As filed with the Securities and Exchange Commission on May 12, 2000.
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
GlobalSCAPE, Inc.
(Exact name of registrant as specified in its charter)
Delaware 74-2785449
(State incorporation or (I.R.S. Employer
organization) Identification No.)
6000 Northwest Parkway 78249
Suite 100 (Zip Code)
San Antonio, Texas
(Address of principal executive offices)
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Registrant's telephone number, including area code: (210) 308-8267
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class of Name of each exchange on
securities to be so registered which each class is to be registered
------------------------------ ------------------------------------
[None] [None]
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Securities to be registered pursuant to Section 12(g) of the Act:
GLOBALSCAPE, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY REFERENCE
ITEM 1. BUSINESS.
See attached information statement under headings "Summary;" "Capitalization;" "Risk Factors;" "The Distribution;" "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business."
ITEM 2. FINANCIAL INFORMATION.
See attached information statement under headings "Summary;" "Capitalization;" "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements."
ITEM 3. PROPERTIES.
See attached information statement under heading "Business."
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See attached information statement under heading "Ownership of GlobalSCAPE Stock."
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
See attached information statement under heading "Management."
ITEM 6. EXECUTIVE COMPENSATION.
See attached information statement under heading "Management."
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See attached information statement under headings "Management" and "Certain Relationships and Related Transactions."
ITEM 8. LEGAL PROCEEDINGS.
See attached information statement under heading "Legal Proceedings."
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
See attached information statement under headings "Dividend Policy" and "Ownership of GlobalSCAPE Stock."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
See attached information statement under heading "Description of Capital Stock."
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
See attached information statement under heading "Limitation of Director and Officer Liability."
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See attached information statement under heading "Summary;" "Summary Financial Data;" "Selected Financial Data;" "Risk Factors;" "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
See attached information statement under headings "Report of Independent Auditors" and "Exhibits and Financial Statement Schedules."
TABLE OF CONTENTS
Page
Information Statement.................................................................. 1
Summary................................................................................ 3
The Distribution....................................................................... 4
Summary Financial Data................................................................. 5
Risk Factors........................................................................... 6
Risks Related to Our Business......................................................... 6
Risks Related to Our Strategy........................................................ 14
Risks Related to Legal Uncertainty.................................................... 16
Risks Related to This Distribution.................................................... 21
The Distribution....................................................................... 24
Dividend Policy........................................................................ 28
Accounting Treatment................................................................... 29
Capitalization......................................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 32
Business............................................................................... 42
Management............................................................................. 59
Ownership of GlobalSCAPE Stock......................................................... 64
Certain Relationships And Related Transactions......................................... 65
Description of Capital Stock........................................................... 66
Limitation of Director and Officer Liability........................................... 68
Legal Proceedings...................................................................... 69
Available Information.................................................................. 70
Index to Financial Statements.......................................................... F-1
Report of Independent Auditors......................................................... F-2
Exhibits and Financial Statement Schedules............................................. Exhibit-1
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[LOGO] American TeleSource International, Inc.
6000 Northwest Parkway
Suite 110
San Antonio, TX 78249
July ___, 2000
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Dear Shareholders:
In January 2000, American TeleSource International, Inc. ("ATSI") announced that its Board of Directors had approved a plan to spin-off a portion of its Internet subsidiary, GlobalSCAPE, Inc., and make a public offering of GlobalSCAPE common stock.
Subject to the effectiveness of this registration statement, ATSI shareholders of record will receive in the form of a distribution approximately 27% of ATSI's ownership in GlobalSCAPE. The record date to qualify for this distribution, which must still be set by ATSI's Board of Directors, is expected to be on or before July 14, 2000. A public announcement of the record date will be made at least ten days prior to the record date. The distribution of shares is expected to be made within three weeks after the record date. The distribution represents the first step in a plan designed to enhance shareholder value, raise capital necessary for GlobalSCAPE to accelerate its growth, and enhance ATSI's financial position. After the distribution is made, GlobalSCAPE will continue working toward a public offering of GlobalSCAPE common stock as business and market conditions warrant.
ATSI is an international telecommunications company serving certain niche markets in and between Latin America and the United States. GlobalSCAPE sells Internet-based software in a variety of categories including file management, multimedia and web site development tools targeting both business and consumer markets.
The distribution of approximately 27% of the GlobalSCAPE stock to the shareholders of ATSI is intended to allow ATSI and GlobalSCAPE to focus better on growing their respective businesses to compete in today's highly competitive telecommunications and technology related markets. The distribution will separate the businesses of ATSI and GlobalSCAPE in a manner that reflects their different missions and different financial, investment and operating characteristics so that each can pursue business strategies and objectives appropriate to its specific business. The separation will permit our investors, customers, and other constituencies to evaluate the respective businesses of ATSI and GlobalSCAPE on a stand-alone basis and will give ATSI shareholders as of the record date the opportunity to directly own two separate companies, rather than one.
The distribution of the GlobalSCAPE common stock will be made pro rata one share of GlobalSCAPE common stock for each twenty shares of ATSI common stock held by an ATSI shareholder on the record date for the distribution, rounded up to the nearest whole share. No fractional shares will be issued.
We are providing the attached information statement solely for your information. The information statement contains important information about GlobalSCAPE and the distribution of GlobalSCAPE common stock. I recommend that you read it carefully. No action is being
requested of you. If you hold shares of ATSI common stock on the record date you will receive your shares of GlobalSCAPE stock in the distribution.
NO ACTION ON YOUR PART IS REQUIRED AND THE RECEIPT OF GLOBALSCAPE SHARES
WILL NOT AFFECT THE NUMBER OF ATSI SHARES THAT YOU CURRENTLY OWN.
Sincerely,
Arthur L. Smith
Chairman and CEO
[LOGO] GlobalSCAPE, Inc.
6000 NW Parkway, Suite 100
San Antonio, TX 78249
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July __, 2000
Dear Shareholder,
ATSI will soon distribute to you shares of GlobalSCAPE, Inc. in a partial spin-off. We have prepared the enclosed Information Statement to describe our business and the spin-off and I recommend that you read it carefully.
GlobalSCAPE, Inc. is a leader in the development, marketing, distribution and support of Internet-based software in a variety of categories including file management, multimedia utilities and web site development tools targeting both business and consumer markets. Since our inception in April 1996, our products have been downloaded more than 13 million times from our internal servers, and 9 million times within the past 12 months. We have more than 3.5 million unique monthly page views of our web sites and more than 1 million unique monthly users of our flagship product, CuteFTP(R).
GlobalSCAPE is working to change the face of the Internet, most recently with CuteMX(TM) (Media eXchange), which employs a patent-pending file search and delivery process, extending web-based searching to the end users' desktop. This allows files to be searched for and served at the personal computer level, rather than through a central server. CuteMX(TM) delivers content from the desktop or "edge" of the Internet which empowers users by giving them access to a much greater base of real time information. In addition to powerful searching, CuteMX(TM) incorporates public and private chat, instant messaging, streaming audio and video and a built-in multimedia player. We believe GlobalSCAPE is well positioned to leverage its strength as a leader in file transfer to capitalize on this powerful trend, which has broad-reaching implications.
GlobalSCAPE has achieved significant success in the past few years with limited external funding and is positioned to take advantage of its strong brand recognition and sizable user base to maximize shareholder value. I am confident that the formal separation of ATSI and GlobalSCAPE via the distribution will allow the financial, investment and operating characteristics of GlobalSCAPE to become more apparent to investors, customers and other constituencies. This should enhance our ability to identify and meet consumer demand with quality products and maximize those products' online potential and provide us with a substantial business opportunity.
On behalf of GlobalSCAPE, we are pleased to welcome you as a new shareholder and we look forward to your participation in the next phase of our growth.
Sincerely,
Sandra Poole-Christal President
INFORMATION STATEMENT
GLOBALSCAPE, INC.
COMMON STOCK
(par value $.001 per share)
This Information Statement is being furnished in connection with the distribution by American TeleSource International, Inc., a Delaware corporation, or ATSI, of approximately 27% of its holdings of the common stock, par value $.001 per share of GlobalSCAPE, Inc., a Delaware corporation. At the distribution date, ATSI will hold approximately 73% of the outstanding shares of GlobalSCAPE Common Stock.
A portion of the shares of GlobalSCAPE Common Stock held by ATSI on the distribution date will be distributed to holders of record of ATSI common stock, par value $.001 per share, as of the close of business on the record date which will be set by the ATSI Board. It is anticipated the record date will be on or before July 14, 2000. A public announcement of the record date will be made at least ten days prior to the record date. The distribution of the GlobalSCAPE common stock will be made pro rata one share of GlobalSCAPE common stock for each twenty shares of ATSI common stock held by an ATSI shareholder on the record date for the distribution, rounded up to the nearest whole share of GlobalSCAPE common stock. No shareholder will be entitled to receive any fractional shares. It is anticipated that the distribution will be effective on or about three weeks after the record date; provided, however, the distribution will not occur until this registration statement is effective. You are not required to pay for the shares of GlobalSCAPE common stock received in the distribution, or to surrender or exchange ATSI common stock in order to receive GlobalSCAPE common stock.
Shares of GlobalSCAPE common stock will initially be entered on the records of GlobalSCAPE in book-entry form (without stock certificates). Stockholders will receive a written confirmation from ChaseMellon Shareholder Services, the distribution and transfer agent, showing the number of GlobalSCAPE shares owned. Shareholders can keep their shares in book-entry form or make a request to ChaseMellon to issue a stock certificate representing the shares. The confirmation of the number of shares of GlobalSCAPE common stock owned will be mailed to new GlobalSCAPE shareholders as soon as practicable following the distribution. There is no public market for GlobalSCAPE common stock and GlobalSCAPE does not intend to register or list its shares on any exchange or national market system following this distribution. Under the terms of GlobalSCAPE's bylaws, the transfer of your GlobalSCAPE common stock will be restricted for a period ending 180 days following the closing of a public offering and the listing of our stock on an exchange or national market system, which will occur, if at all, only as appropriate business and market conditions exist.
The Information Statement is first being sent to shareholders of ATSI on July _____, 2000.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY RECIPIENTS
OF GLOBALSCAPE COMMON STOCK, SEE "RISK FACTORS."
NO VOTE OF ATSI SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY IN CONNECTION WITH THE DISTRIBUTION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAVE THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
ATSI shareholders with inquiries related to the distribution should contact Karen Mella, Vice President Investor Relations and Corporate Communications, 12500 Network Boulevard, Suite 407, San Antonio, Texas 78249, at (210) 547-1000. The GlobalSCAPE common stock transfer agent will be ChaseMellon Shareholder Services L.L.C., Overpeck Centre, 85 Challenger Road, Ridgefield Park, NJ 07660. ChaseMellon also is acting as distribution agent for this distribution.
SUMMARY
This summary highlights selected information contained elsewhere in this information statement. We urge you to read the entire information statement carefully.
Our Business
Our primary business is sales of Internet utility software via the Internet, including file management, multimedia and web site development tools targeting both business and consumer markets. Our best known product is CuteFTP a critically acclaimed file transfer program. In addition to selling our own software, we are positioned to market and sell third-party software and a number of value-added products and services through our software products and web site network, which targets web and media enthusiasts.
Recent Developments
We recently released CuteMX(TM), a program that enables end users to network with each other to exchange media files, such as music or videos. We believe this product positions us to capitalize on the revolution in information distribution away from reliance on central servers to a dynamic and flexible network of desktop computers. We believe that existing demand for our products is strong, and that increasing sales of broadband, affordable personal computers will create even greater demand for our file transfer and file-sharing programs, as well as our web site development tools.
Our History
GlobalSCAPE was originally incorporated in Delaware in April 1996. The Company is a wholly-owned subsidiary of American TeleSource International, Inc.
General Information
Our executive offices are located at 6000 Northwest Parkway, Suite 100, San Antonio, Texas 78249, and our telephone number is (210) 308-8267. We are located on the Internet at www.globalscape.com and at www.cutemx.com. Information available on our web sites is not a part of this information statement.
"GlobalSCAPE," "CuteFTP(R)," "CuteHTML(R)," "CuteMAP(TM)," "CuteZIP(TM)," "CuteMX(TM)," and the GlobalSCAPE logo are trademarks or service marks of GlobalSCAPE. Other trademarks and tradenames in this information statement are the property of their respective owners.
THE DISTRIBUTION
Common stock being distributed 3,520,000 shares(1)
Common stock to be outstanding after 12,920,000 shares(2)
this distribution
________
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(1) The number of shares being distributed is based upon the number of ATSI
common shares outstanding on April 30, 2000 plus the number of common
shares obtainable by convertible securities prior to the close of business
on the record date, July ____, 2000. The actual number of shares to be
distributed will depend on the actual number of ATSI common shares
outstanding on the record date, July ____, 2000.
(2) The number of shares of common stock that will be outstanding after the
distribution is based on shares outstanding as of April 30, 2000 and
excludes:
. 339,999 shares of common stock issuable upon exercise of options
that have been granted under our 1998 Stock Option Plan, as
amended, at an average exercise price of $0.10 per share; and
. an additional 3,660,000 shares of common stock reserved for
issuance under our 2000 Stock Option Plan.
For a more detailed description of our capitalization, please see "Capitalization."
SUMMARY FINANCIAL DATA
You should read the following summary financial data together with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited financial statements and related notes which are included elsewhere in this information statement.
Year ended December 31,
-----------------------------------------------
1996 1997 1998 1999
(In thousands,
except per share data)
Statement of Operations Data:
Revenues........................................................ $ 216 $ 871 $ 2,074 $ 3,251
------- ------- ------- -------
Gross profit.................................................... 124 651 1,677 3,146
Operating income (loss)......................................... (212) 198 315 1,127
------- ------- ------- -------
Net income (loss)............................................... (213) 124 197 674
======= ======= ======= =======
Net income (loss) per share:(1)
Basic......................................................... ($0.02) $ 0.01 $ 0.02 $ 0.05
======= ======= ======= =======
Diluted....................................................... ($0.02) $ 0.01 $ 0.01 $ 0.05
======= ======= ======= =======
Number of shares used in per share calculations: (1)
Basic......................................................... 12,920 12,920 12,920 12,920
======= ======= ======= =======
Diluted....................................................... 12,920 12,920 13,264 13,294
======= ======= ======= =======
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As of December 31, 1999
-------------------------------
Balance Sheet Data:
Cash and cash equivalents..................................... 16,361
Working capital............................................... (160,171)
Total assets.................................................. 1,471,299
Total debt.................................................... 296,806
Total shareholders' equity.................................... 844,274
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RISK FACTORS
There are risks inherent to the stock you will receive, including those risks described in the risk factors below. You should keep these risk factors in mind when you read forward-looking statements elsewhere in this information statement. Any or all of these risks could have a material adverse effect on our business, operating results and financial condition. See "Forward Looking Statements."
Risks Related to Our Business
We have a history of profits, but may incur losses in the near future as we expand our business.
We have been profitable for the period from 1997 to 1999. We may, however, incur losses from operations in the foreseeable future as we expand our business.
We intend to expend significant resources on increasing our research and development, marketing, product offerings and network infrastructure. As a result, we will need to significantly increase our revenues to maintain profitability. We may not be able to achieve the necessary revenue growth, and we may not remain profitable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
In the past, almost all of our revenue has been earned through sales of our software. We are increasing our emphasis on selling advertising space in our software and web sites and marketing third-party products. Although we began operations in 1996, we did not begin generating any significant revenue from advertising and marketing until April 1999. As a result, our historical performance may not predict our future performance.
We may not be able to compete effectively.
The Internet software market is intensely competitive. A number of companies market competitive products or have indicated they intend to. There are few barriers to entry for software sales on the Internet, so the number of competitors is likely to increase. The market for advertising space on the Internet is also very competitive, and the large supply of advertising space puts downward pressure on the price we may charge to advertise in our software and web sites.
Many of our current and potential competitors have longer operating histories and significantly greater financial, marketing, technical, sales, customer support and other resources than we do. In addition, some of these competitors may be able to devote greater resources to the development, promotion and sale of their products and services, adopt more aggressive pricing strategies, and devote substantially more resources to the development of new software or different web advertising strategies than we will be able to devote or adopt. They may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements. Increased competition may result in lower operating margins and loss of market share. We expect that additional competitors will enter the market with competing products as the size and visibility of the market opportunity increases. We may not be able to compete
successfully against current and future competitors, and competitive pressures could result in pricing pressures, reduced margins or the failure of our products to achieve or maintain market acceptance.
If the market for web advertising develops more slowly than expected, we may not generate significant additional revenues.
Most potential advertisers and their advertising agencies have limited experience with the Internet as an advertising medium and have not devoted a significant portion of their advertising expenditures to web-based advertising. Minimal information is available supporting the effectiveness of web-based advertising. If Internet advertisers determine that web-based advertising is not as effective as other mediums, existing advertisers might reduce their current levels of advertising or eliminate their spending entirely. Also, the widespread adoption of technologies that permit Internet users to selectively block out unwanted graphics, including advertisements attached to web pages, could also adversely affect the growth of the Internet as an advertising medium.
Our operations are vulnerable to security breaches that could harm the quality of our products and services or disrupt our ability to deliver our products and services.
Third parties may breach our system security causing damage to our products and services. This might cause us to lose customers, or even cause customers to make claims on us for damages to them resulting from the use of our products and services. If the security measures that we use to protect our customer's personal information are ineffective, our customer's privacy could be compromised. Any of these events could cause customer dissatisfaction and resulting loss of revenues.
Our products may expose customers to invasion of privacy.
Some of our products are intended to provide outsiders access to files on customer's hard drives, making the customer vulnerable to hacking. For example, CuteMX(TM) permits a customer to share a file by giving another person access to the file in the customer's hard drive. If the customer suffers an invasion of privacy or harm to their computer, this may result in customers' dissatisfaction and possible claims against us for any resulting damages. We may be required to expend significant capital and other resources to license additional encryption and other technologies to protect against system security breaches or to alleviate problems caused by any such breaches.
Unexpected network interruptions may significantly impair our ability to deliver our products and services, resulting in decreased revenue and harm to our reputation.
We deliver our products and services via the Internet, so the efficient and uninterrupted operation of our computer and communications systems is critical to our business. We have not experienced any material outages to date. However, our systems are vulnerable to damage or interruption from natural disasters, such as flooding or tornadoes, as well as intentional sabotage or hacking, and failure due to human error. In addition, we rely on third parties to provide telephone and Internet access. These third parties may fail to provide sufficient capacity as promised or they may suffer outages.
Customers will be dissatisfied by any system failure that slows down or interrupts our delivery of products and services to them, and repeated problems would likely result in significant lost revenues and damage to our reputation. Although we maintain insurance against fires, floods and general business interruptions, the amount of coverage may not be adequate in any particular case. We do not presently have a formal disaster recovery plan.
We may not have sufficient systems capacity to accommodate our growth, resulting in lost revenues.
If we experience a sharp increase in the use of our products and services, we may have a temporary capacity shortage until we are able to arrange for additional capacity.
If we fail to respond to rapid technological change, including new software developments, our products could be rendered obsolete which could adversely affect our ability to retain existing customers and attract new customers.
The software industry is characterized by rapid technological change. If we cannot adapt or respond in a cost-effective and timely manner to technological changes, our products could be rendered obsolete which could have a material adverse effect on us. The development of our technologies entails significant technical and business risks and may require substantial lead-time and expenditures. We may not be able to keep pace with the latest technological developments, successfully identify and meet the demands of our customers, use new technologies effectively, or adapt our products to emerging industry standards or to the requirements of our customers.
If we do not expand our research and development, marketing and other staff and capabilities or effectively manage our internal growth, we may not be able to expand our business.
We are expecting a period of rapid expansion. In order to manage our expected growth, accommodate our needs and take advantage of new opportunities in our market, we will need to attract additional key personnel in the near future. This includes a need to expand our marketing, technical, finance, administrative, systems and operations staff. This expansion involves a number of risks, including our ability to hire and retain qualified personnel in a competitive environment and our ability to integrate new personnel successfully with our existing personnel.
We cannot assure you that our current and planned personnel levels, systems, procedures and controls will be adequate to support our future operations. If inadequate, we may not be able to exploit existing and potential strategic relationships and market opportunities. Any delays or difficulties we encounter could impair our ability to attract new, and enhance our relationships with existing, clients and end-users. If we are unsuccessful in hiring, integrating and retaining new personnel, or are unable to effectively manage our internal growth, we could be materially adversely affected.
We could lose key personnel which could prevent us from executing our business strategies.
Our future success depends on the continued services of a number of key directors and members of our management team, including Ms. Poole-Christal, and our product development team. The loss of the technical knowledge and industry expertise of these people could seriously impede our success. Moreover, the loss of one or more of our key employees could slow our research and development efforts and impair our ability to bring new product to market. Additionally, the loss of a key employee, particularly to a competitor, could result in a loss of customers, a reduction in our market share, and a diminished view of the value of branded products.
We currently do not maintain key person life insurance policies on any of our employees. The loss of the services of any of our key employees or our inability to hire and retain additional key employees would have a material adverse effect on us.
We intend to hire new members of our management team who will have little experience working together.
Our future success will depend upon the continued service of key management and technical personnel and on the hiring of new highly-skilled management and employees. GlobalSCAPE has engaged a national search firm to find a Chief Executive Officer for the company. We are also searching for individuals suited for other top management and board positions. There is no assurance these persons will be located in a timely manner. Moreover, these individuals will have limited experience with GlobalSCAPE and other members of management, and it is possible that they may not integrate well into our business. The failure of key personnel to integrate well would have a material adverse effect on us.
In addition, the members of our management committee that have been with us since 1996 have had only limited experience managing a rapidly growing company on either a public or private basis.
We may not be able to recruit and retain qualified professionals based in part on the limited numbers of and high demand for individuals with our required level of technical and management skills.
We compete intensely with other Internet, software development and distribution companies internationally to recruit and hire from a limited pool of qualified personnel. Many qualified candidates may be unwilling to relocate to San Antonio and work for GlobalSCAPE. If we cannot attract and hire additional qualified marketing, professional services and software engineering and development personnel, our business results will suffer.
Our intended expansion into international markets could expose us to related risks that could harm our business.
We currently have limited operations outside the United States. To expand our business, we intend to continue to develop relationships with customers outside of the United States. Expansion of our business to international consumers poses significant
challenges, including maintenance of existing and creation of additional non- English language versions of our products and our web site. Conducting business outside of the United States is subject to additional risks, including:
. related to online payment processing, including foreign currency
issues and transacting with consumers who do not have credit cards;
. currency fluctuations;
. the burden of complying with foreign laws; and
. political or economic instability or constraints on international
trade.
Any of the foregoing factors could adversely affect our future international operations, and as a result, harm our business and financial results.
If we are not able to overcome the challenges of our planned international expansion, our revenue and our prospects for profitability may be materially adversely affected.
Our success will depend, in part, on additional expansion of our sales in foreign markets. We currently earn up to approximately 25% of our revenues from customers outside of the United States. We intend to further expand our operations and sales and marketing efforts to these foreign markets. Our failure to expand international sales in a timely and cost-effective manner could have a material adverse effect on us. In addition, there can be no assurance we will be able to maintain or increase international market demand for our products. International operations are subject to other inherent risks, including:
. the impact of recessions in economies outside the United States;
. adverse changes in regulatory requirements;
. potentially adverse tax consequences;
. political and economic instability;
. compliance with foreign regulations regarding privacy concerns;
. fluctuations in currency exchange rates;
. reduced or limited protection for intellectual property rights; and
. tariffs and other trade barriers.
In January 1999, the new "Euro" currency was introduced in European countries that are part of the European Monetary Union, or EMU. During 2002, all EMU countries are expected to completely replace their national currencies with the Euro. Because a significant amount of uncertainty exists as to the effect the Euro will have on the marketplace and because all of the final rules and regulations have not yet been defined and finalized by the European Commission regarding the Euro currency, we cannot determine the effect this will have on our business.
Our failure to successfully integrate any future acquisitions or strategic relationships could strain our managerial, operational and financial resources and limit our growth.
As part of our business strategy, we intend to pursue opportunistic acquisitions of third-party authored software programs, businesses, contracts and strategic relationships that would provide additional customers, technologies, products, or experienced
personnel. Acquisitions present a number of potential risks that could have a material adverse effect on us, including:
. difficulty in securing products or relationships on acceptable terms;
. difficulty in assimilating the acquired company's personnel,
operations and technologies;
. entrance into markets in which we have limited or no prior experience;
. the potential loss of key employees of the acquired company;
. the distraction of our management's attention from other business
concerns; and
. the potentially dilutive issuance of our common stock, the use of
significant amounts of cash or the incurrence of substantial amounts
of debt.
Attempts to expand by means of business combinations and strategic alliances may not be successful and may harm our operational efficiency, financial performance and relationships with employees and third parties.
We may expand our operations or market presence by entering into additional business combinations, investments, joint ventures or other strategic alliances with hardware manufacturers, software vendors, Internet companies or other companies both in the United States and internationally. Our ability to expand in this way may be limited due to the many financial and operational risks accompanying these transactions. For example:
. we may have difficulty assimilating the operations, technology and
personnel of the combined companies;
. our business may be disrupted by the allocation of resources to
consummate these transactions;
. we may have problems retaining key technical and managerial personnel
from acquired companies;
. we may experience one-time in-process research and development charges
and ongoing expenses associated with amortization of goodwill and
other purchased intangible assets;
. our shareholders will suffer dilution if we issue equity to fund these
transactions;
. acquired businesses may initially be unprofitable resulting in our
assumption of operating losses and increased expenses; and
. our relationships with existing employees, customers and business
partners may be weakened or terminated as a result of these
transactions.
Our net revenue would be harmed if we experience significant credit card fraud.
A failure to adequately control fraudulent credit card transactions could harm our net revenue and operating results because we do not carry insurance against this risk. In the past, hackers have attempted to steal our products by processing transactions using stolen or otherwise wrongfully obtained credit card numbers. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder's signature.
Our products may contain defects that may be costly to correct, delay market acceptance of our products and expose us to litigation.
