materially adversely affect the condition (financial or otherwise), business, results of operations or prospects of the Company and its subsidiaries. 3.19 TAXES The Company and its subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and have paid or accrued all taxes shown as due thereon, and the Company has no knowledge of any tax deficiency which has been or might be asserted or threatened against the Company or its subsidiaries which could materially and adversely affect the business, operations or properties of the Company and its subsidiaries taken as a whole. 3.20 TRANSFER TAXES On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Securities to be sold to Circle F hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been complied with fully. 3.21 INVESTMENT COMPANY The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 3.22 INSURANCE Each of the Company and its subsidiaries maintains insurance of the types and in the amounts generally deemed adequate for its business, including, but not limited to, insurance covering all real and personal property owned or leased by the Company and its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 3.23 CONTRIBUTIONS Neither the Company nor any of its subsidiaries has, directly or indirectly, at any time since April 15, 1999, (i) made any unlawful contribution to any candidate for public office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. 7 3.24 NO MATERIAL MISSTATEMENTS. All reports filed by the Company with the Securities and Exchange Commission ("SEC") since April 15, 1999, complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, and none of such filings, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF CIRCLE F Circle F hereby represents and warrants to the Company as follows: 4.1 AUTHORIZATION (i) Circle F has all requisite legal and corporate or other power and capacity and has taken all requisite corporate or other action to execute and deliver this Agreement to purchase the Securities to be purchased by it and to carry out and perform all of its obligations under this Agreement; and (ii) this Agreement constitutes the legal, valid and binding obligation of Circle F, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors' rights generally and (b) as limited by equitable principles generally. 4.2 INVESTMENT EXPERIENCE Circle F is an "accredited investor" as defined in Rule 501(a) under the Securities Act. Circle F is aware of the Company's business affairs and financial condition and has had access to and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Circle F has such business and financial experience as is required to give it the capacity to protect its own interests in connection with the purchase of the Securities. 4.3 INVESTMENT INTENT Circle F is purchasing the Securities for its own account for investment purposes only, and not with a present view to, or for, resale, distribution or fractionalization thereof, in whole or in part, within the meaning of the Securities Act. Circle F understands that its acquisition of the Securities has not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of Circle F's investment intent as expressed herein. Circle F has completed or caused to be completed Subscription Agreement attached hereto as Exhibit A, and the responses provided therein shall be true and correct as of each Closing Date. Circle F will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities except in compliance with the Securities Act and the rules and regulations promulgated thereunder. 8 4.4 REGISTRATION OR EXEMPTION REQUIREMENTS Circle F further acknowledges and understands that the Securities may not be resold or otherwise transferred except in a transaction registered under the Securities Act or unless an exemption from such registration is available. Circle F understands that the certificate(s) evidencing the Securities will be imprinted with a legend that prohibits the transfer of such Securities unless (i) they are registered or such registration is not required, and (ii) if the transfer is pursuant to an exemption from registration other than Rule 144 under the Securities Act and, if the Company shall so request in writing, an opinion of counsel reasonably satisfactory to the Company is obtained to the effect that the transaction is so exempt. 4.5 NO LEGAL, TAX OR INVESTMENT ADVICE Circle F understands that nothing in this Agreement or any other materials presented to Circle F in connection with the purchase of the Securities constitutes legal, tax or investment advice. Circle F has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities. SECTION 5 CONDITIONS TO CLOSING OF CIRCLE F The obligation of Circle F to purchase the Securities at each Closing is subject to the fulfillment as of each Closing Date of the following conditions (in addition to such other conditions or may be set forth in the Subscription Agreement): 5.1 REPRESENTATIONS AND WARRANTIES The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on each Closing Date with the same force and effect as if they had been made on and as of said date. 5.2 COVENANTS All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to each Closing Date shall have been performed or complied with in all material respects. 5.3 COMPLIANCE CERTIFICATE The President or Chief Financial Officer of the Company shall have delivered to Circle F a certificate, dated as of each Closing Date, certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that since June 30, 1999 there shall has been no material adverse change in the assets, liabilities, financial condition, business or operations of the 9 Company and its subsidiaries considered as a whole from that reflected in the Financial Statements except as shall have been disclosed to Circle F in writing prior to such Closing Date. SECTION 6 CONDITIONS TO CLOSING OF COMPANY The Company's obligation to sell and issue the Securities at each Closing to Circle F is subject to the fulfillment or waiver of the following conditions: 6.1 REPRESENTATIONS AND WARRANTIES The representations and warranties made by Circle F in Section 4 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on each Closing Date with the same force and effect as if they had been made on and as of such date. 6.2 COVENANTS All covenants, agreements and conditions contained in this Agreement to be performed by Circle F on or prior to each Closing Date shall have been performed or complied with in all material respects. SECTION 7 CERTAIN CONTINUING COVENANTS OF THE COMPANY The Company hereby covenants and agrees as follows: 7.1 COVENANTS The Company covenants and agrees to furnish to Circle F upon request, to and including any Closing hereunder and as long as Circle F owns any Common Stock, copies of all periodic and other filings made by the Company pursuant to the Securities Exchange Act of 1934. 