OPTION AGREEMENT
EXHIBIT
10.4
This Option Agreement is made by and
between CHG Properties, Inc., a California corporation ("Optionor") and NetREIT,
a California corporation ("Optionee") on and as of February 15, 2005 (the
"Effective Date").
Recitals
WHEREAS, Optionor conducts an assets
management business, which business is comprised of certain equipment and
supplies (the "Tangible Property"), certain customer contacts, books, records,
procedures, know-how, customer lists, asset records, trade names, marks and
goodwill (the "Intangible Property"), a sublease for office space (the "Lease"),
and certain employment contracts for its personnel (the "Personnel"), all of
such Tangible Property, Intangible Property, Lease and Personnel referred to
herein as the "Business"; and
WHEREAS, Optionee desires to acquire
from Optionor the exclusive right to purchase the Business, without being
obligated to do so, at the price and on the terms and conditions provided for in
this Agreement;
NOW, THEREFORE, it is agreed as
follows:
1. Grant of
Option. For good and valuable consideration, the value and
receipt of which are hereby acknowledged, Optionor hereby grants to Optionee the
exclusive right to purchase the Business for so long as Optionee has a contract
with Optionor to provide real property management services for at least ninety
percent (90%) of the number of real properties owned by Optionee (the
"Option").
2. Exercise of
Option. In the event that Optionee desires to exercise the
Option, Optionee must do so by delivering written notice to Optionor, on or
before expiration of the Option, of its election to exercise the Option (the
"Acquisition Notice"). The Acquisition Notice shall include a due
diligence list of books and records of Optionor as Optionee may request (the
"Due Diligence Materials").
3. Delivery of Due Diligence
Materials. Optionee shall promptly deliver the Due Diligence
Materials to Optionee, but in no event later than fifteen (15) business days
after Optionee delivers the Acquisition Notice. As a condition to
such delivery, Optionor may require Optionee to execute an appropriate
confidentiality agreement.
4. Letter of
Intent. No later than twenty (20) business days after Optionor
delivers the Due Diligence Materials to Optionee, Optionee may, in its sole
discretion, deliver to Optionor a binding letter of intent (the "Letter of
Intent") setting forth the terms of the acquisition, including the price which
shall be determined in accordance with Section
5. Optionee may choose to structure the transaction as a
purchase of assets, a share exchange to acquire Optionor's corporate
entity. Should Optionee fail to deliver the Letter of Intent within
such 20 business days, Optionee shall be determined not to have exercised the
Option, and neither party shall have an obligation to the other regarding the
exercise of the Option.
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5. Purchase
Price. The purchase price shall equal the number of Shares of
Optionee's Series A common stock determined by Optionor's annualized net income
multiplied by 90% and divided by Optionee's Funds From Operations per Weighted
Average Share ("FFO Per Share"). Optionee's Annualized Net Income
would be determined by an independent auditor for the 6-month period immediately
preceding the month in which the Acquisition Notice is delivered as determined
in accordance with generally accepted auditing standards. Funds From
Operations shall equal the annualized Funds From Operations for Optionee's
quarter ended immediately preceding the date the Acquisition Notice is delivered
per our Weighted Average Shares during such quarter, as
annualized. The FFO Per Share will be based on the quarterly report
Optionee files and delivers to its shareholders for such quarter. The
resulting quotient will constitute the number of Shares we will issue in the
transaction, which must be consummated within 90 days after the Acquisition
Notice. FFO means generally net income (computed in accordance with
GAAP), excluding gains or losses from debt restructuring and sales of
properties, plus depreciation of real property and amortization, and after
adjustments for unconsolidated joint ventures and partnerships.
6. Definitive Acquisition
Documents. Promptly after the timely delivery of the Letter of
Intent to Optionor, Optionor and Optionee shall, in good faith, cooperate in
adopting such definitive acquisition documentation and to complete such acts
that are necessary and appropriate to complete Optionee's acquisition of the
Business in accordance with the terms of the Letter of Intent.
7. Binding
Effect. This Agreement will bind and inure to the benefit of
the respective heirs, personal representatives, successors, and assigns of the
parties to this Agreement.
8. Costs. Each
party shall bear its own costs, including legal expenses, it may incur in
connection with this Agreement and the exercise of the Option.
9. Applicable
Law. This Agreement shall be subject to and interpreted in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties to this
Agreement have executed this Option Agreement on the date above
written.
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OPTIONOR
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CHG
Properties, Inc.
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By: /s/ Xxxx X.
Xxxxxxxx
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Xxxx
X. Xxxxxxxx
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OPTIONEE
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By: /s/ Xxxx X.
Xxxxxxxx
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Xxxx
X. Xxxxxxxx, President
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