Despite testing by us, errors may be found in our products after distribution. This risk is exacerbated by the fact that a significant amount of code in our products is developed by independent parties over whom we have less control than that we exercise over internal developers. If errors are discovered, we may have to make significant expenditures of capital to eliminate them and yet may not be able to successfully correct them in a timely manner or at all. Errors and failures in our products could result in a loss of, or delay in, market acceptance of our products and could damage our reputation and our ability to convince commercial users of the benefits of our software products.
In addition, failures in our products could cause system failures for our customers who may assert warranty and other claims for substantial damages against us. Although our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims, it is possible that these provisions may not be effective or enforceable under the laws of some jurisdictions. These claims, even if unsuccessful, could be costly and time consuming to defend.
We may have difficulty with product development if external resources are no longer available.
Although we attempt to develop our products using only highly capable internal and external developers, program managers and software engineers we cannot be sure that we will be able to identify the highest quality and most reliable development personnel. Additionally, once code is received we cannot be sure we will be able to successfully assemble it and adequately test the resulting software. In addition, if external developers were no longer available or not available at a reasonable price, we would have to develop all of our distributed software internally, which is likely to significantly increase our development expenses or the time required to develop a new product or current product upgrades.
We may not be able to generate sufficient revenue from the registration of our software.
All products are available for free download for a minimum 30-day evaluation period as specified in their respective product license agreements. In many cases, it remains difficult to motivate people to purchase though most of our products contain frequent registration reminder messages and other features which completely or partially disable the ability to use the product if users fail to register and thereby pay for products. Without registration, revenue generation is limited to advertising revenues. Even with alternative revenue streams, the inability to increase product registration by providing adequate motivation to the user could lead to a significant reduction in overall revenue.
Our revenue growth depends to a significant extent upon the continued demand for our software products.
We believe that to date a significant portion of the traffic to our web site has been generated by consumer demand for our software products, including but not limited to the popularity of CuteFTP(R). A decline in the demand for, or the price consumers are willing to pay for, our products as a result of competition, an erosion of brand loyalty, perceived
degradation in product quality, technological changes, the bundling by third parties of functionality into their products or other factors would harm our business and operating results.
Our future growth will largely depend on our ability to successfully market and generate revenues from CuteMX(TM).
We expect our future financial performance will depend in significant part on advertising and sales revenues generated from CuteMX(TM). Market acceptance of CuteMX(TM) will depend on the market for multimedia tools and consumer demand for the ability to search, share, and play or view audio, video, image and other files in addition to the ability to communicate through public and private chat and instant messaging formats using CuteMX(TM). We cannot assure you that this market acceptance will occur.
A contributing factor to our initial growth has been our ability to create and maintain strong relationships with the community of users that initially adopts our products. This community of early adopters demands rapid improvements in the performance and features. We cannot assure you that CuteMX(TM) will meet the performance needs or expectations of the media enthusiast community when downloaded or that it will be free of significant software defects or bugs. If CuteMX(TM) does not meet customer needs or expectations, for whatever reason, our reputation could be damaged, or we could be required to upgrade or enhance the product, which could be costly and time consuming. Furthermore, success of this product is dependent on our management being able to adequately create consumer interest in the product and sustain that interest in light of competition from similar products which may exist or be developed.
The market for our products is rapidly changing, and the failure of our file management and web development tools to continue to satisfy the web and media enthusiast community would adversely affect our operating results.
If our file management and web development tools fail to continue to satisfy the web and media enthusiast community or otherwise fail to sustain sufficient market acceptance, our business, operating results and financial condition would be adversely affected. Due in part to the emerging nature of the utilities development tools market and the substantial resources available to many market participants, we believe there is a time-limited opportunity to achieve product adoption. If we do not achieve early widespread acceptance, our ability to achieve the operating results we expect will be adversely affected.
Our efforts to develop brand awareness may be unsuccessful, which could limit our ability to acquire new customers and generate ongoing revenue growth.
We believe that developing and maintaining awareness of the "GlobalSCAPE" and the various "Cute" brand names is critical to achieving widespread acceptance of our products. If we fail to promote and maintain our brands or incur significant related expenses, our business, operating results and financial condition could be materially adversely affected. To promote our brands, we may find it necessary to increase our marketing budget or otherwise increase our financial commitment to creating and maintaining brand awareness among potential customers. Although we have obtained a
United States registration of the trademark "GlobalSCAPE," we are aware of other companies, including competitors, that use the words "Global" or "Scape" in their marks in combination with other words, and we do not expect to be able to prevent third party uses of the words for competing goods and services. Competitors that use marks that are similar to our brand names may cause confusion among actual and potential customers, which could prevent us from achieving significant brand recognition. Additionally, the third parties may seek to restrict usage of our name through infringement claims.
Our reliance on international subcontracting for product development subjects us to additional economic and political risk.
We rely on our ability to outsource product development through foreign relationships at a lower cost than that which is available for similarly skilled development personnel in the United States. This international production strategy is subject to a variety of risks, including but not limited to political and economic instability in the countries in which our developers are located. If instability occurs we may not be able to continue this reliance which may increase the time necessary to complete research and development and the associated research and development costs. Furthermore, market pressures may resulting in a higher demand for software programmers in other countries, including Russia and India, which may in turn increase development costs and result in a decrease in profit margin. We have not proven our ability to diversify the source countries of our internationally located development teams. Especially without diversification, a change that affects the availability or cost of our developers would have a material adverse effect.
Our products rely on the prevalence of other technologies therefore we could be harmed if that technology fails to maintain or improve market share.
Our current products can only be used on a Windows-based operating system and are not compatible with other operating systems. Anything that affects Windows market share negatively could have a material adverse effect on the demand for products.
Risks Related To Our Internet Strategy
We may fail to promote and enhance our web sites effectively, which may prevent us from attracting new visitors, business partners or advertisers to our web site and from delivering our software through our web site.
Enhancing the GlobalSCAPE.com and CuteMX.com web sites is critical to our ability to increase our revenue. In order to attract and retain Internet users, electronic commerce partners and advertisers, we intend to substantially increase our expenditures for enhancing and further developing our web site network. Our success in promoting and enhancing our web site network will also depend on our ability to provide high quality content, features and functionality. If we fail to promote our web sites successfully or if visitors to our web sites, electronic commerce partners or advertisers do not perceive our services to be useful, current or of high quality, our ability to generate revenue from our web sites will be significantly impaired.
Visitors to our web sites could experience delays and decreased performance during periods of heavy traffic, which could result in dissatisfaction with our web site network and damage to our reputation.
Our web sites must accommodate a high volume of traffic. Our GlobalSCAPE.com web site has in the past experienced slower response times or decreased performance for a variety of reasons. These occurrences have not had a material impact on our business. These types of occurrences in the future, however, could have a material adverse effect on our reputation and brand name and could cause users to perceive our web site as not functioning properly. Under these circumstances, our users might choose other web sites or other methods to obtain comparable software.
Our Internet strategy will fail if the infrastructure of the Internet is not continually developed and maintained.
The success of our Internet strategy will depend in large part on the continued development and maintenance of the infrastructure of the Internet. The Internet has experienced, and we expect it to continue to experience, significant growth in the number of users and amount of traffic. The Internet has experienced a variety of outages, interruptions and other delays as a result of damage to or problems with portions of its infrastructure, and could face similar outages and delays in the future. Any outage or delay could affect the level of Internet usage, as well as the volume of traffic on our web site. If these outages or delays occur frequently in the future, Internet usage, as well as the use of our web-based software, could grow more slowly than projected or decline.
If the growth in the use of the Internet does not continue, the growth of our business will be negatively impacted.
Because global commerce and the online exchange of information is new and evolving, we cannot predict with any certainty that the Internet will be a viable commercial marketplace in the long term. The growth of our business would be materially adversely affected if Internet usage does not continue to grow rapidly. Growth in Internet usage could decline for a number of reasons, including concerns about the security of confidential information and concerns about acts of sabotage, vandalism and other similar events such as have adversely impacted Yahoo, eBay and other major Internet sites recently. If the Internet does not become a viable commercial marketplace, our Internet strategy will not succeed.
The development of a market for our products is uncertain.
If the market for consumer and business software applications does not grow at a significant rate, our business, operating results and financial condition will be materially adversely affected. Web technology has been used widely for only a short time, and the market for consumer and business software applications is new and rapidly evolving. As is typical for new and rapidly evolving industries, demand for recently introduced products is highly uncertain.
Risks Related To Legal Uncertainty
Third parties may assert claims against us as a result of information published or posted on or accessible from our web sites and through our software products.
We may be subjected to claims for defamation, negligence, copyright or trademark infringement or other claims relating to the information we publish on our web site or are accessible through our software products. These types of claims have been brought, sometimes successfully, against online services in the past, and can be costly to defend.
We may also be subjected to a variety of claims based on the content we provide or appear to provide, including but not limited to:
. content that is accessible from our web site;
. content available through links from our site to other web sites;
. content available through our software products; and
. content that may be transferred by users of our software products.
For example, CuteMX(TM) and CuteFTP(R) facilitate the transfer of all file types, some of which may include popular media formats such as MP3 where the underlying work may not be authorized for distribution. Recently laws have been passed addressing issues related to electronic embodiment of copyrighted works, however, this area of law is constantly changing both in the United States and internationally. In recent years, Congress has sought to increase protections to copyright owners while facilitating the development of the Internet through acts such as the Digital Millennium Copyright Act signed into law October 28, 1998. This area of the law is constantly changing both in the United States and internationally and there is little precedent available to determine how these acts will be interpreted. Furthermore, the federal government is continuing to evaluate the use of copyrighted material online. This uncertainty could be resolved in a way that may be detrimental to our Company and our business plan. Additionally, standards such as the Secure Digital Music Initiative, or SDMI, may impact the usability of programs like CuteMX(TM) and Cute FTP(R). The associated rights and restrictions that may be applicable in the future are uncertain and could adversely impact our financial condition or result in litigation or depreciation in the value of our brand. See "Business --Software Products."
We have not been a party to any lawsuit alleging the types of claims described above, to date. Any claims or litigation, if they occur, however, could subject us to significant liability for damages. Even if we were to prevail, litigation could be time-consuming and expensive to defend, and could result in diversion of our time and attention.
Third parties may assert infringement claims against us, which could result in liability for damages, the invalidation of our rights or the diversion of our time and attention.
We cannot assure you that third parties will not claim that we have infringed upon their patents or proprietary rights. If our patent applications and trademark applications are not approved because third parties own those patents or trademarks or have patents or trademarks which block our application, our use of the underlying intellectual property may be restricted unless we enter into arrangements with the third-party owners. Those arrangements may not be possible on reasonable terms. Even if our pending patent and trademark applications are approved, those applications, in addition to our trademark registrations, may be successfully challenged by others or invalidated at some time in the future. In the event that we are required to defend our patent(s) or trademark(s), such
litigation could divert our attention from running our business and have a material adverse effect on us. Any claims or litigation, if they occur, could subject us to significant liability for damages and could result in invalidation of our rights. Even if we were to prevail, litigation could be time-consuming and expensive to defend, and could result in diversion of our time and attention. Any claims or litigation from third parties might also limit our ability to use the proprietary rights subject to the claim or ensuing litigation.
We are vulnerable to claims that our products infringe third-party intellectual property rights particularly because our products are partially developed by independent parties.
We may be exposed to future litigation based on claims that our products infringe the intellectual property rights of others. This risk is exacerbated by the fact that some of the code in our products is developed by independent parties or licensed from third parties over whom we have less control than we exercise over internal developers. Claims of infringement could require us to reengineer our products or seek to obtain licenses from third parties in order to continue offering our products. In addition, an adverse legal decision affecting our intellectual property, or the use of significant resources to defend against this type of claim, could place a significant strain on our financial resources and harm our reputation.
Agreements exist between GlobalSCAPE and its independent contractors in which each contractor represented and warranted that the work completed for GlobalSCAPE was that individual's original work and that they had no knowledge of any infringement on a copyright, trade secret or other intellectual property right of another person or entity. These agreements may, however, be difficult to enforce and, even if enforceable, enforcement could result in costly litigation.
We may not be able to protect our intellectual property rights, which may result in damages to us.
We protect our intellectual property rights through a combination of trademarks, service marks, copyrights and trade secrets. Additionally we have filed a patent application covering concepts and technologies integral to our business including our proprietary search technology which facilitates the search for and exchange of information located at the personal computer level between a community of our product users. We cannot assure you that any of our current or future patent applications or trademark or copyright applications will be approved. We believe our success and ability to compete are in part dependent upon our intellectual property rights and other internally developed technologies. If our proprietary rights are infringed by a third party, the value of our services to our customers would be diminished and additional competition might result from the third party's use of those rights.
Furthermore, we cannot assure you that any of our proprietary rights will be viable or of value since the validity, enforceability and scope of protection of proprietary rights in Internet-related industries are uncertain and evolving. We also cannot assure you that the steps we have taken to protect our intellectual property rights will be adequate to deter misappropriation of those rights, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as in the United
States. We may not be able to detect unauthorized use of and, therefore, take appropriate steps to enforce our intellectual property rights. Additionally, the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. Furthermore, it may also be possible for unauthorized third parties to copy certain portions of our proprietary information or reverse engineer the proprietary information used in our programs.
Although we limit access to and disclosure of our proprietary information through confidentiality agreements with our employees and independent contractors and nondisclosure agreements with third parties that are material to our business, we cannot give assurance that such information will not be disclosed. Such disclosure would have a material adverse effect on us. See "Business -- Intellectual Property."
Our efforts to protect our trademarks may not be adequate to prevent third parties from misappropriating our intellectual property rights.
One of our most valuable intellectual property is our collection of trademarks. The protective steps we have taken in the past have been, and may in the future continue to be, inadequate to deter misappropriation of our trademark rights. Although we do not believe that we have suffered any material harm from misappropriation to date, we may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our trademark rights. We have registered some of our trademarks in the United States and have other trademark applications pending in the United States. Effective trademark protection may not be available in every country in which we offer or intend to offer our products and services.
Furthermore, defending or enforcing our trademark rights could result in the expenditure of significant financial and managerial resources. Other companies may own, obtain or claim trademarks that could prevent, limit or interfere with our use of our trademarks. The GlobalSCAPE.com or CuteMX.com web site addresses, or domain names, and our various trademarks are important to our business. Failure to adequately protect our trademark rights could damage or even destroy the GlobalSCAPE brand and impair our ability to compete effectively. If we lose the use of our site addresses or the use of our trademarks, our business would be harmed and we would need to devote substantial resources towards developing an independent brand identity. See "Business-- Intellectual Property."
We may face liability relating to content on, or products and services sold from, our web site.
Our web site network and software products provide third-party content. We could be exposed to claims related to copyright or trademark infringement, errors or omissions or other wrongful acts by the third parties whose content we provide or whose web sites are linked with ours. We enter into agreements with other companies under which we share revenues resulting from advertising or the purchase of products or services through direct or indirect links to or from our web sites and accessible through our software products. These arrangements may expose us to additional legal risks and uncertainties, including government regulation and potential liabilities to consumers of
these products and services, even if we do not provide the products and services ourselves.
We could face claims by our customers for invasion of privacy.
We collect and use data from our customers to process their orders for our services as well as in the operation of our services. This creates the potential for claims to be made against us based on invasion of privacy or other legal theories.
Recently, the Children's Online Privacy Protection Act of 1998, or COPPA, went into effect. The law requires sites that collect information to prominently disclose what personal information they collect from children, how it is used and whether it is shared with third parties. Most importantly, the law requires all sites to obtain "verifiable parental consent" in the form of a signed note, an e-mail with a password or a credit card number before collecting any data from pre-teens. In addition to securing parental permission before collecting personal data from children, the law says that sites must allow parents to review the information collected, delete information at a parent's request, and obtain parental permission before disclosing information about children to third parties. This Act may cause a significant increase in administrative expenditures to comply with this legislation.
Privacy concerns may cause users to resist providing personal data or to avoid web sites that track user behavior. Furthermore, consumers may choose not to buy our software or software products because of personal privacy concerns.
Government legislation and regulation of the Internet may limit the growth of our business and our ability to market our products and services.
A number of legislative and regulatory proposals under consideration by federal, state, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of the Internet, including online content, user privacy, direct mail marketing, online pricing and delivery of products and services, taxation, advertising, access charges, liability for third-party activities and jurisdiction. Additionally, it is uncertain how existing laws will be applied to the Internet. The adoption of new laws or the application of existing laws may decrease the growth in the use of the Internet, which could in turn decrease the usage and demand for our services or materially increase our cost of doing business.
Some local telephone carriers have asserted that the increasing popularity and use of the Internet has burdened the existing telecommunications infrastructure, and that many areas with high Internet use have begun to experience interruptions in telephone service. These carriers have petitioned the Federal Communications Commission to impose access fees on service providers and online service providers. If access fees are imposed, the costs of communicating on the Internet could increase substantially, potentially slowing the increasing use of the Internet. This could in turn decrease demand for our services or materially increase our cost of doing business.
A number of European countries have enacted laws restricting the marketing of products and services using e-mail. These restrictions could hinder or restrict the sales and marketing of our products and services in Europe. If similar restrictions were also
adopted in the United States or other countries, our business would be materially harmed. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet could harm our business.
Current and future legislation regarding unsolicited e-mail could limit our ability to expand our marketing initiatives.
Legislation has recently been enacted in several states restricting the sending of unsolicited commercial e-mail. The federal government and several other states are considering, or have considered, similar legislation. Although the provisions of these current and contemplated laws vary, they generally limit or prohibit both the transmission of unsolicited commercial e-mails and the use of forged or fraudulent routing and header information. Some states, require that unsolicited e-mails include "opt-out" instructions and that senders of such e-mails honor any "opt-out" requests. Recent cases have reviewed this legislation with varying outcomes. The ongoing development of this area of law is in no way predictable nor complete. The possible future legal restrictions could severely limit our ability to implement our marketing initiatives.
Taxation of Internet transactions could slow the growth of e-commerce and harm our business.
The tax treatment of electronic commerce is currently unsettled. A number of proposals have been made at the federal, state and local levels to impose taxes on the sale of goods and services and other e-commerce activities. The Internet Tax Freedom Act was signed into law on October 7, 1998, placing a three-year moratorium on multiple or discriminatory state and local taxes on electronic commerce. However, future laws may impose taxes or other regulations on e-commerce, which could substantially impair the growth of e-commerce and materially and adversely affect our business.
Regulations or consumer concerns regarding privacy on the Internet could limit our advertising strategy.
The demographics we collect during software installation enable us to target advertising to specific users. This information includes optional demographic information, systems and software usage statistics. This profile development involves both data supplied by the user and data delivered to a central ad server during the customers' software usage. Other countries and political entities, such as the European Economic Community, have adopted privacy protection legislation or regulatory requirements. The United States is negotiating with the European Union, often referred to as EU, to determine how their policies will be implemented here. Furthermore, the United States may expand its own restrictions considering the recent focus by numerous federal agencies concerned with online privacy. If privacy legislation is enacted or consumer privacy concerns limit the market acceptance of personalized software marketing, our business, financial condition and operating results could be harmed.
We use a data collection method similar to cookies to track demographic information. A number of governmental bodies and commentators in the United States and abroad have urged passage of laws limiting or abolishing the use of cookies and similar data collection methods. If such laws are passed or if users begin to delete or refuse this type of data collection as a common practice, our revenue may be reduced. All of these factors could give rise to legal liability and other business concerns related to our data collection.
Risks Related to This Distribution
The distribution may be treated as a taxable transaction to the ATSI stockholders receiving shares.
The distribution may be treated as a taxable distribution to the ATSI stockholder in an amount equal to the fair market value of the GlobalSCAPE stock received, to the extent of that stockholder's pro rata share of ATSI's current and accumulated earnings and profits. This includes any earnings and profits attributable to any gain that ATSI recognizes for Federal income tax purposes in connection with the stock distribution. Neither ATSI nor GlobalSCAPE has received a ruling from the Internal Revenue Service that the distribution to the ATSI stockholders will be treated as a non-taxable distribution to the ATSI stockholders under Internal Revenue Code Section 301, nor will a ruling be requested. See "The Distribution - Material Federal Income Tax Consequences of the Distribution."
American TeleSource International, Inc. and its directors and executive officers will be able to exert significant influence over us.
We are currently a wholly-owned subsidiary of ATSI. We were incorporated in 1996 and capitalized with an investment of less than $100,000 from ATSI.
After the distribution, ATSI will own approximately 73% of our outstanding common stock. Furthermore, ATSI's directors and executive officers who received their shares in the distribution will beneficially own approximately 11% of GlobalSCAPE's outstanding common stock. These shareholders, if they vote together,
will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also delay or prevent a change in control of us or discourage a potential acquirer from attempting to obtain control of us, any of which could have an adverse effect on the market price of our common stock.
At least initially, Arthur L. Smith, the Chairman and Chief Executive Officer of ATSI and H. Douglas Saathoff, the Chief Financial Officer of ATSI, will be the only directors of GlobalSCAPE. Therefore, until additional directors are recruited for our board, these ATSI officers may be able to exert significant influence over us and conflicts of interest may arise. See "Management" and "Ownership of GlobalSCAPE Stock."
The spin-off could adversely affect the aggregate value of your investment in ATSI common stock.
Following the partial spin-off, the valuation of GlobalSCAPE common stock and ATSI common stock will not necessarily be related. The combined valuation of the GlobalSCAPE common stock and ATSI common stock after the spin-off may be less than the trading price of ATSI common stock immediately before the spin- off. As a result of the spin-off, the trading price range of ATSI common stock may be lower than the trading price range of ATSI common stock immediately before the spin-off.
Anti-takeover provisions in our charter and Delaware law could inhibit others from acquiring us.
Some of the provisions of our certificate of incorporation and bylaws and in Delaware law could, together or separately:
. discourage potential acquisition proposals;
. delay or prevent a change in control; and
. limit the price that investors may be willing to pay in the future for
shares of our common stock.
In particular, our certificate of incorporation and bylaws provide for,
among other things, limitations on the individuals that may call meetings of the
shareholders and do not allow for cumulative voting. We are also subject to
Section 203 of the Delaware General Corporation Law which generally prohibits a
Delaware corporation from engaging in any of a broad range of business
combinations with any interested stockholder, as defined in the statute, for a
period of three years following the date on which the stockholder became an
interested stockholder.
You may be unable to sell your stock.
Upon the completion of this distribution, we will have 12,920,000 shares of common stock outstanding. The transfer of the stock you are receiving is restricted, pursuant to our bylaws, until 180 days after such time as we complete an initial public offering of our stock and we list and register our stock on a national securities exchange or we cause our shares to be quoted on the
automatic quotation system of a national securities association. There can be no assurance we will complete a public offering and list our stock. Consequently, you may not be able to sell your stock for a long time. See "Description of Capital Stock--Transfer Restrictions."
Furthermore, market conditions may make it difficult for you to sell your stock even once restrictions are removed. There is no public market for our common stock. We do not anticipate listing our shares with any exchange. We do not intend to provide aftermarket support and no broker-dealer has committed to selling any shares. We could decide not to facilitate the commencement of a trading market for the common stock for an extended period.
GlobalSCAPE may determine at some time in the future to issue additional shares in a public or private offering which may result in a significant percentage of the Company being distributed to the general public or private investors resulting in a considerable dilution of your holdings. Furthermore, shares held by any of our affiliates, including ATSI, will be subject to the limitations on trading found in Rule 144 of the Securities Act of 1933. After the statutory required holding period runs the shares restricted by Rule 144 will be eligible for sale, subject to the conditions of that Rule and the bylaw restrictions if still applicable.
THE DISTRIBUTION
Background; Reasons for the Distribution
Although a record date has not yet been set by the ATSI board, it is anticipated that the record date will be on or before July 14, 2000. An announcement of the record date will be made at least ten days prior to the record date. The distribution is expected to occur at the close of business on or about three weeks after the record date; provided, however, the distribution will not occur until this registration statement has been declared effective. ATSI will distribute a portion of the shares of GlobalSCAPE common stock to the ATSI shareholders as a non-cash distribution, resulting in approximately 27% of GlobalSCAPE shares being held by parties other than ATSI. ATSI has historically included 100% of GlobalSCAPE's operating results in its consolidated financial statements. After the distribution, ATSI will continue to consolidate 100% of GlobalSCAPE's results, and will recognize the impact of the resulting minority shareholder position.
In order to facilitate the distribution, ATSI recently consummated a corporate restructure whereby GlobalSCAPE which had been a subsidiary of American TeleSource International, Inc., a Texas corporation ("ATSI Texas"), a wholly-owned subsidiary of ATSI, became a direct wholly owned subsidiary of ATSI. The corporate restructure was implemented in a series of transactions: (i) ATSI Texas sold 100% of the common stock of GlobalSCAPE to ATSI for a $6 million promissory note; (ii) a stock split of the outstanding shares of GlobalSCAPE was consummated and each share of our common stock was changed into 7.6 shares of common stock. The corporate restructure may be treated as a taxable transaction to ATSI, but it is anticipated that all such gain may be offset by existing net operating losses. In addition, the distribution may be treated as a taxable transaction to ATSI's shareholders. See "The Distribution- Material Federal Income Tax Consequences of its Distribution."
ATSI is a telecommunications company, focusing on the market for wholesale and retail services between the United States and Latin American and within Latin America. On the other hand, GlobalSCAPE is in the software industry and develops, markets and distributes web-based software. The decision to effect the spin-off was triggered by the significant changes that have occurred in the telecommunications and Internet industries during the last couple of years. During this period, the Internet industry has experienced what we believe to have been one of the most fundamental economic and structural changes ever seen in any industry. It is against this background that ATSI undertook a review of its businesses and prospects and its relationship with its various subsidiaries to determine the best way to achieve long-term growth. In analyzing our future prospects, ATSI's board concluded that the distribution is in the best interest of ATSI and its shareholders because the separation of ATSI and GlobalSCAPE will provide each company with greater managerial, operational and financial flexibility to respond to changing market conditions in their different business environments.