7.2 BOARD MEMBER If Circle F provides funding hereunder in the total amount of $825,000, at Circle F's election, the Company will cause to be appointed to its Board of Directors an individual designated by Circle F. 7.3 NOTICE OF LITIGATION AND DISPUTES The Company will promptly notify Circle F of any material (i) suits, assessments, litigation or governmental audits or investigations instituted against it, and (ii) any reportable event under ERISA or any environmental law arising out of any actor omission of the Company. 10 7.4 CONTINUING EXISTENCE The Company will maintain its corporate existence, business, assets (except for dispositions in the ordinary course of business consistent with past practice) and foreign qualifications in all necessary jurisdictions, except where failure to maintain such qualifications would not reasonably be expected to have a material adverse effect on the Company and its subsidiaries considered as a whole. 7.5 COMPLIANCE The Company will comply in all material respects with all applicable statutes and governmental regulations, including, but not limited to, applicable federal and state securities laws and ERISA laws, which if not complied with would reasonably be expected to have a material adverse effect on the Company. SECTION 8 INDEMNIFICATION 8.1 INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless Circle F from and against any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) to which Circle F may become subject insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any representation or warranty made by the Company not being complete accurate or true on the Closing Date or the failure of the Company to fulfill and fully perform each covenant or agreement hereunder or under any other instrument or document executed and delivered by the Company in connection herewith, and the Company will, as incurred, reimburse Circle F for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim. (b) Circle F agrees to indemnify and hold harmless the Company from and against any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) to which the Company may become subject insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon, any representation or warranty made by Circle F not being complete accurate or true on the Closing Date or the failure of the Circle F to fulfill and fully perform each covenant or agreement hereunder or under any other instrument or document executed and delivered by Circle F in connection herewith, and Circle F will, as incurred, reimburse the Company for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim. (c) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 8.1, such indemnified person shall notify the indemnifying person in writing of such claim or of the 11 commencement of such action, and, subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person and the indemnifying person shall have been notified thereof, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to the indemnified person. After notice from the indemnifying person to such indemnified person of the indemnifying person's election to assume the defense thereof, the indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate in the reasonable judgment of the indemnified person for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person. SECTION 9 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES: COMPLIANCE WITH SECURITIES ACT 9.1 RESTRICTIONS ON TRANSFERABILITY The Securities shall not be transferable in the absence of a registration under the Securities Act or an exemption therefrom or in the absence of compliance with any term of this Agreement, 9.2 RESTRICTIVE LEGEND Each certificate representing the Securities shall bear substantially the following legends (in addition to any legends required under applicable securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS SUBJECT TO CERTAIN RESTRICTIONS SPECIFIED IN THE PURCHASE AGREEMENT DATED _______________, 1999 BETWEEN THE COMPANY AND CIRCLE F, AND NO TRANSFER OF THE SECURITIES SHALL BE VALID OR EFFECTIVE ABSENT COMPLIANCE WITH SUCH RESTRICTIONS. ALL SUBSEQUENT HOLDERS OF THESE SECURITIES WILL BE BOUND BY CERTAIN OF THE TERMS OF THE AGREEMENT, INCLUDING SECTION 9.3 THEREOF. COPIES OF THE PURCHASE AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE REGISTERED HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY. 12 9.3 TRANSFER OF SECURITIES AFTER REGISTRATION Circle F hereby covenants with the Company not to make any sale of the Securities, except either (i) in accordance with a Registration Statement, in which case such Circle F covenants to comply with the requirement of delivering a current prospectus, or (ii) in accordance with an exemption from the registration requirements of the Securities Act. SECTION 10 REGISTRATION RIGHTS 10.1 CERTAIN DEFINITIONS. As used in this Section 10, the following terms shall have the following respective meanings: "BLUE SKY LAWS" shall mean applicable state securities laws and the rules and regulations thereunder, all as the same shall be in effect from time to time. "COMMISSION" shall mean the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "CONVERTIBLE SECURITIES" shall mean securities of the Company convertible into or exchangeable for Registrable Securities, including the Preferred Stock. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "FORM S-1" shall mean Form S-1 issued by the Commission or any substantially similar form then in effect, including Form SB-2. "FORM S-2" shall mean Form S-2 issued by the Commission or any substantially similar form then in effect. "FORM S-3" shall mean Form S-3 issued by the Commission or any substantially similar form then in effect. "PURCHASERS" shall mean, for purposes of this Section 10, Circle F and its permitted assigns. "REGISTRABLE SECURITIES" shall mean (i) all shares of Common Stock issued to the Purchasers under this Agreement or issuable upon exercise of the Warrants issued to the Purchasers under this Agreement or (ii) Common Stock issued pursuant to stock splits, stock dividends and similar distributions with respect to such shares; PROVIDED, HOWEVER, that shares of Common Stock which are Registrable Securities shall cease to be Registrable Securities at such time, and for so long as, such shares are eligible for sale pursuant to Rule 144(k) 13 under the Securities Act and the Company shall have delivered to the Purchasers an opinion of counsel to such effect which opinion and counsel shall be reasonably satisfactory to the Purchasers. "REGISTRATION EXPENSES" shall mean all expenses incurred by the Corporation in complying with Sections 10.2 or 10.3, including without limitation, all Federal and state registration, qualification, delivery expenses and filing fees, printing expenses, listing fees and disbursements of counsel for the Company, blue sky fees and expenses, and the fees and disbursements of the independent certified public accountants of the Company, and fees and disbursements of underwriters, selling brokers, dealers, managers or similar securities industry professionals relating to the distribution of Registrable Securities and the reasonable legal fees and expenses of any one special counsel for the Purchasers reasonably acceptable to the Company (such legal fees and expenses not to exceed $10,000), but shall not include Selling Expenses (including underwriters' commissions). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and counsel fees, if any, in excess of the expenses of one special counsel for the Purchasers paid for by the Company as provided in the definition of "Registration Expenses", of the selling shareholders applicable to the sale of Registrable Securities pursuant to this Agreement. "UNDERWRITER'S REPRESENTATIVE" shall mean the representative of the managing underwriter of a firmly underwritten public offering of securities by the Company. 10.2 DEMAND REGISTRATION. (a) REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3. After the first anniversary of the initial Closing Date, and in the event that the Company shall receive from the holders of a majority of the Registrable Securities a written request that the Company effect any Registration with respect to Registrable Securities on Form S-1 or Form S-2, the Company shall promptly give notice thereof to all holders of Registrable Securities. Each holder of Registrable Securities shall have the right, by giving notice to the Company within 15 days following receipt by it of such notice from the Company, to elect to have included in such Registration such of its Registrable Securities as such holder shall request in such notice of election, subject to Section 10.2(c). The Company shall use reasonable efforts to effect Registration of the Registrable Securities specified in such request and notice of election. The Company shall not be obligated to effect more than one registration pursuant to this Section 10.2(a); PROVIDED, that a Registration shall not be counted for this purpose if (A)the Registration Statement does not become effective or (B) the requesting holders are not able to sell at least 75% of the Registrable Securities requested to be included in such Registration Statement. (b) REQUEST FOR REGISTRATION ON FORM S-3. After the first anniversary of the initial Closing Date, and in the event that the Company shall receive from the holders of a majority of the Registrable Securities a written request that the Company effect any Registration with respect to Registrable Securities on 14 Form S-3 (or any successor form to Form S-3 regardless of its designation) at a time when the Company is eligible to register securities on Form S-3 (or any successor form to Form S-3 regardless of its designation) for an offering of Registrable Securities, the Company shall promptly give notice thereof to all holders of Registrable Securities. Each holder of Registrable Securities shall have the right, by giving notice to the Company within 15 days following receipt by it of such notice from the Company, to elect to have included in such Registration such of its Registrable Securities as such holder shall request in such notice of election, subject to Section 10.2(c). The Company shall use reasonable efforts to effect Registration of the Registrable Securities specified in such request and notice of election. (c) ALLOCATION OF SHARES IN REGISTRATION. In the event that the underwriter's representative limits the number of shares to be included in a Registration pursuant to Section 10.2(a) or (b), each Purchaser requesting Registration shall be entitled to include a portion of the Registrable Securities requested to be included in such registration PRO RATA (based on the number of shares proposed to be included in such Registration, excluding shares of any Purchaser that are eligible to be sold pursuant to Rule 144(k) under the Securities Act. (d) REGISTRATION OF OTHER SECURITIES IN DEMAND RIGHT. A Registration pursuant to Section 10.2(a) or (b) may include securities other than Registrable Securities included in such Registration in the Company's discretion. (e) UNDERWRITING IN DEMAND REGISTRATION. (i) NOTICE OF UNDERWRITING. If the Purchasers intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 10.2, and the Company shall include such information in the notice referred to in Section 10.3(a). (ii) SELECTION OF UNDERWRITER IN DEMAND REGISTRATION. The Company shall, together with the Purchasers engaged in a Registration, enter into an underwriting agreement with the representative ("UNDERWRITER'S REPRESENTATIVE") of the underwriter or underwriters selected for such underwriting by a majority of the Purchasers engaged in the Registration and approved by the Company. (iii) RIGHT OF WITHDRAWAL IN DEMAND REGISTRATION. [Intentionally deleted.] (iv) COMPLIANCE WITH BLUE SKY LAWS IN DEMAND REGISTRATION. In the event of any Registration pursuant to