There are a number of business purposes for the spin-off and it is a means of accomplishing a number of strategic long term goals. We expect the partial spin-off will allow ATSI shareholders to better evaluate their investment in the two resulting entities as the two entities possess operating and business characteristics very distinct from each other. Furthermore, the spin-off is expected to enhance GlobalSCAPE's access to
financing by allowing the financial community to focus separately on its business. If business and market conditions warrant, this in turn is anticipated to make an initial public offering or other financing of GlobalSCAPE more likely to succeed. The spin-off is also expected to provide employees of ATSI and GlobalSCAPE stock-based incentives based solely on the performance of ATSI or GlobalSCAPE as the case may be. ATSI and GlobalSCAPE have shared a number of human resources, including directors and top management, but this has not resulted in substantial operating efficiencies or other synergies between the two businesses. Although initially some sharing of human resources will continue, creating a more independent company will help accomplish the goal of attracting additional executives and directors for GlobalSCAPE who will be able to focus solely on the business of GlobalSCAPE.
Over the past year, GlobalSCAPE has been presented with certain acquisition and combination opportunities for growth in the Internet industry. While we believe those opportunities were not desirable for us at the times they arose, it advanced our understanding of the value inherent to the GlobalSCAPE business plan, which is different from that of ATSI.
Following the spin-off, we expect to be in a better position to actively pursue opportunities for growth in our core businesses, including:
. Acceleration of internal product development efforts;
. Acquisition of complementary products or businesses;
. International expansion; and
. Addition of new GlobalSCAPE products and services that are complementary
to our existing products and services.
We intend to finance these opportunities through a combination of internally generated capital, equity issuances and incurrences of debt where deemed prudent or appropriate. Any issuances of equity will depend upon the opportunity and circumstances. We will incur debt only where we consider the terms to be appropriate.
Manner of Effecting the Distribution
The distribution of the GlobalSCAPE common stock will be made on a pro rata basis with each ATSI shareholder receiving GlobalSCAPE shares at a ratio of one share of GlobalSCAPE common stock for each twenty shares of ATSI common stock held by such ATSI shareholder on the record date for the distribution, rounded up to the nearest whole number of GlobalSCAPE shares. No fractional shares will be issued in connection with the distribution.
As an example, if you hold one hundred (100) shares of ATSI common stock on the record date, you will receive five (5) shares of GlobalSCAPE common stock in the distribution. If you hold one hundred fifteen (115) shares of ATSI stock, you will receive six (6) shares of GlobalSCAPE common stock. Any shareholders holding less than 20 shares will receive one share of GlobalSCAPE common stock. The shares of our common stock will be fully paid and non-assessable and the holders thereof will not be entitled to preemptive rights. See "Description of Capital Stock".
ATSI will distribute approximately 3.5 million shares of GlobalSCAPE common stock, based on the number of shares of ATSI common stock outstanding on the record date. The shares to be distributed will constitute approximately 27% of the outstanding shares of GlobalSCAPE common stock immediately after the distribution. ATSI will retain the remaining approximately 73% of the outstanding shares of our common stock.
Shares of GlobalSCAPE Common Stock will be issued initially in book-entry form (without stock certificates) entered on the records of GlobalSCAPE. Shareholders will receive a written confirmation from ChaseMellon Shareholder Services, the distribution and transfer agent, showing the number of GlobalSCAPE shares owned. Shareholders can keep their shares in book-entry form to make a request to the distribution agent that a stock certificate representing the shares be issued. The distribution agent will mail certificates representing the shares of GlobalSCAPE common stock to holders of ATSI common stock as soon as practicable after request.
HOLDERS OF ATSI COMMON STOCK SHOULD NOT SEND CERTIFICATES TO GLOBALSCAPE, ATSI OR THE DISTRIBUTION AGENT. ATSI STOCK CERTIFICATES WILL CONTINUE TO REPRESENT SHARES OF ATSI COMMON STOCK AFTER THE SPIN-OFF IN THE SAME AMOUNT SHOWN ON THOSE CERTIFICATES. No holder of ATSI common stock will be required to pay any cash or other consideration for the shares of our common stock received in the spin-off or to surrender or exchange shares of ATSI common stock to receive shares of our common stock. No fractional shares of our common stock will be issued in the spin-off.
The distribution agent is ChaseMellon Shareholder Services, Overpark Centre, 85 Challenger Road, Ridgefield, NJ 07660.
Results of the Spin-off
Following this partial spin-off, we will be a company registered under
Section 12 of the Securities Exchange Act of 1934 with ATSI retaining a majority
of the outstanding shares and we will continue to operate our software
development and distribution businesses. The number and identity of the holders
of our remaining common stock
immediately after the spin-off likely will be substantially the same as the number and identity of the holders of ATSI common stock on the record date. Immediately after the spin-off, we expect to have approximately 14,200 holders of record of our common stock and 12,920,000 million shares of our common stock outstanding based on the number of record holders and outstanding shares of ATSI common stock as of the close of business on the record date.
The spin-off will not affect the number of outstanding shares of ATSI common stock or any rights of ATSI stockholders.
Listing and Trading of GlobalSCAPE Stock
We have reserved the symbol "CUTE" with the NASDAQ; however, we are not planning on listing the GlobalSCAPE stock on any exchange or automatic quotation system, except in connection with an initial public offering of our shares which may not occur for some time, if at all. Additionally, no underwriter or broker has committed to providing any market support for the selling of shares. See "Risk Factors - Risks Related to This Distribution - You May Be Unable to Sell Your Stock." In addition, the bylaws of GlobalSCAPE provide for certain stock transfer restrictions which will be in place until 180 days after GlobalSCAPE completes an initial public offering and we list and register our shares on a national securities exchange or we cause our shares to be quoted on the automatic quotation system of a national securities association. See "Description of Capital Stock - Transfer Restrictions."
Material Federal Income Tax Consequences of the Distribution
The following is a summary of the material United States federal income tax consequences relating to the distribution. The summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder, and interpretations of the Code and Treasury regulations by the courts and IRS, all as they exist as of the date of this document.
TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE SPIN-OFF TO YOU MAY DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE SPIN-OFF, PARTICULARLY IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE UNITED STATES FEDERAL INCOME TAX LAWS, SUCH AS IF YOU ARE A TAX-EXEMPT ENTITY, NON- RESIDENT ALIEN INDIVIDUAL, FOREIGN ENTITY, FOREIGN TRUST OR ESTATE OR BENEFICIARY THEREOF, PERSON WHO ACQUIRED SUCH STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INSURANCE COMPANY OR DEALER IN SECURITIES, OR IF YOU DO NOT HOLD YOUR ATSI COMMON STOCK AS A CAPITAL ASSET. THIS SUMMARY DOES NOT ADDRESS STATE LOCAL OR FOREIGN TAX CONSEQUENCES.
Neither ATSI nor GlobalSCAPE has received a ruling from the Internal Revenue Service that the distribution of the stock of GlobalSCAPE to the ATSI stockholders will qualify as a non-taxable distribution to the ATSI stockholders under Internal Revenue Code Section 301, nor will a ruling be requested. There are several factors which are
material to the determination regarding the tax consequences of the stock distribution. It is important to note that the below listed factors relate to determinations made at the time of the stock distribution.
When a corporation distributes property, Section 301 requires the stockholder to include the fair market value amount of the distribution in gross income to the extent that it constitutes a dividend. The term dividend, a precisely defined word, generally means any distribution of property that is out of the corporation's earnings and profits. Therefore, as long as ATSI has sufficient current or accumulated earnings and profits, distributions are treated as taxable dividends. Amounts that are not considered dividends because of inadequate earnings and profits are nontaxable returns of capital to the extent of the stockholder's basis in their shares. In effect, the nondividend portion of the distribution is applied to and reduces the basis of the stockholders investment in their ATSI stock. Should the return of capital distribution exceed the ATSI stockholders' basis, the excess is treated as gain from the sale of the stock, normally capital gain if the stock is a capital asset.
In order for the stock distribution to be non-taxable to the ATSI stockholders, inadequate ATSI earnings and profits must exist. It is not currently expected that ATSI will have adequate current and accumulated earnings and profits, however neither the factual representations made by GlobalSCAPE and ATSI, nor the analysis used in determining earnings and profits at the time of the stock distribution is binding on the Internal Revenue Service or any court.
HOLDERS OF ATSI STOCK ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE FEDERAL INCOME AND OTHER TAX CONSEQUENCES OF THE DISTRIBUTION OF THE GLOBALSCAPE STOCK TO THE ATSI STOCKHOLDERS, INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN TAX LAWS.
Reasons for Furnishing Information Statement
We are providing this information statement solely to provide information to ATSI shareholders who will receive our common stock in the spin-off. It is not an inducement or encouragement to buy or sell any securities of ATSI or GlobalSCAPE. We believe the information contained in this information statement is accurate as of the date set forth on the cover page. Changes may occur after that date, and neither GlobalSCAPE nor ATSI will update the information except in the normal course of their respective public disclosure practices.
DIVIDEND POLICY
We have neither declared nor paid any cash dividends on our common stock. Any future determination as to the payment of dividends will be at the discretion of our board of directors.
ACCOUNTING TREATMENT
Our historical financial statements present our financial position, results of operations and cash flows as if we were a separate entity for all periods presented. ATSI's historical basis in our assets and liabilities has been carried over and, in accordance with generally accepted accounting principles, allocations of certain ATSI costs have been made.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
Cash and cash equivalents.................................................. $ 16,361
===============
Debt:
Notes payable and capital lease obligations.............................. 296,806
===============
Shareholders' equity:/(1)/
Common stock, par value $0.001 per share; 40,000,000 shares authorized;
12,920,000 shares issued and outstanding, as adjusted................... 12,920
Additional paid-in capital............................................... 49,112
Accumulated Earnings..................................................... 782,242
---------------
Shareholders' equity..................................................... 844,274
===============
Total capitalization..................................................... $1,157,441
===============
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SELECTED FINANCIAL DATA
The following selected historical financial data for each of the years in the four-year period ended December 31, 1999 and as of December 31, 1998 and 1999 has been derived from our financial statements, which have been audited by Ernst & Young, LLP our independent auditors, and are included elsewhere in this information statement. The selected financial data for the year ended December 31, 1996 has been derived from our unaudited financial statements, which include, in the opinion of our management, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and results of operations for that period and at that date. The information set forth below should be read along with the financial statements and related notes included elsewhere in this information statement and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Year Ended December 31,
-------------------------------------------------------------------------
1996 1997 1998 1999
Statements of Operations Data: (Unaudited)
Revenues:
Software product revenues........................ $ 216,376 $870,539 $2,073,687 $2,922,141
Advertising revenues............................. 0 0 0 328,895
---------------- ---------------- ---------------- ----------------
Total revenues........................... 216,376 870,539 2,073,687 3,251,036
Total cost of revenues............................. 92,758 219,623 396,570 105,026
---------------- ---------------- ---------------- ----------------
Gross profit....................................... 123,618 650,916 1,677,117 3,146,010
Operating expenses:
Selling, general and administrative.............. 333,450 448,457 1,228,644 1,625,004
Research and development......................... 0 0 42,164 139,953
Depreciation and amortization.................... 2,505 4,876 91,262 253,896
---------------- ---------------- ---------------- ----------------
Total operating expenses................. 333,955 453,333 1,362,070 2,018,853
---------------- ---------------- ---------------- ----------------
Income (loss) from operations...................... (212,337) 197,583 315,047 1,127,157
Interest expense, net............................. 0 0 (2,345) (56,847)
Other income (expense), net........................ (404) 0 0 0
---------------- ---------------- ---------------- ----------------
Net income (loss) before provision for income taxes (212,741) 197,583 312,702 1,070,310
Income tax provision:
Current
Federal income taxes....................... 0 65,242 108,377 372,532
State income taxes......................... 0 9,042 15,020 51,629
Deferred
Federal income taxes....................... 0 (1,004) (6,463) (24,353
State income taxes......................... 0 (139) (896) (3,375
---------------- ---------------- ---------------- ----------------
Total income tax provision (benefit) 0 73,141 116,038 396,433
---------------- ---------------- ---------------- ----------------
Net income (212,741) 124,442 196,664 673,877
================ ================ ================ ================
Net income per common share ($0.02) $0.01 $0.02 $0.05
Net income per common share - assuming dilution ($0.02) $0.01 $0.01 $0.05
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December 31,
-------------------------------------------------------------------------
1996 1997 1998 1999
(Unaudited)
Balance Sheet Data(1):
Cash and cash equivalents.......................... $ 2,378 $192,064 $ 65,480 $ 16,361
Working capital (deficit).......................... 21,197 167,300 (798,833) (160,171)
Total assets....................................... 59,902 280,180 1,163,648 1,471,299
Total debt including current portion............... 0 0 919,065 296,806
Shareholders' equity (deficit)..................... $(212,741) $(26,268) $ 170,397 $ 844,274
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future events or our future financial performance which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under "Risk Factors" and "Business."
Forward Looking Statements
There are a number of statements in this registration statement that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such matters as the Company's strategy for internal growth and improved profitability, additional capital expenditures (including the amount and nature thereof), industry trends and other such matters. These statements are based on certain assumptions and analyses made by the Company in light of its perception of historical trends, current business and economic conditions and expected future developments as well as other factors it believes are reasonable or appropriate. However, whether actual results and developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market or business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulations and other factors, most of which are beyond the control of the Company. Consequently, there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations.
Overview
GlobalSCAPE develops, markets, distributes and supports leading Internet- based software products in a variety of categories including file management utilities, multimedia utilities and web application development tools to business and consumer markets. We were incorporated in April 1996 and are a wholly owned subsidiary of ATSI. In 1996, we entered into an exclusive, royalty based, distribution agreement with Alex Kunadze, the author of CuteFTP(R). This agreement was terminated in October of 1998 when we completed an outright purchase of CuteFTP(R).
We derive our revenue primarily from the sale of software and almost exclusively through electronic software distribution. A small percentage of our products are sold through traditional retail channels. Revenues from the sale of software products are recognized at the time of sale. We bear full credit risk with respect to substantially all sales.
In 1999, GlobalSCAPE began displaying advertising from within its software products in the form of banners in addition to generating revenues through sponsorship relationships. We sponsor complimentary products and services from within our software products and receive payment from the sponsored company when a product or service is
downloaded from our web site. We contract with third parties for the delivery and sale of advertising banners.
Results of Operations
The following table sets forth a consolidated statement of operations data for the periods indicated:
Year Ended December 31,
1997 1998 1999
Revenues:
Software product revenues................................ $870,539 $2,073,687 $2,922,141
Advertising revenues..................................... 0 0 328,895
------------- ----------- ------------
Total revenues.......................................... $870,539 $2,073,687 $3,251,036
Total cost of revenues:.................................... 219,623 396,570 105,026
------------- ----------- ------------
Gross profit............................................... 650,916 1,677,117 3,146,010
Gross profit (as a percentage of revenue).................. 74.7% 80.9% 96.8%
Operating expenses:
Selling, general and administrative expenses............. 448,457 1,228,644 1,625,004
Research and development expenses........................ 0 42,164 139,953
Depreciation and amortization............................ 4,876 91,262 253,896
------------- ----------- ------------
Total operating expenses................................ 453,333 1,362,070 2,018,853
------------- ----------- ------------
Income from operations..................................... 197,583 315,047 1,127,157
Other income (expense):
Interest expense, net.................................... 0 (2,345) (56,847)
------------- ----------- ------------
Total other income (expense)............................ 0 (2,345) (56,847)
------------- ----------- ------------
Income (loss) before provision for income tax.............. 197,583 312,702 1,070,310
Provision for income tax:(1)
Current
Federal income taxes.................................... 65,242 108,377 372,532
State income taxes...................................... 9,042 15,020 51,629
Deferred
Federal income taxes.................................... (1,004) (6,463) (24,353)
State income taxes ..................................... (139) (896) (3,375)
------------- ----------- ------------
Total income tax provision (benefit).................... 73,141 116,038 396,433
Net income (loss).......................................... $124,442 $ 196,664 $ 673,877
============= =========== ============
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Years Ended December 31, 1998 and 1999
Sales. GlobalSCAPE derives its revenue primarily from software sales and from advertising from within its software products. We recognize revenue from the sale of software products upon delivery through electronic software distribution or shipment of
the physical product to the end-user. For advertising sales, revenue is recognized as services are performed. Sales are comprised of the gross selling price of software, including shipping charges, sold by GlobalSCAPE and the net proceeds received from advertisers. GlobalSCAPE contracts with third parties for the delivery and sales of advertising. Only the net amount earned is recognized as revenue. Sales of licenses increased from $2,073,687 in 1998 to $2,922,141 in 1999, a 41% increase. Unit sales of our software products increased from 68,216 in 1998 to 121,649 in 1999. The average selling price decreased year to year due to greater sales of multi-seat licenses. We recognized advertising revenues for the first time in 1999. Advertising revenue in 1999 was $328,895 and accounted for approximately 10% of total revenues. We displayed more than 138 million banners which accounted for the majority of advertising revenues. In addition, we generated more than twenty-six thousand responses for sponsored products which are reported as part of the advertising revenues.
Cost of Sales. Cost of Sales consists primarily of royalties and production, packaging and shipping costs for boxed copies of software products. GlobalSCAPE purchased CuteFTP(R) from its author, Alex Kunadze, in October of 1998. Prior to this purchase GlobalSCAPE distributed the product under an exclusive royalty based distribution agreement. Royalties were recognized as costs of sale. The reduction in cost of sales from $396,570 in 1998 to $105,026 in 1999 reflects the purchase, which eliminated any further royalty payments. The gross margin increased from 81% for the year ended December 31, 1998 to 97% for the year ended December 31, 1999.
Selling, General and Administrative. Selling, general and administrative expenses consist primarily of personnel and related expenses, rents, advertising and promotional expenses, bad debt expense and credit card transaction fees. Selling, general and administrative expenses increased from $1,228,644 in 1998 to $1,625,004 in 1999, a 32% increase. As a percentage of total sales, selling, general and administrative expenses decreased from 59% in 1998 to 50% in 1999. Expenses increased primarily as a result of increased personnel costs including salaries, payroll taxes and recruiting fees. GlobalSCAPE had 14 employees at the end of 1998 and 23 at the end of 1999. In addition, advertising expenses increased due to new product launches. We introduced saleable versions of CuteHTML(R) and CuteMAP(TM) as well as beta versions of CuteZIP(TM) and CuteMX in 1999. Billing fees increased as well due to increased sales via credit card transactions. GlobalSCAPE expects selling, general and administration expenses to increase in absolute dollars in the future, particularly as we continue to build infrastructure to support growth and incur additional costs associated with having a broader shareholder base.
Research and Development. In 1999, GlobalSCAPE began outsourcing some research and development expenses. We capitalized some of these costs. Capitalization of software development costs begins upon the establishment of technological feasibility and ceases when the product is available for general release. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management concerning certain external factors including, but not limited to, technological feasibility, anticipated future gross revenue, estimated economic life and changes in software and hardware technologies. Research and development expenses were $42,164 in 1998 and $139,953
in 1999, a 232% increase. We began incurring research and development costs shortly after the decision was made to purchase CuteFTP. Prior to the purchase, all development costs were the responsibility of the author. In 1999, we expended resources on CuteFTP(R), CuteHTML(R), CuteMAP, CuteZIP and CuteMX as well as other products.
Depreciation and Amortization. Depreciation and amortization expense consists of depreciation expense related to GlobalSCAPE's fixed assets, the amortization of Goodwill associated with our purchase of the assets of QMC in 1998 and amortization of the trademark associated with our purchase of the source code of CuteFTP. Depreciation and amortization expense increased from $91,262 in 1998 to $253,896 in 1999 due primarily to the increase in fixed assets between years and approximately $180,000 of amortization related to CuteFTP.
Interest Expense. Interest expense consists primarily of interest expense related to the purchase of CuteFTP and interest expense related to our various capital leases and working capital borrowings. Interest expense grew from $2,345 in 1998 to $56,847 in 1999, a 2,324% increase. Thirty-seven thousand seventy-three dollars of the increase was due solely to the purchase of CuteFTP. The author agreed to accept approximately $190,000 in cash and twelve equal monthly payments of $63,000 for the total purchase price. Although no interest charge was expressed in the purchase agreement, we imputed interest at a rate of 12%.
Income Taxes. ATSI files a consolidated return for it and its affiliates, including GlobalSCAPE, for income taxes. Since ATSI has had and continues to have net operating losses, no income taxes have been due in any reported period. We, however, generated positive net income in each period from 1997 through 1999 and have made a provision for income taxes. Our financial statements reflect the costs had income taxes been paid by GlobalSCAPE. Current federal income taxes for 1998 would have been $108,377, whereas for 1999 they would have been $372,532 a 244% increase. Current Delaware state income taxes would have increased from $15,020 to $51,629 over the same period. Our deferred tax expenses for 1998 for federal and state taxes were $6,463 and $896, respectively, whereas for 1999 those expenses were $24,353 and $3,375 respectively.
Years Ended December 31, 1997 and 1998
Sales. GlobalSCAPE's sales increased from $870,539 for the year ended December 31, 1997 to $2,073,687 for the year ended December 31, 1998, a 138% increase, as a result of significant growth in the number of licenses sold for our software products. We sold an estimated 32,000 licenses in 1997 and 68,216 licenses in 1998, a 113% increase.
Cost of Sales. Cost of sales increased from $219,623 in 1997 to $396,570 in 1998, an increase of 81%, primarily as a result of increased royalty payments due to the increased sales volume. The gross margin increased from 75% for the year ended December 31, 1997 to 81% for the year ended December 31, 1998.
Selling, General and Administrative. Selling, general and administrative expenses increased from $448,457 in 1997 to $1,228,644 in 1998, a 174% increase. This
increase in expenses resulted from additional personnel and related expenses such as commissions, payroll taxes and insurance. The number of personnel increased from 7 in December 1997 to 14 in December 1998. Contract labor costs increased due to marketing related expenses and the creation of a new order entry system. In 1998, GlobalSCAPE decided to discontinue sharing offices with ATSI and relocated to new facilities to accommodate growth. This move resulted in increased rent expense. Bad debt expense and billing fees increased due to the increased sales volume. As a percentage of sales, selling, general and administrative expense increased from 52%% in the year ended December 31, 1997 to 59% for the year ended December 31, 1998.
Research and Development. GlobalSCAPE incurred research and development costs for the first time in 1998 of $42,164. Prior to 1998 all development costs were the responsibility of the author of CuteFTP(R).
Depreciation and Amortization. Depreciation and amortization expense increased from $4,876 in 1997 to $91,262 in 1998, a 1,772% increase due to the purchase of CuteFTP(R), computer equipment and office furniture.
Interest Expense. Interest expense for 1998 was $2,345 resulting from capital leases entered into by GlobalSCAPE. No interest expense was recognized in 1997.
Income Taxes. Without consolidation, current federal income taxes for 1997 would have been $65,242, whereas for 1998 they would have been $108,377 a 66% increase. Current Delaware state income taxes would have increased from $9,042 to $15,020 over the same period. Our deferred tax expenses in 1997 for federal and state taxes were $1,004 and $139, respectively, whereas for 1998 those expenses were $6,463 and $896.
Years Ended December 31, 1996 and 1997
Sales. The Company's sales increased from $216,376 in 1996 to $870,539 in 1997, a 302% increase. The number of licenses sold increased from an estimated 7,400 in 1996 to an estimated 32,000 in 1997, a 332% increase.
Cost of Sales. Cost of sales increased from $92,758 in 1996 to $219,623 in 1997, a 137% increase due to increased sales volume. Gross profit increased from 57% of sales in 1996 to 75% in 1997.
Selling, General and Administrative. Selling, general and administrative expenses increased from $333,450 in 1996 to $448,457 in 1997, a 34% increase. The increase in expenses reflects the increase in the number of personnel and related expenses including salaries, commissions, payroll taxes and insurance. Billing fees increased substantially due to both the increase in sales volume and the fact that the third party contracted to process credit cards was not engaged until the fourth quarter of 1996. In 1997 it was determined that services provided by ATSI should be charged to GlobalSCAPE. These fees were for such services as legal counsel, accounting systems, payroll processing and management oversight.
Depreciation and Amortization. Depreciation and amortization expense increased from $2,505 in 1996 to $4,876 in 1997, a 95% increase due to the purchase of general office equipment.
Income Taxes. No income taxes would have been paid in 1996, whereas in 1997 GlobalSCAPE would have incurred $65,242 in current federal income taxes and $9,042 in current state income taxes. Deferred tax expense was $1,004 and $139 for federal and state taxes, respectively.
Liquidity and Capital Resources
GlobalSCAPE was incorporated in April 1996 and was funded by ATSI. ATSI invested approximately $62,000 in the operation. We have been profitable since 1997 and have funded our operations solely through operating cash flows, capital leases and traditional lenders.
On January 28, 1999, we entered into a note payable for $180,000 as
evidenced by a Promissory Note with The Frost National Bank as Lender. As of
May 5, 2000, the outstanding balance is approximately $100,000. We began making
monthly interest payments on February 28, 1999 and will continue to make such
payments through December of 2000. The interest rate fluctuates and is
calculated on the unpaid principal balance. On January 28, 1999, the interest
rate was 8.75% per annum. We are making monthly principal payments as follows:
(i) beginning February 28,1999 and for a period of 12 months, we paid twelve
consecutive monthly payments of $5,000 each with interest; (ii) from February
28, 2000 and for a period of eleven months, we have paid and will pay, eleven
consecutive monthly payments of $10,000 each with interest; and (iii) on January
31, 2001, the Maturity Date, one final principal and interest payment is due in
the amount of $10,075.35. There are no prepayment penalties so we can pay all
or a portion of the loan at any time without owing a penalty amount. If a
default occurs under the Note, Lender may accelerate all or a portion of the
debt. Both parties have agreed to arbitrate any dispute that arises under the
Note in the City of San Antonio, Bexar County.
In connection with the $180,000.00 note payable described above, we have entered into a Commercial Security Agreement, dated January 28, 1999, with The Frost National Bank as Lender whereby we granted Lender a security interest in all of our accounts and equipment. In the event of a default under the Commercial Security Agreement, Lender may sell the collateral in which they hold a security interest.
On October 6, 1999, we entered into a note payable for $50,000 as evidenced by a Promissory Note with The Frost National Bank as Lender. As of May 5, 2000, the outstanding balance is approximately $44,000. We began making monthly interest payments on November 6, 1999 and will continue to make such payments through April of 2001. The interest rate fluctuates and is calculated on the unpaid principal balance. On October 6, 1999, the interest rate was 9.25% per annum. We are making monthly principal payments as follows: (i) beginning November 6, 1999 and for a period of 6 months, we paid six consecutive monthly payments of $1,000.00 each with interest; (ii) beginning May 6, 2000 and for a period of twelve months, we have paid and will pay, twelve consecutive monthly payments of $3,666.67 each with interest. Our final payment of $3,666.67 is due on April 6, 2001. There are no prepayment penalties so we can pay all or a portion of the loan at any time without owing a penalty amount. If a default occurs under the Note, Lender may accelerate all or a portion of the debt. Both parties have agreed to arbitrate any dispute that arises under the Note in the City of San Antonio, Bexar County.
In connection with the $50,000.00 note payable described above, we have entered into a Commercial Security Agreement, dated October 6, 1999, with The Frost National Bank as Lender whereby we granted Lender a security interest in all of our accounts and equipment. In the event of a default under the Commercial Security Agreement, Lender may sell the collateral in which they hold a security interest.
On February 1, 2000, we entered into a note payable for $70,000.00 as evidenced by a Promissory Note with The Frost National Bank as Lender. As of May 5, 2000, the outstanding balance is approximately $58,808. We began making monthly principal and interest payments in the amount of $6,141.50 on March 1, 2000 and will continue to make such payments for a period of twelve months, through February 1, 2001. The interest rate is subject to change. On March 1, 2000, the interest rate was 9.50% per annum. There are no prepayment penalties so we can pay all or a portion of the loan at any time without owing a penalty amount. If a default occurs under the Note, Lender may accelerate all or a portion of the debt. Both parties have agreed to arbitrate any dispute that arises under the Note in the City of San Antonio, Bexar County.
In connection with the $70,000 note payable described above, we have entered into a Commercial Security Agreement, dated February 1, 2000, with The Frost National Bank as Lender whereby we granted Lender a security interest in all of our accounts and equipment. In the event of a default under the Security Agreement, Lender may sell the collateral in which they hold a security interest.
On August 26, 1999, we, as a subsidiary of ATSI, entered into a Promissory Note along with American TeleSource International, Inc., a Texas corporation, and Telespan, Inc., a Texas corporation. The Note is in the amount of $2,000,000.00 payable to NTFC Capital Corporation, or NTFC. Interest is capitalized for the first six months and is calculated at a fixed rate per annum of interest equal to the five year bank swap rate as reported on the first borrowing date on the Dow Jones & Company Telerate screen, plus four hundred ninety-five (495) basis points. All principal amounts borrowed are amortized and repaid quarterly with the first quarterly payment due June 2001. As of May 5, 2000, the outstanding balance including capitalized interest was approximately $2,119,013.
In connection with the $2,000,000 note payable described above we have entered into a Loan and Security Agreement along with American TeleSource International, Inc., a Texas corporation, and Telespan, Inc., dated July 31, 1999, whereby we have granted a security interest to NTFC in our equipment, all proceeds from insurance policies, monies received from governmental bodies or agencies in connection with seizure of the collateral property, any amounts payable in connection with the collateral, and all cash proceeds and non-cash proceeds in the form of equipment, inventory, accounts, general intangibles, chattel paper or other proceeds.
Net cash provided by operating activities in the years ended December 31, 1996, 1997, 1998 and 1999 was $15,268, $142,273, $30,370 and $808,142, respectively. Net cash provided by operating activities in these periods were primarily the result of net income (loss) offset by intercompany transactions in 1996, 1997, 1998, and 1999 as well as increases in accounts receivable in 1999.
Net cash used in investing activities in the years ended December 31, 1996, 1997, 1998 and 1999 was $12,891, $14,619, $149,202 and $185,997, respectively. Net cash used in investing activities in each of these periods was related to the purchases of property and equipment and trademark acquisition costs. The property and equipment purchased consisted primarily of furniture and computer hardware and software.
Net cash provided by or used in financing activities in the years ended December 31, 1997, 1998 and 1999 was $62,032, ($7,752), and ($671,264), respectively. Financial activities had no impact on the company in 1996. The cash provided by financing activities in 1997 was a result of the initial capitalization provided by ATSI. Net cash used in 1998 consisted solely of principal payments on capital lease obligations, while net cash used in 1999 consisted of $230,000 in bank borrowings, $888,566 in principal payments related to the purchase of CuteFTP(R) and the aforementioned borrowings as well as $12,698 in principal payments on capital lease obligations.
As of December 31, 1999, GlobalSCAPE had approximately $16,361 of cash and cash equivalents. Our principal commitments consisted of obligations outstanding under capital leases, bank borrowings and the purchase of CuteFTP(R) which was satisfied in January 2000. We have material commitments for capital expenditures related to our relocation to the Technology Center on Northwest Parkway in San Antonio, Texas and the related expansion of its facilities of approximately $300,000. GlobalSCAPE anticipates an increase in the rate of capital expenditures consistent with its anticipated growth in operations, infrastructure and personnel. We anticipate that we will continue to add computer hardware resources and that we will expend significant resources on product development and the expansion of our management team and development staff. GlobalSCAPE may also use cash to acquire or license technology, products or businesses related to its current business. We also anticipate that we will continue to experience significant growth in our operating expenses for the foreseeable future and that our operating expenses will be a material use of our cash resources.
Tax Matters
We will not have the future benefit of any prior tax losses or benefits, incurred as part of a consolidated return with ATSI, associated with our business that occur prior to the spin-off. Moreover, we will be liable to ATSI for any corporate level taxes incurred by ATSI as a result of the spin-off, except to the extent the taxes arise solely as a result of a change of control of ATSI.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS 133 as amended by SFAS 137, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000, with earlier application encouraged. The Company does not currently nor does it intend in the future to use derivative instruments and therefore does not expect that the adoption of SFAS 133 will have any impact on its financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements ,which currently must be adopted by June 30, 2000. SAB 101 provides additional guidance on revenue recognition as well as criteria for when revenue is generally realized and earned and also requires the deferral of incremental direct selling costs. The Company is currently assessing the impact of SAB 101.
Year 2000 Readiness
In preparation for the year 2000, we engaged in efforts to ensure that our products and business systems properly recognize date-sensitive information in the year 2000 and beyond. These efforts and their costs are described below. We have not experienced any significant "year 2000 problems" with our products and business systems and do not expect that we will do so in the future.
State of Readiness. We implemented a year 2000 readiness plan in 1996. We completed an audit and assessed the ability of our hardware and software systems to operate properly in the year 2000 and beyond. We investigated the year 2000 readiness of our software, hardware and other significant vendors by requiring them to complete questionnaires and submit internal year 2000 plans to insure no disruption would occur in our supply chain. To date, we have not encountered any material year 2000 issues or significant disruptions to our operations. We have incurred minimal direct costs in assessing and remediating year 2000 problems most of which was incorporated in general research and development and business operations costs. We do not expect to spend more than $100,000 in the aggregate to complete the process.
Risks. We could be exposed to a loss of revenues and our operating expenses could increase if our products or business systems have year 2000 problems. Our potential areas of exposure include products purchased from third parties, information technology, including computers and software, and non- information technology, including telephone systems and other equipment used internally. The reasonably likely worst case scenario for year 2000 problems would be if a significant defect exists in key hardware or software and if a solution for such a problem were not immediately available.
Contingency Plan. Although we have not experienced any year 2000-related problems affecting our internal systems, we have developed contingency plans to be implemented if our efforts to identify and correct year 2000 problems are not effective. Depending on the systems affected, these plans include:
. accelerated replacement of affected equipment or software;
. short to medium-term use of back-up equipment and software or other
redundant systems; and
. increased work hours for our personnel or the hiring of additional
information technology staff.
The discussion of our efforts and expectations relating to year 2000 compliance are forward-looking statements.
Inflation
Increases in inflation generally result in higher interest rates and operating costs. Our largest cost exposure is cost of salaries and general and administrative expenses. To date we believe that inflation has not had a significant impact on our operations.
Research and Development
Research and development expenses include all direct costs, primarily salaries for Company personnel and outside consultants, related to the development of new products and significant enhancements to existing products and are expensed as incurred until such time as technological feasibility is achieved.
Quantitative and Qualitative Discussion of Market Risk
To date, we have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies to hedge market risk in the foreseeable future. We invest our cash in money market funds, which are subject to minimal credit and market risk. We believe that the interest rate risk and other relevant market risks associated with these financial instruments are immaterial.
Most of our revenues are realized currently in U.S. dollars, however, up to approximately 25% are from customers who are from outside the United States. All revenues are received in U.S. dollars so direct exchange rate risk is minimized.
BUSINESS
Company Overview
GlobalSCAPE is a leader in the development, marketing, distribution and support of award winning web-based software in a broad array of categories including file management, multimedia utilities and web site development tools targeted to both consumer and business markets. More than 13 million products have been downloaded from our internal servers since the Company's inception, 9 million of which occurred within the past 12 months. We have more than 3.5 million unique monthly page views of our web sites and more than 1 million unique monthly users of our flagship product, CuteFTP(R).
Our strategy is to offer powerful, easy-to-use products in a broad array of categories including file management utilities, multimedia utilities and web application development tools, targeting both business and consumer markets. Through various data collection methods including unique user profiling, demographic surveys and direct market research, we are able to target advertising and assess product usage trends which assists in our ability to develop complementary products that are likely to appeal to our users. Our business model allows us to continually bring to market software products that end users want on a just-in-time basis. Our internal product development efforts utilize Virtual Development Teams, which include both internal and external project management and programming personnel. This enables us to access highly skilled, cost effective talent and bring superior quality programs to market quickly with a high likelihood of success.
To complement our software development efforts, GlobalSCAPE is positioned to market and sell third-party developed software products and a number of value added products and services from third-party retailers through a system known as sponsorships. We promote third-party products and services through our software products and web site network. In exchange, GlobalSCAPE generates revenue by receiving a referral fee or a portion of the subscription fee or sales price earned by third-party providers. GlobalSCAPE provides the third-party distributors with access to a large customer base and association with a well- respected brand name, in addition to fundamental services including development, marketing, sales, billing, technical support and customer service. This allows these third-party developers and retailers to concentrate on their core competencies, while increasing their exposure through targeted marketing of their products and services to our user base.
All of GlobalSCAPE's software products are available online and distributed on a free trial basis via digital download. Some products expire after 30 days, other products are disabled and some continue to function with reminder messages after the trial period to allow for alternate revenue generation opportunities. Our primary source of revenue is product registration, or paid usage of the software. Additionally, we generate revenue from advertising through our software products and on our web sites. This advertising may take multiple forms including sponsorships, ad banners or web commercials that employ streaming audio and video. The form of advertising used is dependent on both our products' and the advertisers' capabilities.
GlobalSCAPE has gained significant brand name recognition because of the success of our existing products. We have received numerous awards and industry support for our products. For example, CuteFTP(R) has been highlighted in leading industry trade journals and on radio and television and third-party web sites, as being the most powerful yet easy-to-use file transfer protocol, or FTP, program. This brand name recognition provides us with an opportunity to achieve a competitive advantage in support of growth efforts through the association of our other products with the success of CuteFTP(R) and the cross- marketing of our other products to our existing customer base.
GlobalSCAPE has also integrated its web sites and software products to become a portal for web and media enthusiasts. Our sites offer leading software products, content, complementary products and services and community development for each product category. The portal provides users with one convenient location to obtain products and services based on their demonstrated interests and exchange ideas. This strategy will enable GlobalSCAPE to capitalize on the existing usage of our software to drive new traffic to our sites.
For example, CuteMX.com appeals to media enthusiasts by offering access to thousands of songs by independent artists who have authorized the song for distribution. Visitors may search for songs based on genre, song name, or band name. They can download music, free of charge, and play songs from the multimedia player built into the CuteMX(TM) software, which is promoted from the site. Additionally, visitors can learn more about new talent through the featured artist section, or submit original music of their own for distribution. The site also includes music and media-related news articles as well as various artist resources.
GlobalSCAPE's belief is that recent developments with CuteMX(TM), which enable end users to search for and serve files from their home personal computers, have positioned GlobalSCAPE to capitalize on the explosive trend in movement of information away from central servers to the desktop level. We believe that accessible broadband, affordable high-end personal computers and proven demand will create a surge in FTP, HTTP, file sharing and remote access applications running on end-user personal computers. Sufficient financial resources are essential to maintaining our leadership position in this arena.
Industry Background
Growth of the Internet
We believe that the growth of the Internet will accelerate business and consumer demand for our products. Nua Internet Surveys estimates that there were 304 million worldwide Internet users as of March 2000 and International Data Corporation, also known as IDC, estimates that there will be 320 million worldwide Internet users by 2002. According to Forrester Research, Inc., global e-commerce, including both business-to-business and business-to-consumer transactions, will reach $6.9 trillion, or 75% of the global market, by 2004. According to the study, U.S. e-commerce, projected to be $488.7 billion in 2000 will rise to $3.2 trillion in 2004. By that time, U.S. e-commerce
will constitute 46% of the global market totaling $6.9 trillion. Nua Internet Surveys believes there are currently approximately 69 million, 11 million and 83 million people online in the Asia/Pacific, South America and Europe, respectively. Forrester predicts that most Asian, South American and Western European nations will hit a point of e-commerce "hypergrowth" over the next four years, turning the Internet into a more global business engine. GlobalSCAPE is positioned to capitalize on this global growth and currently offers its major titles in Spanish, French, German, Japanese and Portuguese.
Growth of the Internet Software Market
The Internet software market is also expected to experience explosive growth in areas including Internet utilities, communications and multimedia software products. Jupiter Communications estimated that the online consumer software market for 1999 would exceed $500 million and is anticipated to be $2.4 billion by 2002. Growth in consumer demand for communications and multimedia software products can also be illustrated by America Online's 1999 purchases of ICQ, an instant messaging software company without sales or profits, for $287 million and WinAMP and Spinner, a software-based music player and broadcast music web site for $400 million. In addition, in 1999 Lycos stated that "MP3" became the most frequently searched for term, surpassing sexually explicit terms in popularity. GlobalSCAPE believes that with these very favorable growth prospects, software developers and distributors with the ability to identify and meet consumer demand quickly and maximize products' online potential will have a substantial business opportunity.
Online and Product-Related Advertising
Advertising on Internet sites and through software products is also expected to grow substantially. According to the Advertising Bureau, online ad revenues surged in 1999, more than doubling, for a year-end total of $4.6 billion. A report from Forrester Research, Inc. projects spending on online advertising worldwide will reach $33 billion by 2004. GlobalSCAPE believes that as bandwidth and high performance personal computers become more accessible and affordable that software applications will become more robust, enabling the inclusion of media-rich features and advertising capabilities.
Our Solution
We provide our customers with innovative software and services designed to make their life on the Net more enjoyable and productive. We are industry leaders in file management, movement and maintenance. We take technical processes and hide them behind an easy-to-use interface, which brings the power of the Internet into the hands of everyone online regardless of their skill level. All GlobalSCAPE products are easy to use, yet powerful enough to satisfy the most advanced users. We also include features that appeal to media enthusiasts in broad appeal utilities and tools, giving people the ability to search for, edit, exchange, share, view and play literally all file types. We have sold approximately three hundred thousand licenses of CuteFTP(R) alone and users download more than one million products from our internal servers every month.
Products/Services
. Ease of Use - Users can be up and running quickly, regardless of skill.
. Powerful Functionality - Products offer accelerated performance and
control to maximize productivity.
. Speed - Products enable people to execute complex tasks and
efficiently.
. Multimedia Features - Products allow the movement, management, view and
play of popular media formats to make a user's time online more
enjoyable.
. Complementary Content - GlobalSCAPE's web site network provides one
convenient location for access to a variety of products and services
designed to appeal to web enthusiasts.
. Community development - Both software products and web sites provide
the ability to interact publicly or privately with affinity groups for
a dynamic communication environment.
Patent-Pending Technology
Our patent-pending search technology evolved from our experience as an industry leader in file transfer. Though CuteFTP(R) goes a long way to simplify this standard protocol, setting up an FTP site is still a complex matter for many users and the nature of web-based searching still has its share of challenges. Trying to solve some of these challenges is what lead to the development of CuteMX, our multimedia utility that lets users search for, serve and play or view files from other users' personal computers.
Web-based file searching provides links to both public and private FTP servers, but few of the links result in the location of the file you are searching for. For example, if the personal computer containing a desired file is down or simply turned off, the file will be listed in search results but will be inaccessible to the searcher. This causes web-based file searching to be a time consuming and frustrating experience.
CuteMX(TM) improves this process by facilitating the peer-to-peer exchange of files in a live environment. Only the files of users that are online and using the program at that moment are displayed in the search results, thus greatly increasing the ability of a user to get successful search results. The technology is based on publicly available compression and decompression formats and integrates proprietary mathematical algorithms to produce results as part of the byproduct of decompression, making the process extremely fast and efficient.
Our Strategy
We are a leading provider of superior web-based software in a broad array of categories appealing to both business and consumer markets. Our goal is to have a GlobalSCAPE application on every user's desktop. The combination of software sales, portal services and advertising both within products and on our web sites, enable GlobalSCAPE to generate revenue from multiple sources. Additionally, our just-in-time virtual software development process can bring new products to market quickly and cost effectively based on an around the clock development cycle.
Components of this strategy include accelerating core product development, distributing complementary third-party authored products, and positioning ourselves as a leading portal for web and media enthusiasts.
Acceleration of Core Product Development
GlobalSCAPE intends to offer consumers increased product selection through the development of products that are complementary in nature to GlobalSCAPE's current core product line and the expansion into additional software segments. Targeted products will have broad appeal, high market penetration and substantial online usage rates.
We are continually researching and developing new software to further our competitive position in the market place. GlobalSCAPE's development methodology is based on identifying consumer needs and delivering solutions. GlobalSCAPE's management team is highly skilled at identifying new trends and developing products to meet consumer demand. Once a trend is identified, we create a development plan encompassing all aspects of user interface, functionality, usability and implementation. GlobalSCAPE then transfers the majority of the development burden to a consortium of offshore programmers for coding. The entire development process is subject to numerous testing phases ensuring a high-quality final product. See also "Business--Research and Development."
Future areas of development and distribution include other utilities, business productivity tools, personal productivity tools and entertainment software, the success of which is dependent on funding and market viability at the time of rollout. Furthermore, there is research underway regarding development of products for mobile devices and for other operating systems including Linux.
Distribution and Cross-Promotion of Complementary Third-Party-Authored Products
Based on our experience launching new products, we intend to leverage our knowledge and provide emerging authors with the expertise and resources needed to bring a good product concept to market effectively. To enhance core products and services, GlobalSCAPE will continue researching acquisition candidates from emerging software authors with particular strengths in software targeting both business and consumer markets. These third-party titles will include utilities, business and personal productivity tools, and entertainment titles with our characteristic leading edge technology and user-friendliness. This strategy allows us to capitalize on the authors' unwillingness or inability to invest the capital and resources needed to build an effective infrastructure for the sale and support of their products, a vehicle with which to do so. GlobalSCAPE provides access to a large customer base and association with a well-respected brand name in addition to fundamental services including development, marketing, sales, billing, technical support and customer service. GlobalSCAPE can provide a cost effective, convenient solution enabling authors to dramatically increase sales revenues and focus their efforts on product development. If the products don't have a natural fit with an existing product, they can be promoted via advertisements within software products, the portal, e-mail campaigns and direct sales by GlobalSCAPE's inbound sales staff.
Based on data collection efforts including unique user profiles, demographic surveys and product usage statistics, we are able to assess which products are likely to appeal to our users and cross promote third-party products to our sizeable user base according to demonstrated areas of interest. Products can be cross-promoted from within software applications and web sites based on their complementary nature. For example, CuteHTML(R) offers a variety of web site statistics and optimization tools including HitBox Tracker. During CuteHTML(R)'s installation, the user can register HitBox Tracker to generate statistics for the sites they are managing.
Expanding Presence as a Software Portal for Web and Media Enthusiasts
GlobalSCAPE is positioning its web site network to become a leading portal for software targeting web and media enthusiasts.
Currently, our strategy related to developing our web presence has focused on two categories, the web enthusiast community and the media enthusiast community.
. Media enthusiast community. The portal facilitates the search, exchange, discussion, view and play of any file type including all popular media formats such as music, video, image and textual works made available by independent artists via the CuteMX(TM) community. For example, content partnerships will be established to offer numerous choices of material based on the interest of the user base. GlobalSCAPE has already partnered with TUCOWS Music and currently offers several thousand songs authorized for distribution by independent authors from around the world.
. Web enthusiast community. The portal focus for web enthusiasts is to offer products and services designed to complement the use of a variety of file management utilities and web application development tools, including the "Cute" brand of products. Though currently under development, a variety of user training programs on topics such as web site development, complete HTML coding and image mapping instruction will be offered. For example, a searchable directory of all HTML tags available, table construction, image mapping and commonly used scripts will be made available to promote usage of GlobalSCAPE's products and encourage repeat visitors to our web site network.
Contemplated future categories are broad reaching, expanding as GlobalSCAPE's product line increases in scope.
Our portal approach will expand the breadth of information currently available on our web sites and provide additional revenue generation opportunities based on the substantial amount of unique page views to the web sites. Currently, unique page views are in excess of 3.5 million each month. Content will be developed on a per product basis which will include information of specific interest to the individual user and will offer content, community development and complementary products and services. The portal will provide software users one convenient location to exchange ideas and obtain products and services based on their demonstrated interests. This will enable us to capitalize on existing software traffic and drive new traffic to our web sites.
Portal elements will include a variety of content including:
. Complementary Products and Services. Those using CuteHTML(R) are targeted consumers for a variety of online services including web hosting, domain name registration, site management, traffic analysis and survey tools. GlobalSCAPE has existing agreements in place with other industry leaders for the promotion of such products and services within our products and will extend the same offers through the GlobalSCAPE.com web site maximizing the value of unique monthly visitors.
. Targeted News Feeds. To encourage return visits and educate users about current events in their fields of interest, GlobalSCAPE will provide industry-specific news through filtered news feeds, links to beta news sites and original research material.
. Strategic Partnerships. Research indicates that many people use CuteFTP(R) to post items for sale on auction sites. GlobalSCAPE will use this information to support that particular use by explaining how to get started, providing customized usage instructions for posting items for sale and linking to various auction sites for cross promotion opportunities. For example, a CuteFTP(R) manual for eBay users is currently available online and offers an in depth explanation of the benefits offered.
. Discussion Boards. Giving users the opportunity to interact and exchange ideas on a variety of topics provides GlobalSCAPE with valuable feedback and powerful direct market research capabilities. For example, from the CuteMX.com web site, users can enter a discussion board and choose from topics including evaluation and testing of all products, reporting bugs, to requesting new features, or simply chat about current events.
. Community Development. Building a large base of users quickly is an important element of GlobalSCAPE's business strategy and can be seen through the CuteMX.com web site and CuteMX(TM) software product. CuteMX(TM) integrates CuteMX.com into the software through a browser screen incorporated into the multimedia player window. Within CuteMX(TM), users can log into a general chat lobby, develop affinity groups, move to targeted public chat rooms based on areas of interest, create private chat rooms and discuss any topic in their native language. Several international communities have sprung up within the product and are easily accessible from the chat room listing.
Growing and Maximizing the Value of the User Base
To accomplish our goal of accelerating the growth of revenue streams for both software and advertising sales, our strategy is to increase the size of our user base and then maximize its value.
. Increasing Advertising and Marketing Efforts. GlobalSCAPE intends to hire additional marketing research, production, business development and communications personnel to implement an aggressive advertising and marketing campaign designed to increase product and site awareness and grow the user base. This will include an aggressive public relations campaign, increased media coverage, cross promotion of internal and third-party products and services, content partnerships, corporate and educational account development, and strategic business development.
. Continue to Enhance Penetration of Distribution Channels. Providing the "Cute" product line through traditional distribution channels including major distributors, OEMs and retail stores will allow GlobalSCAPE to reach those consumers who still prefer buying at the retail level, rather than online. Cute products available through retail chains will further increase brand awareness, which impacts the buying decision of larger corporate customers.
. Enhancing Network Infrastructure. GlobalSCAPE's high-volume download demands are met through our existing infrastructure. However, investment in additional bandwidth, hardware, software, and information technology personnel will be made to provide for the expected surge in download traffic with corresponding product enhancements and new product releases. This will ensure consumers of fast, reliable, secure access to software products.
. Improving Customer Service and Support. Quality customer support is one of the primary factors in the success of electronic business today. As GlobalSCAPE offers additional products, there will be a need for additional customer service personnel, product training programs, and enhanced online sales and support infrastructure to ensure optimal service levels.
The following objectives are aimed at maximizing the value of the user base:
. Increasing Product Registration Revenue. Maintaining technological leadership and continually introducing products with superior features that appeal to consumers is critical to increasing the number of registered users. Displaying advertisements, using reminder messages and disabling programs after the evaluation period also encourages registration, while maintaining strong user base growth. Additionally, developing strategic business partnerships to cross promote and distribute third-party products and services will maximize traffic to GlobalSCAPE's web sites.
. Offering Flexible Pricing Models. As market conditions change, maintaining pricing flexibility for software is key to the successful evolution of our strategic plan. GlobalSCAPE will continue to utilize the pricing model where products are available for free digital download but usage is controlled to encourage paid registration or generate alternate revenue. This allows us to provide free evaluation of our products and generate revenue from both single
user licenses and site licenses for higher volume usage by corporate customers.
. Maximizing Advertising Opportunities. Based on the size and current growth of our current user base, we estimate that GlobalSCAPE will display more than 600 million advertising banners within our products during 2000. Historically, advertisers have paid $2 per thousand banners displayed; however, additional opportunities exist to license an ad server technology so we can eliminate third-party brokers and thereby increase the rates we receive. Through these changes, it is our belief that advertising revenues can increase significantly without incurring proportionate expenses.