Section 10.2, the Company will exercise its best efforts to Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky Laws of such jurisdictions as the Purchasers shall reasonably request and as shall be reasonably appropriate for the distribution of such securities; PROVIDED, HOWEVER, that (x) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions and (y) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be 15 qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling shareholders, such expenses shall be payable PRO RATA by selling shareholders. (v) OPTIMAL REGISTRATION. The Purchasers agree that, in exercising their rights under Section 10.2, they will permit the Registration of the Registrable Securities on such forms issued by the Commission as will minimize the Company's time and expense in effecting such Registration without affecting the liquidity afforded by such Registration or otherwise adversely affecting the Purchasers, in each case as reasonably determined by the Purchasers. If, for example, the Purchasers wish to register Registrable Securities pursuant to Section 10.2(a) at a time when the Company is eligible to use Form S-3 for purposes of registering such Registrable Securities, the Purchasers will permit the Company to fulfill its obligations under Section 10.2(a) by effecting such Registration on Form S-3; PROVIDED, HOWEVER, that nothing in this Section 10.2(e)(v) will prohibit the Company to fulfill such obligation by using Form SB-1, SB-2 or similar forms limited to "Small Business Issuers." (vi) DELAY OF REGISTRATION. The Purchasers agree that for a period of 90 days following the date of the effectiveness of a Registration under Section 10.3 pursuant to which the Purchasers have sold not less than 75% of the aggregate amount of the Registrable Securities that the Purchasers specified in their notice to the Company pursuant to Section 10.3(a), they will not exercise their right to demand a Registration pursuant to Section 10.2(a) or 10.2(b). Upon the occurrence of a Potential Material Event, as hereinafter defined, the Company may give the holders of Registrable Securities notice thereof and, subject to the immediately following sentence of this Section 10.2(e)(vi), upon receipt of such notice, the holders of Registrable Securities agree not to exercise their right to demand Registration pursuant to Section 10.2(a) or 10.2(b) for a period commencing upon the date of such receipt and ending on the earlier to occur of (A) the date 90 days following the date of such receipt or (B) the expiration of the event or circumstances giving rise to the Potential Material Event, PROVIDED that during such period the Company may not register any of its Common Stock, whether for its own account or the account of any security holder, and provided further that not more than one 90 day period may occur in any 12 calendar months. The Company agrees to give the holders of Registrable Securities immediate notice of such expiration. "POTENTIAL MATERIAL EVENT" shall mean any of the following: (aa) the possession by the Company of material information not ripe for disclosure in a registration statement, which shall be evidenced by determinations in good faith by the Board of Directors of the Company that disclosure of such information would be materially detrimental to the business and affairs of the Company and that the registration statement would be materially misleading absent the inclusion of such information; or (bb) any material engagement or activity by the Company which would, in the good faith determination of the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Board of Directors of the Company that the registration statement would be materially misleading absent the inclusion of such information. 16 10.3 PIGGYBACK REGISTRATION. (a) NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF REGISTRABLE SECURITIES. Subject to the terms of this Agreement, in the event the Company decides to Register any of its securities (either for its own account or the account of a Purchaser or other security holder exercising demand registration rights), other than (i) a Registration Statement which exclusively relates to the Registration of securities under an employee stock option, purchase, bonus or other benefit plan, or (ii) a Registration relating solely to a transaction under Rule 145 promulgated by the Commission, the Company will: (A) promptly give the Purchasers written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable Blue Sky Laws) and (B) include in such Registration (and any related qualification under Blue Sky Laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request delivered to the Company by the Purchasers within 15 days after delivery of such written notice from the Company (subject to allocation as set forth below). (b) UNDERWRITING IN PIGGYBACK REGISTRATION. (i) NOTICE OF UNDERWRITING. If the Registration of which the Company gives notice is a Registered public offering involving an underwriting, the Company shall so advise the Purchasers as a part of the written notice given pursuant to Section 10.3(a). In such event the right of the Purchasers to Registration shall be conditioned upon such underwriting and the inclusion of a Purchaser's Registrable Securities in such underwriting to the extent provided in this Section 10.3. The Purchasers shall, together with the Company, enter into an underwriting agreement in customary form with the Underwriter's Representative for such offering. The Purchasers shall have no right to participate in the selection of the underwriters for an offering pursuant to this Section 10.3. (ii) MARKETING LIMITATION IN PIGGYBACK REGISTRATION. In the event the Underwriter's Representative advises the Company and the Purchasers engaged in a Registration under Section 10.3(a) in writing that market factors (including, without limitation, the aggregate number of shares of Common Stock requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of shares to be underwritten, the Underwriter's Representative (subject to the allocation priority set forth in clause (iii) below) may exclude some or all of the Registrable Securities from such registration and underwriting. (iii) ALLOCATION OF SHARES IN PIGGYBACK REGISTRATION. In the event that the Underwriter's Representative limits the number of shares to be included in a Registration pursuant to Section 10.3(a), each Purchaser requesting Registration shall be entitled to include a portion of the Registrable Securities requested to be included in such registration PRO RATA (based on the number of shares held) with all other requesting Purchasers and other persons (excluding shares such Purchasers and other persons may sell pursuant to Rule 144(k) under the Securities Act) currently holding in writing similar piggyback registration rights requesting Registration pursuant to such piggyback registration rights. Unless all Registrable Securities and such other 17 piggybacking shares requested to be included in such Registration are so included, no other securities may be included in the Registration Statement. (iv) WITHDRAWAL IN PIGGYBACK REGISTRATION. If any Purchaser disapproves of the terms of any such underwriting, it may elect to withdraw therefrom at no cost to such Purchaser by written notice to the Company and the underwriter delivered at least five days prior to the effective date of the Registration Statement, provided that such Purchaser has received reasonable notice from the Company of such effective date. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such Registration. (v) BLUE SKY IN PIGGYBACK REGISTRATION. In the event of any Registration of Registrable Securities pursuant to Section 10.3(a), the Company will exercise its best efforts to Register and qualify the securities covered by the Registration Statement under the Blue Sky laws of such jurisdictions as the Purchaser shall reasonably request and as shall be reasonably appropriate for the distribution of such securities; PROVIDED, HOWEVER, that (a) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions and (b) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be born by selling shareholders, such expenses shall be payable pro rata by selling shareholders. (vi) TERMINATION OR POSTPONEMENT. Without any obligation to the Purchasers, upon notice to the Purchasers the Company may terminate or postpone any Registration commenced by it under Section 10.3. (vii) COOPERATION BY PURCHASERS. The Purchasers agree to comply with all reasonable requests of the Underwriter's Representative made in connection with any public offering in which such Purchasers participate, including, but not limited to, the execution of lock-up agreements and the making of reasonable representations and warranties related to such Purchaser, provided, however, that such lock-up agreements are also entered into by the Company's executive officers and directors and are for a period of no more than 120 days. 10.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any Registration hereunder shall be borne by the Company. Selling Expenses to be borne by the selling shareholders shall be borne PRO RATA on the basis of the number of Registrable Securities registered by such selling shareholder. 10.5 REGISTRATION GENERALLY. If and when the Company shall be required to effect the registration of Registrable Securities under the Securities Act pursuant to this Section 10, the Company will use its best efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto it will, as expeditiously as possible: 18 (a) before filing a Registration Statement or prospectus or any amendments or supplements thereto, furnish to the holders of the Registrable Securities covered by such Registration Statement and the underwriters, if any, copies of all such documents proposed to be filed, which documents will be made available, on a timely basis, for review by such holders and underwriters and their respective legal counsel, and, with respect to any Registration Statement filed pursuant to the provisions of Section 10.2, the Company will not file any Registration Statement or amendment thereto or any prospectus of any supplement thereto to which a majority of the holders of the Registrable Securities covered by such Registration Statement or the underwriters, if any, shall reasonably object; (b) prepare and file with the Commission such amendments and post-effective amendments to any Registration Statement, and such supplements to the prospectus, as may be reasonably requested by any holder of Registrable Securities or any underwriter of Registrable Securities or as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act, the Exchange Act or otherwise necessary to keep such Registration Statement effective for not less than one year (excluding any lock-up period) following the effective date of the respective Registration Statement and cause the prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and (c) notify the selling holders of Registrable Securities and the managing underwriters, if any, promptly and (if requested by any such person) confirm such advice in writing. 10.6 INFORMATION FURNISHED BY PURCHASER. It shall be a condition precedent of the Company's obligations under this Section 10 that the Purchasers furnish to the Company such information regarding the Purchasers and the distribution proposed by the Purchasers as the Company may reasonably request to effect any such Registration and as are customarily provided by selling shareholders. 10.7 CURRENT PUBLIC INFORMATION. At all times after the Company has filed a Registration Statement pursuant to the Securities Act, the Company will use its best efforts to file all reports required under the Securities Act or the Exchange Act and will take such further action as may be reasonably required to enable any holder of "restricted securities" (as defined in Rule 144 adopted by the Commission under the Securities Act) to sell such securities pursuant to Rule 144, as amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. SECTION 11 MISCELLANEOUS 11.1 WAIVERS AND AMENDMENTS. Neither this Agreement nor any provisions hereof shall be waived, modified, changed or discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, change, discharge or termination is sought. 