. Maximizing Data Collection Methods. GlobalSCAPE currently collects both product usage and demographic data, which is combined to create unique user profiles. Continual enhancement of data collection methods, information management and disintermediation of third-party brokers will position us to allow for even more targeted delivery of advertisements thus increasing revenues.
. Cross Marketing of Products. GlobalSCAPE will cross promote both internally developed and third-party products and services to our existing user base, utilizing unique user profiles to determine the types of products and services most likely to appeal to each user. This will enable us to maximize value through the buying power of our substantial user base.
Software Products
The software products portion of our business includes the development, sale and support of both internally generated software and third-party software. GlobalSCAPE's strategy is to offer technologically advanced products in broad array of categories including file management utilities, multimedia utilities and web application development tools to consumers and businesses. These categories fit within our desired product category profile that includes web- based software that has broad based appeal, high penetration and high active usage rates.
In addition to advanced features and functionality, GlobalSCAPE will continue offering products that are easy to use and capitalize on wide-spread interest in multimedia features that facilitate the movement, management, play and viewing of popular media file types.
Additionally part of GlobalSCAPE's required product profile includes a relatively small file size to facilitate quick download times. For example the largest program is 1.9 MB and downloads in approximately 3 to 4 minutes on a 56 K dial-up connection. All of these factors make our products desirable to a broad base of users.
File Management Utilities
CuteFTP(R). CuteFTP(R) is an award-winning Windows(R) based FTP client that easily transfers files including web pages, software, digital music and graphics via the faster than any web browser. CuteFTP(R) simplifies file transfer protocol by hiding the technical processes behind a user-friendly, graphical interface, which allows users to "drag `n drop" files between local and remote servers. Its robust set of features make
CuteFTP(R) a useful tool for both beginner and frequent web users. CuteFTP(R) is a market leader with an estimated 30% of the U.S. market share as reported by Media Metrix for the second quarter of 1999. GlobalSCAPE achieved this position through the introduction of CuteFTP(R) as the first user-friendly FTP program that offered users "drag `n drop" capability.
CuteZIP(TM). CuteZIP(TM) is an innovative file compression utility combining powerful features such as "Twofish" encryption and multiple archive support with music compression. CuteZIP(TM) is the only compression utility to offer MP3 and Windows Media Audio encoding. Now users can send data securely and easily compress their favorite music files for transfer to remote systems.
Multimedia Tools
CuteMX(TM). CuteMX(TM), short for Media eXchange, is a Windows(R) based multimedia utility that revolutionizes file exchange by providing searching, file sharing, chat and play of any file type including popular media files. CuteMX(TM) creates a community of media enthusiasts who share files on a section of their hard-drive, which is uploaded to a GlobalSCAPE central server. When users search for files, a query is routed through the central server and delivers real time results of what files are currently available. When a match is made, a direct user to user transfer takes place. Popular features include:
. Proprietary Search Engine
. Public and Private Chat Rooms
. Instant Messaging
. Friends and Enemies Lists
. Content Filtering
. Multimedia Player
. Streaming Audio and Video
. Integration with CuteMX.com
Web Development Tools
CuteHTML(R). CuteHTML(R) is a powerful text-based HTML editor designed for anyone with a web page who prefers light, manageable editing tools in lieu of bulky WYSIWYG programs. CuteHTML(R)'s robust features such as right-click Remote Editing with CuteFTP(R), Color Coded Tags for easy code identification, Tag Tips for quick access to standard HTML tags, Global Find and Replace, Spell Check, code for individual browsers, tabbed interface, access to a variety of online services and the ability to edit files on remote servers when used in conjunction with CuteFTP(R) provide superior web page management.
CuteMAP(TM) is a client side image mapping tool designed to help HTML users create clickable images for graphic navigation through web sites. Its user- friendly interface and unlimited map elements allow you to easily create complex image maps for creative graphic navigation. The image map code is automatically created and added to the body of the HTML document, simplifying web page development. This is especially helpful for maintaining graphic-intensive or large corporate web sites.
Data Collection and Advertising Services
GlobalSCAPE currently works with several different advertising aggregators including Conducent and Radiate and PlayJ. Implementation of third-party ad- serving software enables user profiling and delivery of targeted advertising messages through software and MP3 files downloaded from CuteMX.com. Dependent upon future financial resources, we plan to obtain our own license for a select ad server technology and bring the advertising sales expertise in-house.
Data collection is an integral element of our advertising efforts. Upon installation of our software products, GlobalSCAPE profiles users according to demographic and lifestyle surveys. GlobalSCAPE captures demographic and usage data, then assigns each user a unique identification code. The demographic data captured includes: areas of interest, gender, education, marital status, job, location, household income, year of birth, primary computer use, people in household, company size and zip code. Once they are online using the GlobalSCAPE product, we are able to monitor unique users identification codes and capture additional data including session duration per user, number of advertisements displayed, number of clicks, and click through percentage.
The software includes embedded advertising banners that receive advertisements over the Internet when the customer is using the software. Because GlobalSCAPE's software has specific user identification codes, these messages can be transmitted to specific groups, and multiple messages can be transmitted to multiple groups permitting GlobalSCAPE to maximize the use of our banners. These advertisements are turned off by purchasing a license for the software. However, if the customer chooses not to pay, the embedded advertising banners will remain, enabling GlobalSCAPE to send recurring targeted advertisements to consumers. Though both product registration and advertising generate revenues, the customers are encouraged to pay for usage on an ongoing basis through various means. Sponsorships are continuous and are not removed even if the product is purchased. GlobalSCAPE generates revenue from the sale of advertising space, revenue sharing agreements and referral fees.
With survey data, advertisers can work with GlobalSCAPE to communicate targeted messages to consumers. For example, by working with an ad aggregator, GlobalSCAPE's user base can be marketed to media buyers at both online and traditional businesses which range from other software developers to major goods and service providers desiring access to this highly desirable consumer base.
Customers
GlobalSCAPE's target market includes all computer users on the Internet. The company currently has more than one million unique users of its "Cute" products per month and has sold to nearly 300 thousand licenses. Customers include new Internet users, web enthusiasts, music and media lovers, small businesses and Fortune 500 companies. The substantial number of existing customers provides GlobalSCAPE with a competitive advantage and an excellent platform from which to grow the business. In the last 12 months there have been 9 million downloads of our products from internal servers and there are currently 3.5 million unique page views per month of the GlobalSCAPE web sites. A sampling of our corporate customer base includes:
Microsoft Ford Motor IBM Chase Manhattan Xerox General Electric Intel Philip Morris Exxon Merrill Lynch AT&T Wells Fargo Sears Citigroup Boeing Bank of America Mobil Lockheed Martin Fannie Mae Allied Signal Sony Hewlett Packard Eli Lily Bell Atlantic |
Our Operations and Technology
Internet users access the GlobalSCAPE network through the Internet on a T-3 line provided by Digex. Redundant Bandwidth is also provided by UUNET through separate entry which is immediately expandable and wired for OS3 ensuring a fast, effective online buying experience. To protect critical customer data, GlobalSCAPE's secure server utilizes ICVerify and SSL technology.
Additional purchase and support options are available via GlobalSCAPE's helpdesk which is staffed with trained professionals Monday through Friday, from 8:00 a.m. to 6:00 p.m. Central Standard Time. Services offered include live e- mail, phone and fax support and semi-automated e-mail response and instant electronic delivery of products. All data is updated on a real-time basis ensuring accuracy and quality control for both sales technicians and customers.
CuteMX(TM)'s central servers operate on and employ patent-pending search technology achieving extremely fast and highly reliable access to desired files. GlobalSCAPE currently has multiple dedicated servers and has the only file- sharing program creating a non-segregated community. This means all users have access to all community members' files, not just the files listed on the server they are logged onto. Current infrastructure can support up to 100 thousand concurrent users which allows for a user base in the millions. Expansion plans are in place to ensure rapid and cost-effective scalability.
Research and Development
GlobalSCAPE delivers new products, as well as new versions of existing products to the market quickly to keep pace with the rapid evolution of technologies, changing market conditions and increasing customer demands. In addition to in-house program management and development teams, GlobalSCAPE maintains a Virtual Development Team of offshore programmers, referred to internally as our VDT, that contribute to the development process and minimize costs associated with high-paced software development. Working internationally with our VDT, we are able to tap into a highly skilled labor pool, maintain a 24-hour development schedule, decrease time to market, and minimize programming costs. Internal Program Managers oversee work in a collaborative online environment, maintaining complete control over the process including quality assurance and beta testing. With additional capital, the Company will strengthen our research and in-house development capabilities and expand our subcontractor base to further improve new product development.
Competition
There are over 7,700 companies that develop, distribute and/or support prepackaged software according to an Integra Information, Inc. report in 1999. Over 90% of these companies have revenues of less than $1 million. Within this group, companies can be further sub-categorized into developers, distributors, supporters or a combination of these services. However, very few companies actually focus on the entire process from conception and production of software through the sale and support of that software. Because of the Internet as a delivery medium, many of these companies merely act as distributors.
GlobalSCAPE is one of the few companies that operates as a full service developer, distributor and supporter of software. The market is highly competitive for product sales, but not on a comprehensive strategy. GlobalSCAPE's business strategy is innovative because we will be one of the few companies actually providing the total software solution rather than only one component.
Competitors
Although exact competitors do not exist since GlobalSCAPE is somewhat unique in its products and services, four examples of similar companies include Allaire, Digital River, RealNetworks and NetZip which are briefly described below.
Allaire Corporation. Allaire Corporation develops, markets and supports a wide range of web development tools that allow the production of complex web sites and web applications for electronic commerce, collaborative computing, and business information systems, all without the use of elaborate coding. The company's main products include ColdFusion, a web application server that is used to create interactive intranet, extranet and public Internet sites, and HomeSite, an HTML editor used to create and maintain web sites. The company's revenues were $55.2 million for 1999.
Digital River, Inc. Digital River provides outsourcing solutions for web commerce and online marketing to software publishers, online software retailers, music and video publishers, shareware publishers, and other web-ready companies. Services mainly include electronic software delivery and web store hosting. The company's revenues were $75 million for 1999.
RealNetworks. RealNetworks provides media delivery on the Internet. It develops and markets software products and services designed to enable users of personal computers and other consumer electronic devices to send and receive audio, video and other multimedia services using the Web. The company's products include RealPlayer, RealJukebox, and RealSystem software. The company's revenues were $43.5 million for 1999.
NetZip, Inc. Netzip is a software development company focused on building products that empower end-users and generate revenues for corporate partners through advertising. Their products include Netzip Classic and Netzip Download Demon used for downloading files on the Internet. They incorporate advertisements in their products and can target the messages and content to be delivered to users' desktops as they use the product. NetZip, formerly privately held, was acquired by RealNetworks for $268 million in January 2000.
Specific Product Competition
CuteFTP(R) exists in a highly competitive environment with more than one hundred fifty FTP software utilities available on the Internet. Its primary competitor is WS_FTP from Ipswitch, Inc. While many FTP products have attempted to mimic CuteFTP(R), they are not commercially successful likely due to their late arrival to the marketplace, limited features and functionality and lack of support infrastructure. Cumulative downloads from the top shareware sites indicate that CuteFTP(R) is consistently one of the most frequently downloaded programs on the.
CuteHTML(R) exists in a highly competitive environment with more than seventy text-based HTML editors. Its competition includes Allaire, Inc. CuteHTML(R) has the advantage of being able to leverage the success of CuteFTP(R) through product integration and cross-marketing efforts to CuteFTP(R)'s existing and loyal customer base. Since January 2000, more than 3 million copies of the software have been downloaded from our web site. Also, the software has received recognition from top shareware sites including ZDNET and Strouds, who have featured it as a "hot file" and "top application."
CuteMAP(TM) competes against approximately twenty image mapping utilities. Primary competitors include MapEdit, Live Image and Splash. CuteMAP(TM) has the advantage of being able to leverage the success of CuteHTML(R) through product integration and cross-marketing efforts to an existing customer base. CuteMAP(TM) has been recognized by leading shareware sites including TUCOWS and 5 Star Shareware and has been called the "best image mapper on the " by LockerGnome.
CuteZIP(TM) exists in the highly competitive file compression utility market, competing against more than one hundred file compression utilities on Cnet's Download.com alone. Its main competitors include WinZIP, PKZIP and NetZIP. CuteZIP(TM)'s main advantage over the competition is that it is the only compression utility combining MP3 and Windows Media Audio encoding with extensive file compression formats including ZIP, CAB and TAR/GZ. Users can compress all file types including music and create self-extracting executable files without juggling multiple applications. It also employs powerful "twofish" encryption, one of the most secure encryption formats available.
CuteMX(TM) competes against approximately six file sharing programs on the market, including Gnutella, Napster and Scour, though all but CuteMX(TM) and Gnutella are MP3-centric. The CuteMX(TM) program has broad applications allowing end users to transfer all file types and is positioned as a mainstream application that has implemented anti-piracy measures including allowing end users to flag MP3 files as copyrighted, in which case they are not transferable across the CuteMX(TM) network, and displaying end user Internet protocol or IP, addresses to encourage personal responsibility. Other file formats including Microsoft's Windows Media Audio have built-in security features that allow files to be transferred, but limit the play of those files to the machine on which they were created. When users attempt to play a Windows Media Audio file within CuteMX(TM), a Microsoft Web page referencing the file is launched from a browser screen within CuteMX(TM), laying the foundation for stakeholders to determine appropriate payment for access to their intellectual property, such as requiring an e-mail address, demographic information or a subscription to a monthly service. Additionally
CuteMX.com offers a variety of content authorized for distribution by independent and mainstream artists, who are able to monetize distribution of their songs through advertisements placed within MP3 files. GlobalSCAPE intends to leverage its position as an industry leader in file transfer to capitalize on the explosive trend in movement of information away from central servers to the desktop level.
Intellectual Property
We have one patent pending for CuteMX(TM) which seeks to protect our file searching and exchange processes. We protect our intellectual property rights through a combination of trademark, service mark, copyright and trade secrets laws.
We currently have registered trademarks for GlobalSCAPE and our design and CuteFTP(R) and CuteHTML(R). We have also applied for trademarks for CuteZIP(TM), CuteMAP(TM), Cute-mail, CuteSUITE and CuteMX(TM).
We have a United States copyright registration for CuteHTML(R) Version 1.06 and have filed several other United States copyright applications covering our computer programs including, without limitation, Cute FTP(R) Version 3.5, CuteHTML(R) Version 2.0., CuteMAP(TM) Version 1.1 and CuteMX(TM) alpha version.
Sales and Marketing
In the last 12 months, more than 9 million copies of CuteFTP(R) have been downloaded from GlobalSCAPE's web sites and approximately 300 thousand licenses of our products have been sold. Even though GlobalSCAPE has experienced significant success, our primary marketing efforts have been limited to free exposure including "word of mouth," and coverage from e-zines and industry publications that have reviewed and recommended the product. This limited effort has been due to the lack of capital necessary to implement a full-fledged marketing initiative.
GlobalSCAPE's software is marketed primarily via the Internet through shareware sites, content sites, online retailers and Service Providers. Since CuteFTP(R) is one of the most popular shareware titles on the Internet, shareware sites including Yahoo!, Download.com and ZDNET, maintain close tabs on the product and its enhancements to include periodic reviews of the products. In essence, these sites provide GlobalSCAPE with substantial free advertising. Additionally, CuteFTP(R) has received significant attention from the media including being featured on radio, television and in print publications such as Wired PC Magazine, PC Magazine, and Yahoo! Life. Other online promotional activities include sponsorships, targeted public relations efforts and ad banner placement on strategic sites. More traditional advertising activities such as ad placement in leading industry publications, and participation in select trade shows are paired with limited retail distribution to increase product awareness.
With additional capital, we plan to focus on penetrating existing markets and expanding into new markets. We are leveraging our leadership position to add new customers by cross promoting new products and services and merging software applications with existing web sites. We intend to continue making significant investments in our research and development staff, marketing, customer support and customer service infrastructure to facilitate our growth requirements. We are targeting
customers through strategic relationships, direct sales, and promotional campaigns. To achieve this goal, GlobalSCAPE intends to pursue the following strategies:
. Purchase advertising space on shareware sites and other leading web
sites, within complementary software products, in leading industry
publications and on television and radio;
. Participate in industry conferences;
. Enter into strategic business relationships with other industry
leaders;
. Expand inside sales efforts to corporate and institutional clients;
. Initiate public relations campaigns; and
. Purchase e-mail lists and implement a direct e-mail campaign.
GlobalSCAPE also plans to establish educational campaigns offering product- training at no charge, free products to high schools and discounts for colleges and universities.
Strategic Relationships
Partnerships
Microsoft Business Partners Network. The Microsoft Business Partner Network is an information delivery system that improves the communication capabilities between Microsoft and its Business Partners. Microsoft actively markets CuteFTP(R) through its MSPBN web site and pays a discounted rate for volume copies of CuteFTP(R) distributed free of charge to its members.
Lycos. GlobalSCAPE developed a customized version of CuteFTP(R) for use and distribution by LYCOS through the Lycos Network in exchange for a percentage of revenues derived from advertising from within the program.
McAfee. GlobalSCAPE bundles access to McAfee's PC Clinic services through a sign up form within its Cute FTP(TM) software and via its web site in exchange for a percentage of revenues derived from those who register for the service.
WebSideStory. GlobalSCAPE bundles access to WebSideStory's traffic analysis services, HitBOX Tracker, within its software to complement its own products and generate referral fees from those who register for the service.
Interland. GlobalSCAPE promotes Interland's web hosting services from within its software to complement its own products and generate a percentage of revenues from those who register for the service.
MyComputer.com. GlobalSCAPE provides access to MyComputer.com's online services within its software to complement its own products and generate referral fees from those who register for the service.
NetMechanic. GlobalSCAPE participates in NetMechanic's "Partner Program" in which it promotes NetMechanic's web site optimization services in exchange for referral fees.
Offshore programming services.
GlobalSCAPE uses the programming services of a consortium of offshore programmers, allowing us to tap into high quality, cost-efficient software development.
CuteFTP(R) purchase from Alex Kunadze.
Since June 1996, GlobalSCAPE has been the sole distributor of CuteFTP(R), paying a percent of sales to the original author, Alex Kunadze. On January 16, 1999, GlobalSCAPE acquired CuteFTP(R). This purchase agreement eliminated royalty payments and allowed GlobalSCAPE to use the "Cute" name with other software products.
Employees
As of March 2000, we had 26 full-time and part-time employees organized within five functional areas. The employee distribution according to function is as follows:
--------------------------------------------------------------
Number of
Department Employees
--------------------------------------------------------------
Management and Administration 6
Research and Development 7
Marketing 4
Management Information Services 3
Sales and Customer Support 6
--------------------------------------------------------------
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None of our employees are covered by collective bargaining agreements and we believe our employee relations are good.
Facilities
GlobalSCAPE's corporate office is located in a rapidly growing technical park in northwest San Antonio called University Park Tech Center II. Our lease for the 14,700 square feet facility expires in September 2008, but if the owners of the building fail to repair or maintain the building and the building becomes uninhabitable or if a substantial government taking of the property occurs, GlobalSCAPE can terminate the lease. Additionally, if the building is destroyed or damaged by a fire or other casualty, we may also be able to terminate the lease after providing the necessary notice to the property owner and satisfying the other lease requirements unless the owner is in the process of rebuilding the property. Our annual rent is approximately $190,656; however, this year our rental expense is $127,339. We believe the new facilities will be suitable for our current business needs and that suitable additional space will be available on acceptable terms when needed.
MANAGEMENT
Executive Officers, Significant Employees, and Directors
The following table sets forth information about our management and directors as of May 9, 2000:
Name Age Position
Arthur L. Smith........................... 35 Chairman of the Board, Director
Sandra Poole-Christal..................... 33 President
H. Douglas Saathoff....................... 38 Director, Secretary and
Treasurer
Daniel P. McRedmond....................... 32 Director of Finance and
Accounting, Assistant Secretary
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Arthur L. Smith. Mr. Smith is the founder and current Chairman and CEO of ATSI with over 10 years of specialized experience in the telecommunications industries within Mexico and the United States. Prior to founding ATSI in 1993, Mr. Smith served as the Director of International Sales for GeoComm Partners, Inc., an international company based in Los Angeles, California, providing satellite network services to corporations in the Fortune 500 environment.
Sandra Poole-Christal. Ms. Christal launched GlobalSCAPE in April 1996 as a subsidiary of ATSI, a company which she co-founded in 1994. She is responsible for leading GlobalSCAPE's strategic vision, securing the acquisition of our flagship product, CuteFTP(R), and creating strategic alliances with leading distributors, resellers, and corporate and educational institutions, including Microsoft Business Partners Network. From 1993 to 1996, Ms. Poole-Christal served as Director of International Sales and Marketing for ATSI and from 1990 to 1992 she was an account executive for GeoComm Partners, Inc. She holds a B.A. in Communications from Baylor University.
H. Douglas Saathoff. Mr. Saathoff is the current CFO and Secretary/Treasurer of ATSI. Prior to joining ATSI in 1994, Mr. Saathoff served as Accounting Manager, Controller and Financial Reporting Manager for U.S. Long Distance from 1990 to 1993. Mr. Saathoff also served as Senior Staff Accountant for Arthur Andersen & Co. where he planned, supervised and implemented audits for a variety of clients, including telecommunications companies. Mr. Saathoff holds a B.A. of Business Administration from Texas A&M University and is a Certified Public Accountant.
Daniel P. McRedmond. Mr. McRedmond is responsible for the management of all accounting, treasury, risk management, budgeting and forecasting activities for GlobalSCAPE. He manages our commercial banking relationships as well as the relationships with other members of the investment banking community. Mr. McRedmond has more than 6 years of experience in the telecommunications industry. Prior to joining GlobalSCAPE in July 1999, he had responsibilities including serving as Treasurer for ATSI from 1998 to July 1999 and serving as Budgeting Director and other management positions for Metrocall, Inc. from 1995 to 1998. He holds a B.B.A. and M.S. from Texas A&M University.
Board of Directors and Committees
Board of Directors
Our board of directors currently consists of two members and must always have at least one member. Each director holds office until his or her term expires or until his or her successor is duly elected and qualified. Directors need not be stockholders or residents of the State of Delaware. For a description of the transactions between GlobalSCAPE and a member of the Board of Directors and entities affiliated with any member, see "Certain Relationships and Related Transactions."
Director and Management Search
GlobalSCAPE has engaged Korn/Ferry, a national search firm, to find a Chief Executive Officer for GlobalSCAPE. We are also searching for other individuals to complete our top management team, as well as new, outside directors which would be required if GlobalSCAPE were to eventually list for trading on a primary exchange. It is difficult to determine how successful these searches will be or whether it will be completed in a timely manner.
Compensation
Director Compensation
The board of directors has the authority to determine the amount of compensation to be paid to its members for their services as directors and committee members. Currently, however, directors are not compensated with cash payments for attendance at board of directors meetings. In the past, stock options had been granted to the GlobalSCAPE directors in return for their participation.
Directors may be reimbursed for their expenses incurred in attending board of directors or committee meetings, and no director is precluded from serving GlobalSCAPE in any other capacity and receiving compensation appropriate to the value of such services rendered.
Executive Compensation
The following table sets forth information with respect to the compensation earned during the years ended December 31, 1997, 1998 and 1999 by our President who was acting in the capacity of chief executive officer. No other officer earned a salary and bonus in excess of $100,000 during the year ended December 31, 1999.
Summary Compensation Table
Annual Compensation(1) Long- Term Compensation Awards
--------------------------------------------------------------------------------------
Other
Name and Principal Annual Stock Securities Underlying
Position Year Salary ($) Bonus ($) Compensation ($) Awards ($) Options (#)
--------------------------- ------ ----------- ---------- ---------------- ---------- ------------------------
Sandra Poole-Christal 1999 $87,692 $39,113 $ 0 $ 0 0
President................ 1998 $80,000 $ 0 $ 29,443 294,429
1997 $ 0 $ 0 0
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Option Grants in Last Fiscal Year
No stock options were granted to the Named Executive Officers during the year ended December 31, 1999.
2000 Stock Option Plan
Our 2000 Stock Option Plan authorizes the granting of options intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended and options that do not so qualify. The 2000 Plan is administered by the Board of Directors or a board, if appointed. The administrators of the plan have the authority to fix the terms and determine the expiration date and purchase price for any options granted. The aggregate number of shares of common stock for which options may be granted or for which stock grants may be made under the 2000 Plan is 3,660,000. The 2000 Plan will terminate in respect to incentive stock options on December 31, 2009 and on December 31, 2049 with respect to non-qualifying options, unless terminated sooner by the board.
Each option granted pursuant to the 2000 Plan is exercisable at any time upon or after vesting and expires on the date determined by a committee appointed by the board of directors. In no event will any option expire earlier than one year or later than ten years from the date of grant. In no event will any option granted to a person who, on the date of grant of the option, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of us, expire later than five years from the date of grant. With respect to a participant who is an employee or advisor, each option expires within three months after the date the participant ceases to be an employee or advisor. During that three month period, those options may only be exercised if they were exercisable immediately prior to the time the employment was terminated. If the employee's, advisor's or non-employee director's employment is governed by an employment agreement and is terminated for "cause," the option will automatically expire. The exercise price of each option granted will be determined by the committee, but shall not be less than 100% of the fair market value of the common stock at the time such
option is granted. Options are not transferable other than by will or the laws of descent or distribution or to a beneficiary, as defined in the plan, in the event of the participant's death. Options may be exercised during the lifetime of the option holder only by the option holder or the option holder's authorized representative.
Shares of common stock awarded under restricted stock grants are subject to restrictions prohibiting their sale, assignment, transfer or encumbrance for a period of time specified by the compensation committee and will revert to us if the participant's relationship with us terminates during such period of restriction, unless the compensation committee, by rule or regulation or in any award agreement, provides otherwise.
As of May 9, 2000 we had no options outstanding under the 2000 Plan. We may, however, grant options to existing or newly hired executives and other employees prior to the effectiveness of this registration statement. Thereafter, we expect that options will continue to be granted to eligible persons as part of our incentive-based compensation program.