19 11.2 BROKER'S FEE. Each of the parties hereto hereby represents that, on the basis of any actions and agreements by it there are no brokers or finders entitled to compensation in connection with the sale of the Securities to Circle F. 11.3 GOVERNING LAW. This Agreement shall be governed in all respects by and construed in accordance with the laws of the State of Arizona without any regard to conflicts of laws principles. 11.4 SURVIVAL. The representations, warranties, covenants and agreements made in this Agreement shall survive any investigation made by the Company or Circle F and each Closing. 11.5 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the benefit of and be binding upon, the successors, assigns, heirs, executors and administrators of the parties to this Agreement. 11.6 ENTIRE AGREEMENT. This Agreement, including all exhibits, schedules and appendices hereto, constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 11.7 NOTICES. All notices and other communications required or permitted under this Agreement shall be effective upon receipt and shall be in writing and may be delivered in person, by telecopy, overnight delivery service or registered or certified United States mail, addressed to the Company or Circle F, as the case may be, at their respective addresses set forth at the beginning of this Agreement, or at such other address as the Company or Circle F shall have furnished to the other party in writing. All notices and other communications shall be effective upon the earlier of actual receipt thereof by the person to whom notice is directed or (i) in the case of notices and communications sent by personal delivery or telecopy, one business day after such notice or communication arrives at the applicable address or was successfully sent to the applicable telecopy number, (ii) in the case of notices and communications sent by overnight delivery service, at noon (local time) on the second business day following the day such notice or communication was sent, and (iii) in the case of notices and communications sent by United States mail, seven days after such notice or communication shall have been deposited in the United States mail. 11.8 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11.9 COUNTERPARTS. This Agreement maybe executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 11.10 FURTHER ASSURANCES. Each party to this Agreement shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as the other party hereto may reasonably request in order to carry out 20 the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 11.11 EXPENSES. The Company shall bear its own expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby and shall reimburse Circle F for Circle F's expenses (including reasonable attorneys' fees and accounting fees) incurred in connection with consummating the transactions contemplated hereby up to an aggregate of $3,000. [signature page follows] 21 The foregoing agreement is hereby executed as of the date first above written. FBR CAPITAL CORPORATION By: /s/ Philip R. Shumway --------------------------- Title: President & CEO CIRCLE F VENTURES, LLC By: /s/ Dan Cartwright --------------------------- Title: Chief Financial Officer EX-10.3 5 SEVERANCE AGREEMENT WITH PHILIP R. SHUMWAY SEVERANCE AGREEMENT AND GENERAL RELEASE This Severance Agreement and General Release (the "Agreement") is entered into this 25th day of October, 1999, between Philip R. Shumway ("Mr. Shumway") and Vitrix Incorporated, an Arizona corporation ("Vitrix" or the "Company"). WHEREAS, the Company and Mr. Shumway wish to terminate Mr. Shumway's employment with Vitrix; and NOW, THEREFORE, in light of the foregoing, and in consideration of the mutual covenants and promises set forth herein, Mr. Shumway and Vitrix hereby agree as follows: 1. TERMINATION. a. Mr. Shumway and Vitrix hereby terminate Mr.Shumway's employment with Vitrix effective October 31, 1999. b. The Employment Agreement, dated February 16, 1999, by and between Vitrix and Mr. Shumway, attached hereto as EXHIBIT "A" (the "Employment Agreement"), is hereby terminated by mutual agreement, effective October 31, 1999. Except as otherwise provided in this Agreement, the Employment Agreement shall impose no surviving obligations on either Mr. Shumway or the Company. 2. CONFIDENTIAL INFORMATION. a. Mr. Shumway agrees that, as a principal executive officer of Vitrix, he has had access to confidential information. For purposes of this Agreement, "Confidential Information" includes, but is not limited to, the following: all confidential information which Mr. Shumway possesses regarding the business, properties, operations, and finances of the Company; the identity of clients or customers or potential clients or customers of the Company; any written, typed or printed lists, or other materials identifying the clients or customers of the Company; any other financial or other information supplied by clients or customers of the Company; any and all data or information involving the Company, its programs, methods, or contacts in the conduct of their businesses; any lists, documents, manuals, records, forms, or other material used by the Company in the conduct of their businesses; and any other secret or confidential information concerning the business or affairs of the Company. The terms "list," "document" or other equivalents, as used in this paragraph, are not limited to a physical writing or compilation, but also include any and all information whatsoever regarding the subject matter of the "list" or "document," whether or not such compilation has been reduced to writing. Mr. Shumway agrees that all of the Confidential Information which he may now possess in relation to the business, properties, operations, and finances of the Company has not, and shall not, be published, disclosed, or made accessible, directly or indirectly, by him to any other person or business entity, either during or after the termination of Mr. Shumway's employment by Vitrix. Mr. Shumway further agrees that the Company's Confidential Information constitutes trade secrets under applicable 1 law and such information is the sole property of the Company and is essential to the protection of its good will and the maintenance of its competitive position, and, accordingly, shall be kept secret. Mr. Shumway further acknowledges and agrees that the Company has taken reasonable efforts and measures to maintain and