1998 Stock Option Plan
GlobalSCAPE's 1998 Stock Option Plan, as amended (the "1998 Plan"), was adopted by the Board of Directors and GlobalSCAPE's sole shareholder in January 1998. Pursuant to the 1998 Plan, GlobalSCAPE granted incentive options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and nonstatutory, or nonqualified, stock options to directors and employees of, and advisors and consultants to, GlobalSCAPE, and any GlobalSCAPE parent or subsidiary in existence.
Subject to the limitations set forth in the 1998 Plan, the Board of Directors had the sole discretion and authority to determine when options will be given, who shall receive options, and how many options shall be granted.
As of December 31, 1999, GlobalSCAPE had issued options to purchase 384,499 shares of GlobalSCAPE common stock, all exercisable at $0.10 per share, to 9 employees, directors and consultants under the 1998 Plan. No additional options are to be granted under the 1998 Plan.
Messrs. Arthur L. Smith, Craig Clement and H. Douglas Saathoff were each granted options to purchase 16,190 shares of Common Stock on January 1, 1998, 1,000 shares of Common Stock on April 30, 1999 and 1,000 shares of Common Stock on July 1, 1999. On February 4, 2000, GlobalSCAPE entered into Letter Agreements with each of them whereby (i) the two options for 1,000 shares of Common Stock were canceled, (ii) each agreed to not exercise his options until an initial public offering of GlobalSCAPE shares had been completed, and (iii) each agreed to not claim any right of adjustment in the number of shares underlying his option as a result of GlobalSCAPE's corporate restructure plan. Additionally Ms. Sandra Poole-Christal was granted options to purchase 291,429 shares of Common Stock on January 1, 1998. On February 8, 2000, GlobalSCAPE entered into a Letter Agreement with her whereby (i) she agreed to not exercise her options until an initial public offering of GlobalSCAPE shares had been completed, and (ii) we paid her $5,000 to forego any claim for adjustment in the number of shares underlying her option as a result of any corporate restructure plan. Additionally, other employees were granted options to purchase an aggregate of shares of
Common Stock. On February 8, 2000, we entered into Letter Agreements with those employees whereby we paid them each $1,000 to cancel their options with the agreement that we would issue each of them an aggregate of shares of Common Stock when, and if, GlobalSCAPE made an initial public offering its stock.
Employment Agreements
We have entered into an employment agreement with Ms. Sandra Poole- Christal. The agreement with Ms. Poole-Christal expires on January 1, 2001. When the agreement expires, it will automatically renew on a year-to-year basis unless either party gives notice of termination at least one-hundred twenty days before the end of the then current term. The employment agreement provides for increases in salary and payment of cash bonuses as determined by the Board of Directors. The bonus is not to exceed fifty percent (50%) of Ms. Poole- Christal's base salary. As of January 1, 2000, Ms. Poole-Christal's base salary was $100,000.
If we terminate our employment agreement with Ms. Poole-Christal for any reason other than just cause, Ms. Poole-Christal is entitled to continue to receive her base salary until January 1, 2001 or twelve months after her termination, whichever is longer. Furthermore, if Ms. Poole-Christal terminates her employment agreement with us for GlobalSCAPE's failure to pay her salary and incentives; a material diminution in her responsibilities, duties or authority; or a change in control of GlobalSCAPE, she will be entitled to continue to receive her salary, benefits and unpaid incentives until January 1, 2001 or twelve months after her termination, whichever is longer.
Under Ms. Poole-Christal's employment agreement, she has also been granted options to purchase 291,429 shares of GlobalSCAPE stock at $0.10 per share of which options to purchase 194,286 shares have already vested. The remaining options will vest as of January 1, 2001.
OWNERSHIP OF GLOBALSCAPE STOCK
Prior to the distribution, ATSI owned all the shares of GlobalSCAPE. This table sets forth information regarding the beneficial ownership of our common stock after our restructure and assumes that 3,520,000 shares have been distributed to ATSI shareholders.
. each person known to us to own beneficially more than five percent of
our outstanding common stock;
. each of our directors;
. each of our executive officers;
. all of our directors and executive officers as a group; and
. each selling stockholder.
The calculations of the percentages in the following table are based on 12,920,000 shares of our common stock outstanding prior to the distribution and assumes a distribution of 3,520,000 shares to ATSI's shareholders. The actual percentage ownership will vary depending upon the number of ATSI common shares outstanding on the record date for the distribution. Unless otherwise noted, each of the persons listed below has sole voting power and control with respect to their shares of common stock.
PRE-DISTRIBUTION POST-DISTRIBUTION
--------------------------- ---------------------------
Amount Amount
and and
Nature of Nature of
Name and Address Beneficial Percent Beneficial Percent
of Beneficial Owner Ownership of Class Ownership of Class
ATSI (1).................... 12,920,000 100.00% 9,400,000 73%
Arthur L. Smith, Chairman
of the Board (2)........... 700,950(3) 5.42% 700,950(3) 5.42%
Sandra Poole-Christal,
President (4)............. 299,181(5) 2.26% 299,181(5) 2.26%
All executive officers
and directors as a group
(3 persons) (3)(5)(6)...... 1,223,041 9.23% 1,223,041 9.23%
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a Stock Purchase Agreement dated April 3, 2000, ATSI purchased from ATSI-Texas all of the then-issued and outstanding stock of GlobalSCAPE in consideration for the issuance of a Promissory Note dated April 3, 2000, in the amount of $6,000,000, payable to ATSI-Texas.
We have entered into an employment agreement with Ms. Sandra Poole-Christal which expires on January 1, 2001. See "Management--Employment Agreements"
Except as described above, since January 1, 2000, GlobalSCAPE has not been party to any transaction involving more than $60,000 with any director, nominee for director, executive officer, holder of 5% or more of the our Common Stock, or any member of the immediate family of any of the foregoing persons.
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue up to 50,000,000 shares of capital stock, consisting of 40,000,000 shares of common stock and 10,000,000 shares of preferred stock of which 12,920,000 shares of common stock and no shares of preferred stock were issued and outstanding as of May 11, 2000. Prior to the distribution all shares of our stock were held by ATSI. An additional 339,999 shares of common stock are issuable upon exercise of outstanding stock options under 1998 Stock Option Plan. In addition, we are authorized to issue up to 3,660,000 shares of common stock under our 2000 Stock Option Plan.
The following description provides a summary of the material rights and limitations relating to ownership of our capital stock. For a complete legal description of our capital stock, you should refer to our certificate of incorporation and bylaws, copies of which are included as exhibits to the registration statement of which this information statement is a part.
Common Stock
Our shares of common stock have identical rights and privileges in every respect. Our shareholders do not have the preemptive right to subscribe to any and all issues of our shares and securities. Each holder of common stock is entitled to one vote for each share owned of record on matters submitted to a vote of the shareholders. Holders of common stock are not entitled to cumulative voting rights in the election of directors. If we are liquidated, the holders of common stock are entitled to participate ratably in the assets available for distribution after preferential payments are made to holders of preferred stock.
Our board of directors has discretion to declare dividends or make other distributions on the outstanding shares of capital stock at any regular or special meeting out of legally available funds.
Preferred Stock
The board of directors may, without further action of our shareholders, issue shares of preferred stock in one or more series and fix the designations, powers, preferences and relative, participating, optional or other rights of such series and any qualifications, limitations or retrictions. The board of directors may, without further action by our shareholders, issue shares of preferred stock which it has designated. The rights of holders of common stock will be subject to, and may be adversely affected by, the rights of holders of preferred stock. While the issuance of preferred stock provides flexibility in connection with additional financing, possible acquisitions and other corporate purposes, future issuances may have the effect of delaying, deferring or preventing the change of control in us without further action by the shareholders and may discourage bids for the common stock at a premium over the market price. The board of directors may, without stockholder approval, provide for the issuance of preferred stock that could have voting, conversion or other rights superior to
the rights of holders of common stock. We have no present plans to issue any preferred stock.
Transfer Restrictions
Transfer restrictions have been placed on the stock in a desire to maximize the potential for a successful underwriting in the future. It is common for an underwriter to require that existing stockholders restrict the transfer of their stock for a period of 180 days following an initial public offering. However, there can be no assurances that the restrictions will enhance our ability to consummate a public offering of our stock.
The transfer of the stock you are receiving is restricted, pursuant to our bylaws, for a period ending 180 days after such time as we complete an initial public offering of our stock and we list and register our stock on a national securities exchange or we cause our shares to be quoted on the automatic quotation system of a national securities association. There can be no assurances such events will occur. Consequently, you may not be able to sell your stock for a long time. Prior to that time, your common stock may not be transferred except for:
. transfers to GlobalSCAPE;
. transfers to existing GlobalSCAPE stockholders;
. transfers by gift, bequest or operation of the laws of descent;
. transfers to another entity pursuant to the merger, consolidation,
stock-for-stock exchange or similar transaction involving GlobalSCAPE;
. transfers by the stockholder to members of his or her immediate family,
trusts for the benefit of such immediate family members and partnerships
in which such immediate family members are the only partners;
. transfers by a partnership to its partners, provided that the common
stock in the hands of the transferee remains subject to the same
restrictions on transfer as they were when held by the transferor;
. transfers which would be exempt from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption provided by
Section 4(2) of the Securities Act if the transferor were the issuer of
common stock, provided that the transferee is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act and the
common stock in the hands of such transferee remains subject to the same
restrictions on transfer as they were when held by the transferor; or
. other transfers upon the prior written consent of GlobalSCAPE, in its
sole discretion.
So long as these restrictions are in effect, each certificate representing shares of common stock shall contain a legend referring to these bylaw transfer restrictions. The Bylaws, including these transfer restrictions, may be modified or amended by a majority vote of our board of directors.
Anti-Takeover Matters
Provisions of the DGCL
Section 203 of the Delaware General Corporation Law, or DGCL, generally restricts a corporation from entering into certain business combinations with an interested stockholder for a period of 3 years from the time such stockholder became an interested stockholder (defined as any person or entity that is the beneficial owner of at least 15% of a corporation's voting stock) or its affiliates, unless:
. the transaction is approved by the board of directors of the corporation
prior to the date such person or entity became an interested
stockholder;
. the interested stockholder acquired 85% of the corporation's stock,
excluding voting stock owned by directors and officers and certain
employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer.
. the business combination is approved by the board of directors and by a vote of 66 2/3% of the outstanding voting stock not owned by the interested stockholder.
The DGCL provides that a corporation may elect not to be governed by
Section 203. At present, we do not intend to make such an election and we
intend to avail ourselves of the rights afforded by Section 203. The effect of
Section 203 may be to render more difficult a change in control of our company.
Certain Charter and Bylaw Provisions
Our certification of incorporation and bylaws provide that any action required or permitted to be taken by our shareholders may be taken only at a duly called annual or special meeting of shareholders or by a written consent signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and that special meetings of shareholders may be called only by our President, the board of directors, or a committee of the board of directors which has been designated by the board of directors. These provisions could have the effect of delaying until the next shareholders' meeting stockholder actions which are favored by the holders of a majority of our outstanding voting securities. Our bylaws do not allow for cumulative voting for directors or for any other purpose. Under cumulative voting, a minority stockholder holding a sufficient percentage of a class of shares might be able to ensure the election of one or more directors. These and other provisions contained in our certificate of incorporation and bylaws could delay or discourage certain types of transactions involving an actual or potential change in control of us or our management (including transactions in which shareholders might otherwise receive a premium for their shares over the then current prices) and may limit the ability of shareholders to remove then-current management or approve transactions that shareholders may deem to be in their best interests and, therefore, could adversely affect the price of our common stock.
Transfer Agent
ChaseMellon Shareholder Services will be the transfer agent and registrar for our common stock.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
Our certificate of incorporation and bylaws provide that, to the extent not prohibited by law, we will indemnify any person who is or was made, or threatened to be made, party to any threatened, pending or completed action, suit or proceeding, by reason
of the fact that such person is or was our director or officer or, while a director or officer of the Corporation is or was serving in any capacity at our request for any other corporation, partnership or other enterprise, against judgments, fines, penalties, excise taxes, amounts paid in settlement costs, charges and expenses, including attorneys' fees. Persons who have ceased being a director or officer may be similarly indemnified in respect of service to us to the extent our board of directors at any time specifies such persons are entitled to the benefits of the indemnification provisions contained in our certificate of incorporation or bylaws.
Our certificate of incorporation eliminates personal liability to us or our shareholders for monetary damages for breach of fiduciary duty as a director, except for:
. any breach of the director's duty of loyalty to us or our shareholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. certain unlawful dividends or redemptions as provided under Section 174
of the DGCL; or
. any transaction from which the director derived an improper personal
benefit.
LEGAL PROCEEDINGS
We are currently not involved in any material legal proceedings.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, a registration statement on Form 10 under the Securities Act with respect to the shares of common stock offered hereby. You may inspect a copy of the registration statement without charge at the SEC's principal office in Washington, D.C. and obtain copies of all or any part thereof upon payment of certain fees from the Public Reference Section of the SEC at the SEC's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Commission's Regional Offices in New York, located at 7 World Trade Center, Suite 1300, New York, New York 10048, or in Chicago, located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC's web site is (http://www.sec.gov).
We intend to furnish holders of our common stock with annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish other reports as we may determine or as may be required by law.
GlobalSCAPE, INC.
Index to Financial Statements
Years ending December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors..................................... F-2 Financial Statements Balance Sheets..................................................... F-3 Statements of Operations........................................... F-5 Statements of Stockholder's Equity................................. F-6 Statements of Cash Flows........................................... F-7 Notes to Financial Statements...................................... F-9 |
Report of Independent Auditors
GlobalSCAPE, Inc.
To the Board of Directors:
We have audited the accompanying balance sheets of GlobalSCAPE, Inc., a wholly- owned subsidiary of American TeleSource International, Inc., as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GlobalSCAPE, Inc. at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that GlobalSCAPE, Inc. will continue as a going concern. As more fully described in Note 1, the Company is a wholly owned subsidiary of American Telesource International, Inc. (ATSI). On a consolidated basis as of July 31, 1999, ATSI had a working capital deficit, had suffered recurring losses from operations since inception, had negative cash flows from operations and had limited capital resources to support further development of its operations. These conditions raise substantial doubt about ATSI's ability to continue as a going concern. Because of the aforementioned conditions relating to ATSI and the cross collateralization of the Company's assets under an ATSI financing arrangement, ATSI's actions could have a substantial effect on the Company's assets; therefore, there is also substantial doubt about whether GlobalSCAPE, Inc. will continue as a going concern. The financial statements of GlobalSCAPE do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young, LLP
San Antonio, Texas
May 9, 2000
|
Balance Sheet
As of December 31,
1998 1999
----------------------
Assets
Current assets:
Cash $ 65,480 $ 16,361
Accounts receivable (net of allowance for
doubtful accounts of $25,000 and $70,000
in 1998 and 1999, respectively) 53,776 368,353
Prepaid expenses 1,750 25,216
--------------------------------
Total current assets 121,006 409,930
Property and equipment:
Furniture and equipment 54,720 54,720
Software 25,948 28,554
Equipment 73,770 203,480
Leasehold improvements 1,426 1,426
Software development costs - 102,686
---------------------------------
155,864 390,866
Accumulated depreciation and amortization: 42,585 106,866
---------------------------------
Net property and equipment 113,279 284,000
Other assets:
Core software technology (net of
accumulated amortization of $224,736 and
$44,947 in 1999 and 1998, respectively) 853,996 674,207
Goodwill(net of accumulated amortization
of $18,837 and $9,009 in 1999 and 1998,
respectively) 40,115 30,287
Deferred tax asset 8,502 36,230
Other 26,750 36,645
---------------------------------
Total other assets 929,363 777,369
---------------------------------
Total assets $1,163,648 $1,471,299
=================================
|
See accompanying notes.
Balance Sheets
As of December 31,
1998 1999
-----------------------------------
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 15,815 $ 202
Accrued expenses 32,951 64,764
Due to parent 25,420 265,253
Current maturities of long-term debt 836,566 215,710
Current portion of capital lease obligation 9,087 24,172
-----------------------------------
Total current liabilities 919,839 570,101
Long-term liabilities:
Long-term debt, less current portion 62,377 24,667
Capital lease obligations, less current portion 11,035 32,257
-----------------------------------
Total long-term liabilities 73,412 56,924
Stockholder's equity:
Preferred Stock, par value $0.001per share, 10,000,000
authorized, no shares issued or outstanding - -
Common stock, par value $0.001 per share, 40,000,000 shares
authorized, 12,920,000 shares issued and outstanding 12,920 12,920
Additional paid-in capital 49,112 49,112
Accumulated earnings 108,365 782,242
-----------------------------------
Total stockholder's equity 170,397 844,274
-----------------------------------
Total liabilities and stockholder's equity $1,163,648 $1,471,299
===================================
|
See accompanying notes.
Statements of Operations
Year Ended December 31,
1997 1998 1999
---------------------------------------
Operating revenues:
Software product revenues $870,539 $2,073,687 $2,922,141
Advertising revenues - - 328,895
---------------------------------------
Total revenues $870,539 $2,073,687 $3,251,036
Cost of revenue:
Software products 219,623 396,570 105,026
---------------------------------------
Total cost of revenues 219,623 396,570 105,026
Gross profit 650,916 1,677,117 3,146,010
Operating expenses:
Selling, general and administrative expenses 448,457 1,228,644 1,625,004
Research and development expenses - 42,164 139,953
Depreciation and amortization 4,876 91,262 253,896
---------------------------------------
Total operating expense 453,333 1,362,070 2,018,853
---------------------------------------
Income from operations 197,583 315,047 1,127,157
Other income (expense):
Interest expense, net - (2,345) (56,847)
----------------------------------------
Income before income taxes 197,583 312,702 1,070,310
Income tax provision:
Current:
Federal 65,242 108,377 372,532
State 9,042 15,020 51,629
Deferred:
Federal (1,004) (6,463) (24,353)
State (139) (896) (3,375)
---------------------------------------
Total income tax provision 73,141 116,038 396,433
---------------------------------------
Net income $124,442 $ 196,664 $ 673,877
=======================================
Net income per common share $ 0.01 $ 0.02 $ 0.05
Net income per common share - assuming dilution $ 0.01 $ 0.01 $ 0.05
|
See accompanying notes.
Statements of Stockholder's Equity
Common Stock Accumulated Accumulated Total
Shares Amount Paid-in Capital Earnings
---------- ---------- ----------------- ---------------- ----------
Balances at
December 31, 1996 - $ - $ - $(212,741) $(212,741)
Issuance of common stock 12,920,000 12,920 49,112 - 62,032
Net Income - - - 124,442 124,442
---------- --------- ---------------- --------------- -----------
Balances at December 31, 1997 12,920,000 12,920 49,112 (88,299) (26,267)
Net income - - - 196,664 196,664
---------- --------- ---------------- --------------- -----------
Balances at December 31, 1998 12,920,000 12,920 49,112 108,365 170,397
Net Income - - - 673,877 673,877
---------- --------- ---------------- --------------- -----------
Balances at December 31, 1999 12,920,000 $12,920 $49,112 $ 782,242 $ 844,274
========== ========= ================ =============== ===========
|
See accompanying notes.
Statements of Cash Flows
Year Ended December 31,
1997 1998 1999
----------------------------------
Operating Activities
Net Income $124,442 $ 196,664 $ 673,877
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,876 91,262 253,896
Deferred Taxes
Changes in operating assets and liabilities:
Accounts receivable (29,709) 10,296 (314,577)
Prepaid expenses - (1,750) (23,466)
Other receivables 10,268 - -
Deferred tax assets (1,143) 7,359) (27,728)
Other long term assets (269) (26,481) (9,895)
Accounts payable 3,787 11,852 (15,611)
Accrued liabilities 59,237 (51,922) 31,813
Due to parent (29,216) (192,192) 239,833
-------------------------------------
Net cash provided by operating activities 142,273 30,370 808,142
Investing Activities
Purchase of property and equipment (14,619) (149,202) (185,997)
-------------------------------------
Net cash used in investing activities (14,619) (149,202) (185,997)
Financing Activities
Issuance of common stock 62,032 - -
Borrowings under notes payable - - 230,000
Principal payments on notes payable - - (888,566)
Principal payments on capital lease obligations - (7,752) (12,698)
-------------------------------------
Net cash provided by (used in) financing activities 62,032 (7,752) (671,264)
-------------------------------------
Net increase (decrease) in cash and cash equivalents 189,686 (126,584) (49,119)
Cash at beginning of year 2,378 192,064 65,480
-------------------------------------
Cash at end of year $192,064 $ 65,480 $ 16,361
=====================================
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Statements of Cash Flows
Year Ended December 31,
1997 1998 1999
----------------------------------
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest $ - $ - $57,000
Supplemental disclosure of noncash investing and financing
activities:
Office equipment acquired through issuance of capital lease
obligations $ - $27,874 $49,005
|
See accompanying notes.
1. Significant Accounting Policies
Nature of Business
GlobalSCAPE, Inc. (the Company) develops, markets, distributes and supports leading web-based software products in a variety of categories including file management, multimedia utilities and web application development tools. The Company was incorporated in April 1996 and is a wholly owned subsidiary of American TeleSource International, Inc., a public company. The Company is best known for its popular file transfer program, CuteFTP(R).
The Company has a history of earnings and positive cash flow. As described above, the Company is a wholly owned subsidiary of ATSI. On a consolidated basis as of July 31, 1999, ATSI had a working capital deficit, had suffered recurring losses from operations since inception, had negative cash flows from operations and had limited capital resources to support further development of its operations. These conditions raise substantial doubt about ATSI's ability to continue as a going concern. Because of the aforementioned conditions relating to ATSI and the cross collateralization of the Company's assets under an ATSI financing arrangement, ATSI's actions could have a substantial effect on the Company's assets; therefore, there is also substantial doubt about whether GlobalSCAPE, Inc. will continue as a going concern. Subsequent to July 31, 1999, management of ATSI has arranged for additional funding it believes is sufficient to allow the Company to operate independently of ATSI. In addition, it is anticipated that there will be no cash requirements of the parent to be funded by the Company for at least one year subsequent to December 31, 1999. The financial statements of the Company do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of ATSI's liquidity problems.
Basis of Presentation
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Comprehensive income for the Company is the same as net income for all periods presented.
Cash
Cash includes all cash and highly liquid investments with original maturities of three months or less.
Capitalized Software Development Costs
Capitalization of software development costs begins upon the establishment of technological feasibility and ceases when the product is available for general release. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management concerning certain external factors including, but not limited to, technological feasibility, anticipated future gross revenue, estimated economic life and changes in software and hardware technologies. Amortization expense for these costs amounted to approximately $3,749 in 1999. Prior to 1999, the Company licensed its principal product from a third party and had no development costs.
1. Significant Accounting Policies (continued)
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for disclosures about operating segments, products and services, geographic areas and major customers. The Company is organized and operates as one operating segment, the provision of Internet-based software products. The Company markets its products through retailers and over the Internet.
Property and Equipment
Property and equipment is primarily comprised of furniture and fixtures, software, computer equipment, and software development costs which are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Expenditures for maintenance and repairs are charged to operations as incurred. Property and equipment acquired under capital leases are depreciated over their useful lives or the respective lease term, if shorter. Depreciation periods used for property and equipment range from three to five years.
Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the asset.
Goodwill
Goodwill related to a 1998 purchase acquisition is being amortized over five years from the respective acquisition date. Goodwill is shown net of amortization of $9,009 and $18,837 for the years ended December 31, 1998 and 1999, respectively. The Company continually evaluates the existence of goodwill impairment on the basis of whether the goodwill is fully recoverable from projected, undiscounted net cash flows of the related business unit.
Other Assets
Costs incurred for acquiring core software technology are capitalized and amortized over its useful life using the straight line method. The amortization period used for trademark is five years. Other assets include security deposits which are expected to be refunded to the Company upon termination of certain leases.
Concentrations of Credit Risk and Significant Customers
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company provides credit, in the normal course of business, to a number of companies and performs ongoing credit evaluations to reduce credit risk. The Company requires no collateral from its customers. Management estimates the allowance for uncollectible accounts based on their historical experience and credit evaluation. No single customer accounted for more than 10% of net revenues in 1997, 1998 and 1998.
1. Significant Accounting Policies (continued)
Revenue Recognition
Revenues from the sale of software products are recognized upon sale of product. The Company does not provide technical support and maintenance services as part of the fee for any of its software products.
The outbound shipping charges charged to the customer are included in software product revenues and amounted to $3,094, $17,370, and $32,843 in 1997, 1998, and 1999. The costs associated with these charges are included in the software products cost of revenue.
Advertising revenue is recognized as it is earned, net of any fees paid to third-party advertising agents. The Company did not generate revenue from the sale of advertising from within its software products during the fiscal years ended December 31, 1997 and 1998. The Company began selling advertising space from within its software products in April 1999.
Royalty Costs
Royalties that the Company is required to pay on software product licensed from a third party which is sold by the Company is expensed as cost of sales as software product is sold. In October 1998, the Company purchased the license rights to the principal software product for which the Company was previously paying royalty costs.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense charged to operations for the year ended December 31, 1997, 1998 and 1999 amounted to $2,000, $10,000 and $58,000, respectively, and is included in selling, general and administrative expenses.
Income Taxes
The Company accounts for income taxes using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." The liability method provides that the deferred tax assets and liabilities are recorded based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company is included in the American TeleSource International, Inc. (a Texas corporation) consolidated federal income tax return. In general, the Company's income tax provision reflects the financial consequences of filing on a separate return basis.
Research and Development
Research and development expenses include all direct costs, primarily salaries for Company personnel and outside consultants, related to the development of new products and significant enhancements to existing products and are expensed as incurred until such time as technological feasibility is achieved.
1. Significant Accounting Policies (continued)
Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, and elected to use the intrinsic value method in accounting for its stock option plan. Accordingly, no compensation cost has been recognized in the financial statements for this plan. The pro forma effects of fair value accounting for compensation costs related to options, on net income would not be material.
Earnings Per Common Share
Basic and diluted net income per common share are presented in conformity with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) for all periods presented. Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. Below is a reconciliation of the numerators and denominators of basis earnings per share for each of the following years:
Year ended 1997 1998 1999
---- ---- ----
Numerators
Numerator for basic and diluted earnings per
share:
Net Income $124,442 $196,664 $673,877
Numerator for basic and diluted
earnings per share 124,442 196,664 673,877
Denominators
Denominators for basic earnings per share:
Weighed average shares outstanding--Basic 12,920,000 12,920,000 12,920,000
Dilutive potential common shares:
Stock Options -- 326,881 372,673
Denominator for dilutive earnings per share
12,920,000 13,246,881 13,292,673
Net income per common share
Net Income 0.01 0.02 0.05
Net income per common share - assuming dilution
Net income 0.01 0.01 0.05
|
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS 133 as amended by SFAS 137, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000, with earlier application encouraged. The Company does not currently nor does it intend in the future to use derivative instruments and therefore does not expect that the adoption of SFAS 133 will have any impact on its financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, which currently must be adopted by June 30, 2000. SAB 101 provides additional guidance on revenue recognition as well as criteria for when revenue is generally realized and earned and also requires the deferral of incremental direct selling costs. The Company is currently assessing the impact of SAB 101.
2. Accounts Receivable
Accounts receivable, which are primarily from product sales, are presented net of an allowance for doubtful accounts. The activity of the Company's allowance for doubtful accounts for the years ended December 31, 1998 and 1999 is presented in the following table:
Balance at Charged to Balance
Year Ended Beginning Income or at End of
December 31 of Period Expense Deductions/(a)/ Period
---------------------------------------------------------------------------------
1997 - 13,000 - 13,000
1998 13,000 40,220 (28,220) 25,000
1999 25,000 53,614 (8,614) 70,000
|
3. Long-Term Debt
The Company had debt outstanding as follows:
As of December 31,
-------------------------------------
1998 1999
-------------------------------------
Note payable to individual dated October 1998, principal
and interest payable in monthly installments of $63,000
beginning February 1999, including interest at 12%; due
January 2000. $898,943 $ 62,377
Note payable to a bank dated January 1999, principal and
interest payable in 12 monthly installments of $5,000 and
12 monthly installments of $10,000 including interest at
prime rate plus 1%, 9.5% at December 31, 1999; due
January 2001. - 130,000
Note payable to a bank dated October 1999, principal and
interest payable in 6 monthly installments of $1,000 and
12 monthly installments of $3,667 including interest at
prime rate plus 1%, 9.5% at December 31, 1999; due April
2001. - 48,000
-------------------------------------
898,943 240,377
Less current portion 836,566 215,710
-------------------------------------
$ 62,377 $ 24,667
=====================================
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4. Capital Leases
The Company has financed the acquisition of certain fixed assets through capital lease obligations. Amortization expense on these capital lease agreements is included in depreciation expense.
4. Capital Leases (continued)
The present value of the future minimum lease payments for these leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $32,340
2001 21,622
2002 15,845
-----------
Total minimum lease payments 69,807
Less amount representing interest 13,378
-----------
Present value of minimum lease payments 56,429
Less current portion 24,172
-----------
Capital lease obligation, less current portion $32,257
===========
|
Furniture and equipment at December 31, 1998 and 1999 include $27,874 and $76,879, respectively for assets held under capital leases, less associated accumulated amortization of $8,517 and $20,382, respectively.
In September 1999, the Company entered into a capital lease agreement for office equipment for $250,000. The payment terms are for 48 months after receipt of the equipment and includes a one dollar bargain purchase option at the end of the lease term. The equipment was delivered and installed in March 2000.
5. Operating Leases
Minimum future lease payments on non-cancelable operating leases for office facilities are as follows for the years ending December 31:
2000 $ 127,339
2001 190,656
2002 190,656
2003 190,656
2004 190,656
Thereafter 667,296
----------
$1,557,259
==========
|
Operating lease expense amounted to approximately $90,006 and $71,293 in 1999 and 1998, respectively. As described in Note 5, the management fee paid to the parent company in 1997 included a charge for rental of office facilities.
The Company entered into a lease for new facilities in April 1999. The monthly lease term begins in April 2000. The terms of this lease include an escalation clause whereby no payments are due from April 2000 to September 2000. The minimum future lease payments for the new facility lease are in the table above.
6. Related Party Transactions
General corporate overhead related to ATSI's corporate headquarters and common support divisions has been allocated to the Company based on the ratio of the Company's external costs and expenses to ATSI's consolidated external costs and expenses, adjusted for any functions that the Company performs on its own. These services included various accounting and human resource functions, legal services and charges for rental of office facilities. However, the costs of these services charged to the Company are not necessarily indicative of the costs that would have been incurred if the Company had performed these functions entirely as a stand along entity, nor are they indicative of costs that will be charged in the future. Expenses in the amount of $93,847, $92,457 and $104,500 were paid to ATSI for period ending December 31, 1997, 1998 and 1999, respectively, and are reflected in the statement of operations.
The Company's assets secure a capital lease obligation of ATSI with NTFC Capital Corporation ("NTFC"). The lease obligation at December 31, 1999 totalled $2,000,000. ATSI was in default of financial covenants of the lease as of January 31, 2000 and received a waiver from NTFC stating that it waived ATSI's compliance requirement as of that date. ATSI believes it will likely be in default of the same covenants at April 30, 2000 and has requested NTFC to re-set the covenants to prevent future defaults. NTFC is reviewing the request. ATSI has classified the lease obligation as long-term.
7. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are related to the following:
1998 1999
------------------------
Deferred tax assets:
Depreciation and amortization $ 6,538 $6,168
Accrued expenses 3,813 2,334
Allowance for doubtful accounts 25,879 -
$36,230 8,502
========================
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7. Income Taxes (continued)
A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes is as follows:
1997 1998 1999
--------------------------------------
Taxes computed at federal statutory rate $67,178 $106,319 $363,905
Increases (decreases) in taxes resulting from:
State taxes, net of federal benefit 5,876 9,322 31,848
Nondeductible expenses 87 397 680
--------- ---------- ----------
Total $73,141 $116,038 $396,433
=======================================
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8. Employee Benefit Plan
The Company has a 401(k) plan which covers substantially all employees with at least six months of service. Under the plan, employees may elect to contribute a percentage of their annual salary subject to the Internal Revenue Code maximum limitations. The plan provides for employer matching and discretionary contribution, the amount of which are to be determined annually by the Board of Directors. The Company had no contribution expense to the plan in 1999.
9. Computer Software License Agreements
The Company entered into a computer software license agreement with a third party in 1996. This agreement provided the Company with copyright interests and licenses to market and sell the related software product. In return, the Company was required to pay royalties based on a percentage of the net wholesale price of units sold as stated in the agreement. In October 1998, the Company elected to purchase the trademark rights to the software product for $898,943. Royalty expense for the year ended December 31, 1998 and 1997 amounted to $354,679 and $165,958, respectively, and is included in costs of goods sold.
10. Stock Options
In January 1998, the Company approved the 1998 Stock Option Plan (the Plan) for officers, other employees, directors, and consultants of the Company. Under the terms of the Plan, up to 728,571 shares of the Company's common stock may be granted in the form of incentive stock options or non-qualified stock options, awarded, or sold to officers, other employees, directors and consultants. At December 31, 1999, 344,072 remained available for issuance of additional option grants under the Plan. At December31, 1999, no options were exercisable.
10. Stock Options (continued)
A summary of the Company's stock option activity and related information for the years ended December 31, 1999 and 1998 follows:
1998 1999
----------------------------
Outstanding at beginning of year - 357,999
Granted 357,999 26,500
Exercised - -
Forfeited - -
----------------------------
Outstanding at end of year 357,999 384,499
============================
|
Subsequent to December 31, 1999, the Company canceled options to purchase 44,500 shares of common stock under the plan. In consideration for canceling these options, the Company paid $5,000 in cash consideration to the optionholders. In addition, the Company agreed to issue 38,500 shares to the optionholders when and if a public offering of the Company is completed.
Options may be granted under the Plan at prices not less than 100% of fair market value at date of grant for incentive stock options. Options are exercisable for such periods as the Board of Directors shall determine, but no more than 10 years from date of grant. The vesting period for stock options is generally over a three-year period and carry an exercise price of $0.10 per share.
Pro forma information regarding net income is required by SFAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted subsequent to January 1, 1998 under the fair
value method prescribed by SFAS 123. The fair value of options granted was
$0.02 for options granted during 1999 and 1998, respectively. The fair value of
these options were estimated at the date of grant using a minimum value option
pricing model with the following assumptions for 1998 and 1998, respectively:
risk-free interest rates of 5.68% and 6.38%, respectively; no dividends for each
year; and a volatility factor of the expected market price of the Company's
common stock of near zero.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The impact on the pro forma results which follow may not be representative of compensation expense in future years when the effect of the amoritzation of multiple awards may be reflected in the amounts. The Company's pro forma income (loss) from continuing operations, including the pro forma stock-based compensation expense, is as follows:
11. Quarterly Financial Information (unaudited)
Fiscal Year 1998
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
------------------------------------------------------------------
Net revenue 617,043 472,352 554,515 429,777
Gross margin 600,763 288,983 439,611 347,760
Net Income (loss) before provision
for income taxes 153,421 (906) 126,657 33,530
Net Income 96,655 (906) 79,793 21,122
Net income per share:
Basic 0.0075 (0.0001) 0.0062 0.0016
Diluted 0.0073 (0.0001) 0.0060 0.0015
Weighted average shares
outstanding:
Basic 12,920,000 12,920,000 12,920,000 12,920,000
Diluted 13,274,399 13,259,999 13,259,999 13,191,999
|
Fiscal Year 1999
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
-----------------------------------------------------------------
Net revenue 1,032,389 793,890 743,627 681,130
Gross margin 1,009,372 765,252 718,176 653,210
Net Income before provision for 506,610 148,149 254,563 160,988
taxes
Net Income 319,041 93,231 160,272 101,333
Net income per common share:
Basic 0.0240 0.0072 0.0124 0.0078
Diluted 0.0240 0.0069 0.0121 0.0076
Weighted average shares
outstanding:
Basic 12,920,000 12,920,000 12,920,000 12,920,000
Diluted 13,304,499 13,304,499 13,287,029 13,277,999
|
12. Subsequent Events
Stockholders Equity
In May 2000, the board of directors amended the certificate of incorporation to increase the number of authorized shares of capital stock which the corporation has the authority to issue to 50,000,000 shares consisting of 40,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value $.001 per share. The board of directors also declared a 7.6 for 1 stock split of the shares of the Company's issued and outstanding common stock. All information in the accompanying financial statements and notes to the financial statements has been retroactively adjusted to reflect the efforts of this stock split.
Stock Option Plan
In May 2000, the board of directors approved the 2000 stock option plan (the "Plan") for key employees, nonemployee directors, and advisors of the Company. Under the terms of the Plan, up to 3,660,000 shares of the Company's common stock may be granted in the form of incentive stock options or non-qualified stock options. The maximum aggregate number of shares of common stock which may be granted to any optionee during the term of the Plan shall not exceed 2,000,000. The Plan provides that the purchase price per share for incentive stock options and non-qualified stock options shall not be less than the fair market value of the common stock on the date of grant. The maximum term for an option granted is ten years from the date of grant.
Debt
In February 2000, the Company entered into a loan agreement with a bank for $70,000 with the principle and interest payable in twelve monthly installments of $6,141.00 beginning March 1, 2000, including interest at prime rate plus 1%. The loan is secured by substantially all of the assets of the Company.
Exhibits and Financial Statement Schedules.
Exhibit
Number Description
------ -----------
2.1 Stock Purchase Agreement between American Telesource
International, Inc. (Texas) and American TeleSource
International, Inc. (Delaware) dated April 3, 2000.
2.2 Promissory Note between American TeleSource International,
Inc. and GlobalSCAPE, Inc. and as dated April 3, 2000.
3.1 Certificate of Incorporation of the Company dated April 17,
1996.
3.2 Certificate of Renewal and Revival of Certificate of
Incorporation for the Company dated February 16, 1999.
3.3 Certificate of Amendment to Certificate of Incorporation
dated May 8, 2000.
3.4 Bylaws of the Company.
4.1 Specimen of Stock Certificate.
4.2 1998 Stock Option Plan as amended May 13, 1999.
4.3 2000 Stock Option Plan dated May 8, 2000.
4.4 Form of 1998 Stock Option Plan Rights Termination Letter
Agreement of Directors to Cancel Options dated February 4,
2000.
4.5 Form of 1998 Stock Option Plan Rights Termination Letter
Agreement of Directors to Agree Not to Exercise Options
dated February 4, 2000.
4.6 Form of 1998 Stock Option Plan Rights Termination Letter
Agreement of Directors to Agree Not to Claim Any Right of
Adjustment dated February 4, 2000.
4.7 Form of 1998 Stock Option Plan Rights Termination Letter
Agreement for Employees and Consultants to Cancel Options
dated February 8, 2000.
4.8 Form of 1998 Stock Option Plan Rights Termination Letter of
Officer to Agree Not to Claim Any Right of Adjustment dated
February 8, 2000.
4.9 Form of 1998 Stock Option Plan Rights Termination Letter
Agreement of Officer to Agree Not to Exercise Options dated
February 8, 2000.
10.1 Commercial Lease Agreement between ACLP University Park S.A.
II, L.P. and the Company dated April 13, 1999.
10.2 Patent License Agreement beween Thomson Consumer Electronics
Sales GmbH and the Company dated December 15, 1999.
10.3 Purchase Agreement between Alex Kunadze and the Company
dated January 16, 1999.
10.4 NTFC Loan and Security Agreement between American TeleSource
International, Inc. (Delaware), American TeleSource
International, Inc. (Texas), Telespan, Inc. and Company
dated July 31, 1999.
10.5 NTFC Promissory Note for $2,000,000.00 between American
TeleSource International, Inc. (Delaware), American
TeleSource Interntional, Inc. (Texas), Telespan, Inc., and
the Company dated August 26, 1999.
10.6 Frost Bank Note for $180,000 Loan dated January 28, 1999
between The
Exhibit-1
|
Frost National Bank as Lender and the Company as Borrower.
10.7 Security Agreement between Frost Bank and the Company for
the $180,000 Note dated January 28, 1999.
10.8 Frost Bank Note for $70,000 Loan dated February 1, 2000
between The Frost National Bank as Lender and the Company as
Borrower.
10.9 Commercial Security Agreement between Frost Bank and the
Company for the $70,000 Note dated February 1, 2000.
10.10 Frost Bank Note for $50,000 Loan dated October 6, 1999
between The Frost National Bank as Lender and the Company as
Borrower.
10.11 Commercial Security Agreement between Frost Bank and the
Company for the $50,000 Note dated October 6, 1999.
10.12 Consulting Agreement between the Company and David Christal
dated February 22, 2000.
10.13 Corrected & Restated Executive Employment Agreement between
the Company and Sandra Poole-Christal dated January 1, 1998.
21.1 Subsidiaries
27.1 Financial Data Schedule*
___________________
|
* To be filed by Amendment.
All other schedules and exhibits are omitted because they are not applicable or because the required information is contained in the Financial Statements or Notes thereto.
Exhibit-2
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Act of 1934, GlobalSCAPE, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, State of Texas, on May 11, 2000.
GLOBALSCAPE, INC.
By: /s/ SANDRA POOLE-CHRISTAL --------------------------- Sandra Poole-Christal President |
Exhibit 2.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of April 3, 2000, is between American TeleSource International, Inc., a Texas corporation ("Seller") and American TeleSource International Inc., a Delaware corporation ("Purchaser").
WITNESSETH:
WHEREAS, Seller owns 100% of the issued and outstanding shares of GlobalSCAPE, Inc., a Delaware corporation ("GlobalSCAPE") and wishes to sell its stock of GlobalSCAPE to Purchaser, and Purchaser wishes to purchase Sellers' stock of GlobalSCAPE.
NOW, THEREFORE, in consideration of the representations, warranties and covenants herein contained, and on the terms and subject to the conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I.
Purchase and Sale
1.1 Purchase and Sale of Stock. Subject to and upon the terms and conditions contained herein, effective April 3, 2000 ("Closing"), Seller shall sell, transfer, assign, convey and deliver to Purchaser, free and clear of all security interests, liens, claims and encumbrances, all of the issued and outstanding stock of GlobalSCAPE (the "Stock") and Purchaser shall purchase, accept and acquire from the Seller, the Stock.
1.2 Purchase Price. The total consideration for the transfer of the Stock ("Purchase Price") shall be Six Million Dollars ($6,000,000.00) in the form of a Promissory Note in favor of Seller and delivered at Closing, in the form attached as Exhibit A.
ARTICLE II.
Representations and Warranties of the Seller
Seller represents and warrants that the following are true and correct as of the Closing:
2.1 Authorization and Validity. This Agreement and each other agreement, instrument and document contemplated hereby has been duly executed and delivered by the Seller and constitutes the legal, valid and binding obligations of the Seller enforceable against the Seller in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The Seller has the legal capacity to enter into this Agreement and the other documents, instruments and agreements to be executed and delivered in connection herewith.
2.2 Ownership of the Stock. Seller owns, beneficially and of record, good and valid title to the Stock, free and clear of all security interests, liens, adverse claims or encumbrances. At the Closing, the Seller will convey to Purchaser good and valid title to the Stock, free and clear of any security interests, liens, adverse claims or encumbrances. The Stock represents all of the shares of common stock of GlobalSCAPE owned by the Seller.
2.3 Capitalization. The authorized capital stock of GlobalSCAPE consists of 17,000,000 shares of common stock, par value $.001 per share, of which 1,700,000 shares are issued and outstanding. All of issued and outstanding shares of capital stock of GlobalSCAPE are duly authorized, validly issued, fully paid and nonassessable. Pursuant to the GlobalSCAPE, Inc. 1998 Stock Option Plan, there are options to purchase 339,999 shares of common stock of GlobalSCAPE, of which 242,856 are vested and 97,143 are unvested. There are no other options, warrants, subscriptions or other rights to purchase, or securities convertible into or exchangeable for, the capital stock of GlobalSCAPE.
ARTICLE III.
Representations and Warranties of Purchaser
Purchaser represents and warrants that the following are true and correct as of the Closing:
3.1 Organization and Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, with all requisite corporate power and authority to carry on the business in which it is engaged, to own the properties it owns, to execute and deliver this Agreement and to consummate the transactions contemplated hereby.
3.2 Authorization and Validity. The execution, delivery and performance by Purchaser of this Agreement and the other agreements, instruments and documents contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by Purchaser. This Agreement and each other agreement, instrument and document contemplated hereby have been duly executed and delivered by Purchaser and constitute legal, valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies.
3.3 No Violation. Neither the execution, delivery or performance of this Agreement or the other agreements, instruments and documents contemplated hereby nor the consummation of the transactions contemplated hereby or thereby will conflict with, or result in a violation of breach of the terms, conditions and provisions of, or constitute a default under, the Articles of
Incorporation or Bylaws of Purchaser or any agreement, indenture or other instrument under which Purchaser is bound.
ARTICLE IV.
Closing Deliveries
4.1 Deliveries of the Sellers and GlobalSCAPE. At the Closing, the Seller shall deliver to the Purchaser certificates representing the Stock, duly endorsed and in proper form for transfer to Purchaser by delivery under applicable law, or accompanied by duly executed instruments of transfer in blank.
4.2 Deliveries of Purchaser. At the Closing, Purchaser shall deliver to the Seller the Purchase Price.
ARTICLE V.
Miscellaneous
5.1 Amendment. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by all parties hereto.
5.2 Assignment. Neither this Agreement nor any right created hereby or in any agreement entered into in connection with the transactions contemplated hereby shall be assignable by any party hereto.
5.3 Parties in Interest; No Third Party Beneficiaries. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective heirs, legal representatives, successors and assigns of the parties hereto. Neither this Agreement nor any other agreement contemplated hereby shall be deemed to confer upon any person not a party hereto or thereto any rights or remedies hereunder or thereunder.
5.4 Entire Agreement. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof.
5.5 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid
or unenforceable provision, there shall be added automatically as part of this Agreement a provision similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
5.6 Survival of Representations, Warranties and Covenants. The representations, warranties and covenants contained herein shall survive the Closing and all statements contained in any certificate, schedule or other instrument delivered by or on behalf of the Seller or Purchaser pursuant to this Agreement shall be deemed to have been representations and warranties by the Seller or Purchaser, as the case may be, and, notwithstanding any provision in this Agreement to the contrary, shall survive the closing for a period of two years.
5.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING STOCK PURCHASE AGREEMENT
- CONFLICTS OF LAWS) OF THE STATE OF TEXAS, U.S.A., AND BOTH PARTIES
IRREVOCABLY CONSENTS TO THE JURISDICTION OF STATE COURTS SITTING IN BEXAR
COUNTY, TEXAS FOR ANY DISPUTE ARISING UNDER OR IN RELATION TO THIS AGREEMENT OR
THE NOTE.
5.8 Section Captions. The captions in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms or provisions hereof.
EXECUTED as of the date first above written.
PURCHASER:
AMERICAN TELESOURCE INTERNATIONAL,
INC., a Delaware corporation
By:________________________________________
Arthur L. Smith, Chief Executive Officer
SELLER:
AMERICAN TELESOURCE INTERNATIONAL,
INC., a Texas corporation
By:________________________________________
Arthur L. Smith, President
EXHIBIT 2.2
PROMISSORY NOTE
$6,000,000.00 April 3, 2000
AMERICAN TELESOURCE INTERNATIONAL, INC., a Delaware corporation ("Maker") hereby promises to pay to the order of American TeleSource International, Inc., a Texas corporation ("Payee"), its successors, assigns or any subsequent holder of this Note at its offices located at 12500 Network Boulevard, Suite 407, San Antonio, Texas 78249 or at such other place as may be designated in writing by Payee, in lawful money of the United States of America in immediately available funds SIX MILLION DOLLARS AND NO 00/100'S ($6,000,000.00) together with interest thereon at the lesser of (a) ten percent (10%) or (b) the maximum rate permitted by law.
This note shall mature on [________________] ("Maturity Date"). All outstanding payments of principal and interest shall be due and payable on the Maturity Date.
This Note is issued pursuant to that certain Stock Purchase Agreement dated April 3, 2000 between Maker and Payee.
Maker shall be entitled to prepay this Note in whole or part at any time without penalty with the consent of Payee.
Without notice or demand (which are hereby waived), the entire unpaid principal balance of, and all accrued interest on, this Note shall immediately become due and payable at the option of the holder hereof upon the occurrence of any of the following events (an "Event of Default"):
(a) The failure or refusal of Maker to make any payment of principal on this Note within ten (10) days of the date due.
(b) Maker shall (i) execute an assignment for the benefit of creditors, or (ii) admit in writing its inability, or otherwise, fail, to pay its debts generally as they become due, or (iii) suffer the appointment of a receiver, trustee, custodian or similar fiduciary.
(c) Any petition for an order for relief shall be filed by or against Maker under the Bankruptcy Code (if against Maker, the continuation of such proceeding for more than thirty (30) days).
Upon the occurrence and during the continuance of any Event of Default, Payee is authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits at any time held and other indebtedness at any time owing by Payee to or for the credit or the account of Maker against any and all of the obligations of Maker now or hereafter existing under this Note. Payee agrees to notify Maker after any such setoff and application made by Payee, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of Payee under this paragraph are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Payee may have.
If this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceedings, Maker agrees to pay court costs, attorney's fees and other costs of collection of the holder hereof.
Neither the failure by the holder hereof to exercise, nor delay by the holder hereof in exercising, the right to accelerate the maturity of this Note or any other right, power or remedy upon any default shall be construed as a waiver of such default or as a waiver of the right to exercise any such right, power or remedy at any time.
This Note may not be changed, extended or terminated except in writing. No waiver of any term or provision hereof shall be valid unless in writing signed by Payee.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE STATE OF TEXAS, U.S.A., AND MAKER IRREVOCABLY CONSENTS TO THE JURISDICTION OF STATE COURTS SITTING IN BEXAR COUNTY, TEXAS FOR ANY DISPUTE ARISING UNDER OR IN RELATION TO THIS AGREEMENT OR THE NOTE.
Regardless of any provision contained herein, or in any document executed in connection herewith, Payee shall never be entitled to receive, collect, or apply, as interest on the indebtedness evidenced hereby, any amount in excess of the maximum rate permitted by law, and in the event Payee ever receives, collects, or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and if, the principal hereof is paid in full, any remaining excess shall be refunded to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum rate permitted by law, Maker and Payee shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) prorate, allocate, and spread, the total amount of interest throughout the entire contemplated term hereof, provided, that if the principal balance hereof is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence thereof exceeds the maximum rate permitted by law, Payee shall either apply or refund to Maker the amount of such excess as herein provided, and in such event, Payee shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the maximum rate permitted by law.
Executed as of the date first written above.
AMERICAN TELESOURCE INTERNATIONAL
INC., a Delaware corporation
By: ____________________________________
Arthur L. Smith, Chief Executive Officer
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
GLOBALSCAPE, INC.
FIRST
The name of the Corporation is GLOBALSCAPE, INC.
SECOND
The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The name of the Corporation's registered agent at such address is Corporation Service Company.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH
The total number of shares of capital stock which the Corporation shall have the authority to issue is 17,000,000 shares, consisting of 15,000,000 shares of common stock, par value $0.001 per share ("Common Stock"), and 2,000,000 shares of preferred stock par value $0.001 per share ("Preferred Stock").
The Board of Directors is authorized to establish, from time to time, one or more series of any class of shares, to increase or decrease the number within each series, and to fix the designations, powers, preferences and relative, participating, optional or other rights of such series and any qualifications, limitations or restrictions thereof.
FIFTH
In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend and repeal the Bylaws of the Corporation. Directors need not be elected by written ballot unless expressly required by the Bylaws of the Corporation.