preserve the secrecy of its Confidential Information. b. Mr. Shumway warrants and represents that all Confidential Information and property, including any computers and/or software, and all files, whether hard or electronic, which were in his possession relating to the Company have been returned to Vitrix, and that Mr. Shumway has not retained copies of such files, whether hard or electronic. c. Mr. Shumway agrees to keep the contents and terms of this Agreement confidential and will not disclose or communicate to anyone, including, but not limited to, other persons, the media or other public or private forum, except that: (1) Mr. Shumway may communicate said content and terms to his attorneys and attorneys' staff and others under his attorneys' control who have an absolute need to know the content and terms hereof, provided that these persons shall agree to maintain the confidentiality of said content and terms and to be bound by the terms of this confidentiality provision; and (2) Mr. Shumway may disclose said content and terms to the United States Internal Revenue Service or any state or local department of revenue, as required by any such agency, for payment of his taxes or otherwise as required by law. 3. COVENANT NOT TO COMPETE. Mr. Shumway acknowledges and agrees that he has substantial experience in the labor management industry and possesses special, unique, extraordinary skills and knowledge in this field. Accordingly, by execution of this Agreement, Mr. Shumway agrees that, for a period of one (1) year commencing on the date of this Agreement, Mr. Shumway shall not, for any reason, directly or indirectly, compete with the Company. For purposes of this Agreement, Mr. Shumway shall be deemed to compete with Vitrix if he takes any measures, actively or passively, directly or indirectly, to obtain employment, or should accept any employment with any of the Company's competitors as an employee, consultant, or otherwise. 4. RELEASE. a. Mr. Shumway hereby knowingly, voluntarily, and irrevocably releases and discharges the Company, its stockholders, officers, directors, agents, representatives, attorneys, servants, employees, consultants, predecessors, successors, subsidiaries, parents, divisions, other corporate affiliates, assigns and all persons or entities acting by, through, under, or in concert with any of them (hereinafter collectively referred to as the "Released Parties") from any and all claims, demands, liabilities, judgements, damages, expenses, or causes of action of any kind or nature whatsoever which Mr. Shumway, his heirs, personal representatives, and assigns, and each of them, may have had or may now or hereafter have or assert, whether now known or unknown. The claims which are waived, released and discharged include, but are not limited to, breach of express or implied contract; breach of the covenant of good faith and fair dealing; wrongful discharge; public policy torts of any kind or nature; promissory estoppel; unjust enrichment; discrimination on the basis of age, sex, religion, handicap, disability, race, country of national origin, or any other reason prohibited by applicable law; claims under the Age 2 Discrimination in Employment Act (the "ADEA"), the Older Workers Benefit Protection Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, or the Americans with Disabilities Act, all as amended, the Arizona Civil Rights Act; or any other federal, state or local law, regulation or ordinance; tort claims of any kind whatsoever; any other common-law or statutory claims; claims for salary, wages, vacation pay, severance pay, bonus payments, or earnings of any kind, fringe benefits (including the automotive and golf expenses set forth in the Employment Agreement), medical or hospital expenses or benefits, litigation expenses, attorneys' fees, employment reinstatement, compensatory damages of any kind, liquidated or statutory damages, punitive damages, and any and all other damages arising out of or connected in any way whatsoever with the employment of Mr. Shumway by Vitrix at any time, or with the termination of such employment. b. Mr. Shumway hereby knowingly, voluntarily and irrevocably releases, acquits and forever discharges the Released Parties, or any of them, from all causes of action and claims which could be brought against the Released Parties, or any of them, arising out of the Employment Agreement, or any other agreement, oral or otherwise, or document executed by Mr. Shumway and the Released Parties, or any of them, in relation to or in connection with Mr. Shumway' employment with Vitrix or any other affiliated company, as applicable. Mr. Shumway further warrants that he has not assigned any cause of action released herein to any other person or entity prior to the execution of this Agreement. In addition, and in particular, Mr. Shumway, knowingly, voluntarily and irrevocably releases, acquits and forever discharges the Released Parties from all causes of action and claims which were or could have been brought or asserted in connection with his employment with Vitrix. c. Mr. Shumway agrees and covenants not to sue or bring, commence, institute, maintain, or prosecute any action at law or proceeding in equity, or any legal or administrative proceeding, arbitration or mediation whatsoever, based in whole or in part, arising out of or connected in any way whatsoever with, the employment of Mr. Shumway by Vitrix, the termination of such employment, the Employment Agreement, any other agreement, oral or otherwise, or document executed by Mr. Shumway and any of the Released Parties in relation to, or in connection with Mr. Shumway' employment with any of the Released Parties. d. By signing this Agreement, Mr. Shumway does not waive his rights or claims under the ADEA that may arise thereunder out of incidents which occur after the date upon which Mr. Shumway signs this Agreement. Mr. Shumway hereby acknowledges that the waiver of rights or claims under the ADEA is in exchange for consideration in addition to anything of value to which Mr. Shumway' is already entitled. 5. PAYMENTS BY VITRIX TO MR. SHUMWAY. In consideration of the general release of all claims, covenant not to sue, and other commitments detailed herein, Vitrix agrees to provide Mr. Shumway with the items listed below (the "Severance Pay"). a. Severance pay equal to amount to his current Base Salary (as defined in Section 3 of the Employment Agreement) at the rate currently being paid Mr. Shumway and as set forth in Section 3(a) of the Employment Agreement. 3 b. A cash payment equal to $3,846.40, which shall represent compensation for accrued vacation time. Payment of the latter amount shall be made on November 6, 1999. c. The continuation of medical and dental benefits currently provided to Mr. Shumway until the earlier of the expiration of the terms of the Employment Agreement or the receipt by Mr. Shumway of comparable benefits in connection with any new employment obtained by Mr. Shumway. d. Stock options to purchase an aggregate of 120,000 shares of Vitrix, Inc. (formerly known as FBR Capital Corporation) common stock (AFTER giving effect to the exchange of Vitrix Incorporated common stock for FBR Capital Corporation common stock in connection with the April 1999 transaction between such companies (the "Transaction")). The term and expiration of such options shall be as set forth in the original option grants. The exercise price of such options shall also be as set forth in the original option grants, as adjusted to reflect the Transaction. All other stock options previously granted to Shumway by Vitrix Incorporated or Vitrix, Inc. shall terminate as of the effective date of this Agreement. e. All of the payments and benefits set forth in this Section 5 will be paid and provided contingent upon Mr. Shumway's continued compliance with all of the terms of this Agreement, including those terms in Sections 2 and 3 hereof. 6. ENFORCEABILITY AND REMEDIES. a. The parties hereto agree that the scope of the restrictions imposed by Sections 2 and 3 of this Agreement are necessary and reasonable to protect the Company in the conduct of their businesses, and as such, are enforceable as written. However, in the event that a court of competent jurisdiction should decline to enforce any provision of this Agreement, it is intended and agreed that the court may and should modify such provision so as to render it enforceable. b. The parties hereto agree that irreparable injury will result to the Company in the event that Mr. Shumway violates Sections 2 or 3 of this Agreement. The parties agree and acknowledge that the remedies at law for any such breach of Sections 2 or 3 would be inadequate and that the Company shall be entitled to injunctive relief against Mr. Shumway in addition to any other remedy and damages available. 7. GENERAL. a. This Agreement is entered into and shall be interpreted, enforced and governed by the laws of the State of Arizona, regardless of conflict of laws rules under Texas law. Any action regarding this agreement shall be brought in a court in Maricopa County, Arizona. In any proceeding to enforce this Agreement, the non-prevailing party will pay the costs and reasonable attorneys' fees of the prevailing party. b. Mr. Shumway warrants that no promise or agreement not expressed herein has been made to him; that in executing this Agreement, he is not relying upon any statement or representation made by any other party, its agents or servants concerning the merits of any claim or the nature, extent or duration of any damages concerning this Agreement, or concerning any other thing or matter, but is relying solely upon his own judgement; that the above-mentioned sum and the 4 general release of all claims and other commitments against the Released Parties are in full and final settlement and satisfaction of all of the aforesaid claims and demands whatsoever; that Mr. Shumway' is legally competent to execute this agreement of his own free will after he has consulted with his attorneys; and that Mr. Shumway has had the Agreement and its binding effect explained to him by his attorneys. c. This Agreement contains the entire agreement between the parties and supercedes any and all other agreements or understandings relating to the subject matter of this Agreement. d. This Agreement may be executed in counterparts, and will be deemed to be binding and final when the parties hereto have executed a counterpart hereof, said Agreement to be effective from the date first-above written. E. MR. SHUMWAY HAS SEVEN (7) BUSINESS DAYS AFTER SIGNING THIS AGREEMENT TO REVOKE THIS AGREEMENT. ANY REVOCATION MUST BE IN WRITING AND ADDRESSED TO GREGORY R. HALL AND MUST BE TRANSMITTED TO AND RECEIVED BY SQUIRE, SANDERS & DEMPSEY L.L.P., 40 NORTH CENTRAL AVENUE, SUITE 2700, PHOENIX, ARIZONA 85004-4441, WITHIN TEN (10) DAYS FOLLOWING THE SIGNING OF THE AGREEMENT. IF MR. SHUMWAY DOES NOT TIMELY REVOKE THIS AGREEMENT, ITS TERMS AND CONDITIONS SHALL BE FINAL AND BINDING. f. The Company hereby acknowledges that it is aware of no facts in existence as of the date of this Agreement that would provide a basis for any claim by the Company against Mr. Shumway. [Signature page follows] 5 /s/ Philip R. Shumway ---------------------------------------- Philip R. Shumway VITRIX, INC. By: /s/ Michael A. Wolf ------------------------------------ Its: President & CEO ------------------------------- 6 State of Arizona ) ) ss. County of Maricopa ) On this 25th day of October, 1999, before me personally appeared Philip R. Shumway who voluntarily executed the foregoing Severance Agreement and General Release. /s/ Ruth Anne Patterson ---------------------------------------- Notary Public My Commission Expires: June 1, 2002 - ------------------------------- State of Arizona ) ) ss. County of Maricopa ) On this 8th day of October, 1999, before me personally appeared Michael A. Wolf, who voluntarily executed the foregoing Severance Agreement and General Release on behalf of Vitrix, Inc., as its duly authorized agent. /s/ Anna M. Belton ---------------------------------------- Notary Public My Commission Expires: March 15, 2003 - ------------------------------- EX-27 6 FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 1 434,397 0 37,754 0 41,804 554,240 65,873 0 620,113 231,359 0 0 100,000 72,205 1,261,968 620,113 0 202,669 65,562 325,398 0 0 2,108 (187,179) 0 (187,179) 0 0 0 (187,179) (.01) (.01)
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