SIXTH
A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that this Article shall not eliminate or limit the liability of a director: (I) for any breach of the director's duty of loyalty to the Corporation or stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after the date of filing of this Certificate of Incorporation to authorize corporate action further limiting or eliminating the personal liability of a director, then the liability of the directors of the Corporation shall be limited or eliminated to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of this Article by the stockholders of the Corporation or otherwise shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
SEVENTH
The Corporation shall indemnify each director and officer of the Corporation who may be indemnified, to the fullest extent permitted by Section 145 of the Delaware General Corporation Law ("Section 145"), as it may be amended from time to time, in each and every situation where the Corporation is obligated to make such indemnification pursuant to Section 145. In addition, the Corporation shall indemnify each of the Corporation's directors and officers in each and every situation where, under Section 145, the Corporation is not obligated, but is permitted or empowered, to make such indemnification. The Corporation may, in the sole discretion of the Board of Directors, indemnify any other person who may be indemnified pursuant to Section 145 to the extent the Board of Directors deems advisable, as permitted by
such section. The Corporation shall promptly make or cause to be made any determination which Section 145 requires.
EIGHTH
The name and mailing address of the incorporator of the Corporation is:
Matthew R. Bair, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
/S/ Matthew R. Blair ------------------------------- Incorporator |
EXHIBIT 3.2
Certificate of Renewal and Revival
of Certificate of Corporation
Of
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is GLOBALSCAPE, Inc.
2. The corporation was organized under the provisions of the General Corporation Law of the State of Delaware. The date of filing of its original certificate of incorporation with the Secretary of State of the State of Delaware is April 17, 1996.
3. The address, including the street, city, and county, of the registered office of the corporation in the State of Delaware and the name for the registered agent at such address are as follows: Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle.
4. The corporation hereby procures a renewal and revival of its certificate of incorporation, which became inoperative by law on March 1, 1998 for failure to file annual reports as non-payment of taxes payable to the State of Delaware.
5. The certificate of incorporation of the corporation, which provides for and will continue to provide for, perpetual duration, shall, upon the filing of this Certificate of Renewal and Revival of the Certificate of Incorporation in the Department of State of the State of Delaware, be renewed and revived and shall become fully operative on February 28, 1998.
6. This Certificate of Renewal and Revival of the Certificate of Incorporation is filed by authority of the duly elected directors as prescribed by Section 312 of the General Corporation law of the State of Delaware.
Name, title of authorized officer /s/ Sandra Poole Christal, President
-------------------------------------------
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I, the undersigned Secretary of GlobalScape, Inc., do hereby certify that the foregoing is a true and correct copy of the Bylaws of said Corporation as duly approved at the organizational meeting of the Corporation and as duly amended by action of the Board of Directors through the date hereof.
WITNESS my hand and the seal of the Corporation this the 19th day of April, 1996.
/s/ H. Douglas Saarhoff [SIC] ------------------------------------ H. Douglas Saarhoff, Secretary [SIC] |
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GLOBALSCAPE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
GlobalSCAPE, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), hereby adopts this Certificate of Amendment (this "Certificate of Amendment"), which amends its Certificate of Incorporation (the "Certificate of Incorporation"), as described below, and does hereby further certify that:
FIRST: The name of the Corporation is GLOBALSCAPE, Inc.
SECOND: The Board of Directors of the Corporation duly adopted a resolution proposing and declaring advisable the amendment to the Certificate of Incorporation as described herein, and the Corporation's stockholders duly adopted such amendment, all in accordance with the provisions of Sections 242 and 228 of the DGCL.
THIRD: The amendment to the Certificate of Incorporation effected by this Certificate of Amendment is an amendment to increase the number of authorized shares of capital stock which the Corporation shall have the authority to issue and to split, reclassify and convert each share of Common Stock (as hereinafter defined), par value $0.001 per share (the "Old Common Stock"), of the Corporation that is outstanding on the date of, and immediately prior to, the filing of this Certificate of Amendment and all rights in respect thereof, into 7.6 shares of Common Stock, par value $0.001 per share (the "New Common Stock"), subject to the treatment of fractional share interests as described in this Certificate of Amendment.
The total number of shares of capital stock which the Corporation shall have the authority to issue is 50,000,000 shares, consisting of 40,000,000 shares of common stock, par value $0.001 per share ("Common Stock"), and 10,000,000 shares of preferred stock, par value $0.001 per share ("Preferred Stock").
Simultaneously with the effective date of this amendment (the "Effective Date"), each share of the Old Common Stock, of the Corporation, issued and outstanding immediately prior to the Effective Date and each such share of Old Common Stock held in
the Corporation's treasury shall automatically and without any action on the part of the holder thereof be reclassified as and changed into 7.6 shares of the Common Stock, par value $0.001 per share (the "New Common Stock"), of the Corporation; provided, however, that no certificate or scrip representing fractional share interests in the New Common Stock will be issued, and no such fractional share interest will entitle the holder thereof to vote or to any rights of a stockholder of the Corporation. Each holder of a certificate or certificates which immediately prior to the Effective Date represented outstanding shares of the Old Common Stock (the "Old Certificates," whether one or more) shall be entitled to receive, upon surrender of the Old Certificates to the Secretary of the Corporation for cancellation, a certificate or certificates representing the number of whole shares of the New Common Stock (the "New Common Certificates") into which and for which the shares of the Old Common Stock, formerly represented by the Old Certificates so surrendered, are reclassified under the terms hereof. If more than one Old Certificate shall be surrendered at one time for the account of the same stockholder, the number of shares of New Common Stock for which New Common Certificates shall be issued shall be computed on the basis of the aggregate number of shares represented by the Old Certificates so surrendered. In the event that the Secretary of the Corporation determines that a holder of Old Certificates has not tendered all of such holder's certificates for exchange, the Secretary of the Corporation shall carry forward any fractional share until all certificates of that holder have been presented for exchange such that not more than one share of New Common Stock shall be issued to any holder in respect of fractional interests. If any New Common Certificate is to be issued in a name other than that in which the Old Certificates surrendered for exchange are issued, the Old Certificates so surrendered shall be properly endorsed and otherwise in proper form for transfer, and the person or persons requesting such exchange shall affix any requisite stock transfer tax stamps to the Old Certificates surrendered, or provide funds for their purchase, or establish to the satisfaction of the Secretary of the Corporation that such taxes are not payable. From and after the Effective Time, the total amount of capital represented by the shares of the New Common Stock into which and for which the shares of the Old Common Stock are reclassified under the terms hereof shall be the same as the amount of capital represented by the shares of Old Common Stock so reclassified, until thereafter reduced or increased in accordance with applicable law."
FIFTH: This Certificate of Amendment of Certificate of Incorporation shall be effective as of May 8, 2000.
SIXTH: This Certificate of Amendment of Certificate of Incorporation was duly adopted by the requisite vote of the Board of Directors and by the vote of the holders of a majority of the outstanding shares of the Corporation entitled to vote thereon in accordance with Sections 242 and 228 of the DGCL.
IN WITNESS WHEREOF, GlobalSCAPE, Inc. has caused this Certificate of Amendment of Certificate of Incorporation to be executed by its President and attested by its Secretary this 9th day of May, 2000.
GLOBALSCAPE, INC.
By: /s/ Sandra Poole-Christal
---------------------------------------
Sandra Poole-Christal, President
ATTEST:
By: /s/ H. Douglas Saathoff
------------------------------------
H. Douglas Saathoff, Secretary
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Exhibit 3.4
BYLAWS
OF
GLOBALSCAPE, INC.
(Effective as of May 8, 2000)
TABLE OF CONTENTS
ARTICLE I
OFFICES
Section 1. Registered Office............................... 1
Section 2. Other Offices................................... 1
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings............................... 1
Section 2. Annual Meeting.................................. 1
Section 3. List of Stockholders............................ 1
Section 4. Special Meetings................................ 2
Section 5. Notice.......................................... 2
Section 6. Quorum.......................................... 2
Section 7. Voting.......................................... 2
Section 8. Method of Voting................................ 2
Section 9. Record Date..................................... 3
Section 10. Action by Consent............................... 3
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management...................................... 3
Section 2. Qualification; Election; Term................... 3
Section 3. Number; Election; Term; Qualification........... 3
Section 4. Changes in Number............................... 4
Section 5. Removal......................................... 4
Section 6. Vacancies....................................... 4
Section 7. Place of Meetings............................... 5
Section 8. Annual Meeting.................................. 5
Section 9. Regular Meetings................................ 5
Section 10. Special Meetings................................ 5
Section 11. Quorum.......................................... 5
Section 12. Interested Directors............................ 5
Section 13. Committees...................................... 6
Section 14. Action by Consent............................... 6
Section 15. Compensation of Directors....................... 6
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ARTICLE IV
NOTICE
Section 1. Form of Notice...................................6
Section 2. Waiver...........................................6
ARTICLE V
OFFICERS AND AGENTS
Section 1. In General.......................................7
Section 2. Election.........................................7
Section 3. Other Officers and Agents........................7
Section 4. Compensation.....................................7
Section 5. Term of Office and Removal.......................7
Section 6. Employment and Other Contracts...................7
Section 7. Chairman of the Board of Directors...............7
Section 8. President........................................8
Section 9. Vice Presidents..................................8
Section 10. Secretary........................................8
Section 11. Assistant Secretaries............................8
Section 12. Treasurer........................................8
Section 13. Assistant Treasurers.............................8
Section 14. Bonding..........................................9
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates.............................9
Section 2. Lost Certificates................................9
Section 3. Transfer of Shares...............................9
Section 4. Registered Stockholders.........................10
ARTICLE VII
TRANSFER RESTRICTIONS
Section 1. Stock Transfer Restrictions.....................10
Section 2. Legend..........................................10
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends.......................................10
Section 2. Reserves........................................10
Section 3. Telephone and Similar Meetings..................10
Section 4. Books and Records...............................10
Section 5. Fiscal Year.....................................11
Section 6. Seal............................................12
Section 7. Advances of Expenses............................12
Section 8. Indemnification.................................12
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Section 9. Insurance.......................................13
Section 10. Resignation.....................................13
Section 11. Amendment of Bylaws.............................13
Section 12. Invalid Provisions..............................13
Section 13. Relation to the Certificate of Incorporation....13
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BYLAWS
OF
GLOBALSCAPE, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office and registered agent of GlobalSCAPE, Inc. (the "Corporation") will be as from time to time set forth in the Corporation's Certificate of Incorporation or in any certificate filed with the Secretary of State of the State of Delaware, and the appropriate county Recorder or Recorders, as the case may be, to amend such information.
Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for the election of Directors will be held at such place, within or without the State of Delaware, as may be fixed from time to time by the Board of Directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as may be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders will be held at such time as may be determined by the Board of Directors, at which meeting the stockholders will elect a Board of Directors, and transact such other business as may properly be brought before the meeting.
Section 3. List of Stockholders. At least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, with the address of and the number of voting shares registered in the name of each, will be prepared by the officer or agent having charge of the stock transfer books. Such list will be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place will be specified in the notice of the meeting, or if not so specified at the place where the meeting is to be held. Such list will be produced and kept open at the time and place of the meeting during the whole time thereof, and will be subject to the inspection of any stockholder who may be present.
Section 4. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law, the Certificate of Incorporation or these Bylaws, may be called by the Chairman of the Board, the President or the Board of Directors. Business transacted at all special meetings will be confined to the purposes stated in the notice of the meeting unless all stockholders entitled to vote are present and consent.
Section 5. Notice. Written or printed notice stating the place, day and hour of any meeting of the stockholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, will be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, the Secretary, or the officer or person calling the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, such notice will be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid.
Section 6. Quorum. At all meetings of the stockholders, the presence in person or by proxy of the holders of a majority of the shares issued and outstanding and entitled to vote will be necessary and sufficient to constitute a quorum for the transaction of business except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. If, however, such quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, will have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally notified.
Section 7. Voting. When a quorum is present at any meeting of the Corporation's stockholders, the vote of the holders of a majority of the shares entitled to vote on, and voted for or against, any matter will decide any questions brought before such meeting, unless the question is one upon which, by express provision of law, the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision will govern and control the decision of such question. The stockholders present in person or by proxy at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Section 8. Method of Voting. Each outstanding share of the Corporation's
capital stock, regardless of class, will be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders, except to the extent that the
voting rights of the shares of any class or classes are limited or denied by the
Certificate of Incorporation, as amended from time to time. At any meeting of
the stockholders, every stockholder having the right to vote will be entitled to
vote in person, or by proxy appointed by an instrument in writing subscribed by
such stockholder and bearing a date not more than three years prior to such
meeting, unless such instrument provides for a longer period. Each proxy will be
revocable unless expressly provided therein to be irrevocable and if, and only
as
long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Such proxy will be filed with the Secretary of the Corporation prior to or at the time of the meeting. Voting on any question or in any election, other than for directors, may be by voice vote or show of hands unless the presiding officer orders, or any stockholder demands, that voting be by written ballot.
Section 9. Record Date. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, which record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date will not be less than ten nor more than sixty days prior to such meeting. In the absence of any action by the Board of Directors, the close of business on the date next preceding the day on which the notice is given will be the record date, or, if notice is waived, the close of business on the day next preceding the day on which the meeting is held will be the record date.
Section 10. Action by Consent. Any action required or permitted by law, the Certificate of Incorporation or these Bylaws to be taken at a meeting of the stockholders of the Corporation may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and will be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the Corporation having custody of the minute book.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management. The business and affairs of the Corporation will be managed by or under the direction of its Board of Directors who may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
Section 2. Qualification; Election; Term. None of the Directors need be a stockholder of the Corporation or a resident of the State of Delaware. The Directors will be elected by written ballot, by plurality vote at the annual meeting of the stockholders, except as hereinafter provided, and each Director elected will hold office until whichever of the following occurs first: his successor is elected and qualified, his resignation, his removal from office by the stockholders or his death.
Section 3. Number; Election; Term; Qualification. The number of Directors
which shall constitute the Board of Directors shall be not less than one. The
first Board of Directors shall consist of the number of Directors named in the
Certificate of Incorporation. Thereafter, the number of Directors which shall
constitute the entire Board of Directors shall be determined by resolution of
the Board of Directors at any meeting thereof, but shall never be less than one.
The Board of
Directors of the Corporation shall be divided into three classes which shall be as nearly equal in number as is possible. At the first election of Directors to such classified Board of Directors, each Class I Director shall be elected to serve until the next ensuing annual meeting of stockholders, each Class II Director shall be elected to serve until the second ensuing annual meeting of stockholders, each Class III Director shall be elected to serve until the third ensuing annual meeting of stockholders. At each annual meeting of stockholders following the meeting at which the Board of Directors is initially classified, the number of Directors equal to the number of the class whose term expires at the time of such meeting shall be elected to serve until the third ensuing annual meeting of stockholders. At each annual meeting of stockholders, Directors shall be elected to hold office until their successors are elected and qualified or until their earlier resignation, removal from office or death. No Director need be a stockholder, a resident of the State of Delaware, or a citizen of the United States.
Section 4. Changes in Number. In the event of any change in the authorized number of Directors, the number of Directors in each class shall be adjusted so that thereafter each of the three classes shall be composed, as nearly as may be possible, of one-third of the authorized number of Directors; provided that any change in the authorized number of Directors shall not increase or shorten the term of any Director, and any decrease shall become effective only as and when the term or terms of office of the class or classes of Directors affected thereby shall expire, or a vacancy or vacancies in such class or classes shall occur. Any directorship to be filled by reason of an increase in the number of Directors may be filled by (i) the stockholders at any annual or special meeting of stockholders called for that purpose or (ii) the Board of Directors for a term of office continuing only until the next election of one or more Directors by the stockholders. Notwithstanding the foregoing, whenever the holders of any class or series of shares are entitled to elect one or more Directors by the provisions of the Certificate of Incorporation, any newly created directorship(s) of such class or series to be filled by reason of an increase in the number of such Directors may be filled by the affirmative vote of a majority of the Directors elected by such class or series then in office or by a sole remaining Director so elected or by the vote of the holders of the outstanding shares of such class or series, and such directorship(s) shall not in any case be filled by the vote of the remaining Directors or by the holders of the outstanding shares of the Corporation as a whole unless otherwise provided in the Certificate of Incorporation.
Section 5. Removal. Any Director may be removed either for or without cause, at any special meeting of stockholders by the affirmative vote of a majority in number of shares of the stockholders present in person or represented by proxy at such meeting and entitled to vote for the election of such Director; provided that notice of the intention to act upon such matter has been given in the notice calling such meeting.
Section 6. Vacancies. Vacancies occurring in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Directors or otherwise, may be filled by the vote of a majority of the Directors then in office, though less than a quorum, or a successor or successors may be chosen at a special meeting of the stockholders called for that purpose, and each successor Director so chosen will hold office until the next election of the class for which such Director has been chosen or until whichever of the following occurs first: his
successor is elected and qualified, his resignation, his removal from office by the stockholders or his death.
Section 7. Place of Meetings. Meetings of the Board of Directors, regular or special, may be held at such place within or without the State of Delaware as may be fixed from time to time by the Board of Directors.
Section 8. Annual Meeting. The first meeting of each newly elected Board of Directors will be held without further notice immediately following the annual meeting of stockholders and at the same place, unless by unanimous consent, the Directors then elected and serving change such time or place.
Section 9. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as is from time to time determined by resolution of the Board of Directors.
Section 10. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on oral or written notice to each Director, given either personally, by telephone, by telegram or by mail; special meetings will be called by the Chairman of the Board, President or Secretary in like manner and on like notice on the written request of at least two Directors. The purpose or purposes of any special meeting will be specified in the notice relating thereto.
Section 11. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of Directors fixed by these Bylaws will be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the Directors present at any meeting at which there is a quorum will be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws. If a quorum is not present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum is present.
Section 12. Interested Directors. No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of the Corporation's Directors or officers are directors or officers or have a financial interest, will be void or voidable solely for this reason, solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum, (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the
stockholders or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction.
Section 13. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board, designate committees, each committee to consist of two or more Directors of the Corporation, which committees will have such power and authority and will perform such functions as may be provided in such resolution. Such committee or committees will have such name or names as may be designated by the Board and will keep regular minutes of their proceedings and report the same to the Board of Directors when required.
Section 14. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee of the Board of Directors may be taken without such a meeting if a consent or consents in writing, setting forth the action so taken, is signed by all the members of the Board of Directors or such committee, as the case may be.
Section 15. Compensation of Directors. Directors will receive such compensation for their services and reimbursement for their expenses as the Board of Directors, by resolution, may establish; provided that nothing herein contained will be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
NOTICE
Section 1. Form of Notice. Whenever by law, the Certificate of Incorporation or of these Bylaws, notice is to be given to any Director or stockholder, and no provision is made as to how such notice will be given, such notice may be given in writing, by mail, postage prepaid, addressed to such Director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail will be deemed to be given at the time the same is deposited in the United States mails.
Section 2. Waiver. Whenever any notice is required to be given to any stockholder or Director of the Corporation as required by law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, will be equivalent to the giving of such notice. Attendance of a stockholder or Director at a meeting will constitute a waiver of notice of such meeting, except where such stockholder or Director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
ARTICLE V
OFFICERS AND AGENTS
Section 1. In General. The officers of the Corporation will be elected by the Board of Directors and will be a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also elect a Chairman of the Board, additional Vice Presidents, Assistant Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers. Any two or more offices may be held by the same person.
Section 2. Election. The Board of Directors, at its first meeting after each annual meeting of stockholders, will elect the officers, none of whom need be a member of the Board of Directors.
Section 3. Other Officers and Agents. The Board of Directors may also elect and appoint such other officers and agents as it deems necessary, who will be elected and appointed for such terms and will exercise such powers and perform such duties as may be determined from time to time by the Board.
Section 4. Compensation. The compensation of all officers and agents of the Corporation will be fixed by the Board of Directors or any committee of the Board, if so authorized by the Board.
Section 5. Term of Office and Removal. Each officer of the Corporation will hold office until his death, his resignation or removal from office, or the election and qualification of his successor, whichever occurs first. Any officer or agent elected or appointed by the Board of Directors may be removed at any time, for or without cause, by the affirmative vote of a majority of the entire Board of Directors, but such removal will not prejudice the contract rights, if any, of the person so removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
Section 6. Employment and Other Contracts. The Board of Directors may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the name or on behalf of the Corporation, and such authority may be general or confined to specific instances. The Board of Directors may, when it believes the interest of the Corporation will best be served thereby, authorize executive employment contracts that will have terms no longer than ten years and contain such other terms and conditions as the Board of Directors deems appropriate. Nothing herein will limit the authority of the Board of Directors to authorize employment contracts for shorter terms.
Section 7. Chairman of the Board of Directors. If the Board of Directors has elected a Chairman of the Board, he will preside at all meetings of the stockholders and the Board of Directors. Except where by law the signature of the President is required, the Chairman will have the same power as the President to sign all certificates, contracts and other instruments of the Corporation. During the absence or disability of the President, the Chairman will exercise the powers and perform the duties of the President.
Section 8. President. The President will be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, will supervise and control all of the business and affairs of the Corporation. He will, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and the Board of Directors. The President will have all powers and perform all duties incident to the office of President and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe.
Section 9. Vice Presidents. Each Vice President will have the usual and customary powers and perform the usual and customary duties incident to the office of Vice President, and will have such other powers and perform such other duties as the Board of Directors or any committee thereof may from time to time prescribe or as the President may from time to time delegate to him. In the absence or disability of the President and the Chairman of the Board, a Vice President designated by the Board of Directors, or in the absence of such designation the Vice Presidents in the order of their seniority in office, will exercise the powers and perform the duties of the President.
Section 10. Secretary. The Secretary will attend all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary will perform like duties for the Board of Directors and committees thereof when required. The Secretary will give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors. The Secretary will keep in safe custody the seal of the Corporation. The Secretary will be under the supervision of the President. The Secretary will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to him.
Section 11. Assistant Secretaries. The Assistant Secretaries in the order of their seniority in office, unless otherwise determined by the Board of Directors, will, in the absence or disability of the Secretary, exercise the powers and perform the duties of the Secretary. They will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to them.
Section 12. Treasurer. The Treasurer will have responsibility for the receipt and disbursement of all corporate funds and securities, will keep full and accurate accounts of such receipts and disbursements, and will deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer will render to the Directors whenever they may require it an account of the operating results and financial condition of the Corporation, and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to him.
Section 13. Assistant Treasurers. The Assistant Treasurers in the order of their seniority in office, unless otherwise determined by the Board of Directors, will, in the absence or disability of the Treasurer, exercise the powers and perform the duties of the Treasurer. They will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to them.
Section 14. Bonding. The Corporation may secure a bond to protect the Corporation from loss in the event of defalcation by any of the officers, which bond may be in such form and amount and with such surety as the Board of Directors may deem appropriate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. Certificates, in such form as may be determined by the Board of Directors, representing shares to which stockholders are entitled will be delivered to each stockholder. Such certificates will be consecutively numbered and will be entered in the stock book of the Corporation as they are issued. Each certificate will state on the face thereof the holder's name, the number, class of shares, and the par value of such shares or a statement that such shares are without par value. They will be signed by the President or a Vice President and the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent, or an assistant transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificate or certificates, ceases to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it may require and/or to give the Corporation a bond, in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. When a certificate has been lost, apparently destroyed or wrongfully taken, and the holder of record fails to notify the Corporation within a reasonable time after such holder has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer of a new certificate.
Section 3. Transfer of Shares. Shares of stock will be transferable only
on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to
transfer, it will be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
Section 4. Registered Stockholders. The Corporation will be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by law.
ARTICLE VII
TRANSFER RESTRICTIONS
Section 1. Stock Transfer Restrictions. No shares of the Corporation's common stock may be sold or transferred until the period ending 180 days after such time as the Corporation: (i) closes an initial public offering of its stock and (ii) the Corporation's shares of common stock are listed and registered on a national securities exchange or the Corporation causes its shares of common stock to be quoted on the automatic quotation system of a national securities association; except transfers of such shares are permitted in the following instances:
a. transfers to the Corporation;
b. transfers to existing Corporation stockholders;
c. transfers by gift, bequest or operation of the laws of descent;
d. transfers to another entity pursuant to the merger, consolidation, stock-for-stock exchange or similar transaction involving the Corporation;
e. transfers by the stockholder to members of his or her immediate family, trusts for the benefit of such immediate family members and partnerships in which such immediate family members are the only partners;
f. transfers by a partnership to its partners, provided that the common stock in the hands of the transferee remains subject to the same restrictions on transfer as they were when held by the transferor;
g. transfers which would be exempt from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption provided by
Section 4(2) of the Securities Act if the transferor were the issuer
of common stock, provided that the transferee is an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act
and the common stock in the hands of such transferee remains subject
to the same restrictions on transfer as they were when held by the
transferor; or
h. other transfers upon the prior written consent of the Corporation, in its sole discretion.
Any attempt to transfer any interest in any shares in violation of these provisions shall be ineffective and the Corporation shall refuse to register such shares in the name of the transferee. The Corporation may request an opinion of counsel to the transferor, in form and substance reasonably satisfactory to the Corporation, that the transfer is permitted by these provisions.
Section 2. Legend. So long as the aforementioned restrictions are in effect, each certificate representing shares of common stock of the Corporation shall contain the following legend referring to these bylaw transfer restrictions:
THE TRANSFER AND RIGHTS OF SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS AND CONDITIONS AS SET FORTH IN THE BYLAWS OF THE CORPORATION, DATED AS OF MAY 8, 2000. A COPY OF THE BYLAWS WILL BE FURNISHED WITHOUT CHARGE TO THE RECORD HOLDER HEREOF UPON WRITTEN REQUEST BY SUCH HOLDER TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, subject to the provisions of the General Corporation Law of the State of Delaware and the Certificate of Incorporation. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to receive payment of any dividend, such record date will not precede the date upon which the resolution fixing the record date is adopted, and such record date will not be more than sixty days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the close of business on the date upon which the Board of Directors adopts the resolution declaring such dividend will be the record date.
Section 2. Reserves. There may be created by resolution of the Board of Directors out of the surplus of the Corporation such reserve or reserves as the Directors from time to time, in their discretion, deem proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for such other purpose as the Directors may deem beneficial to the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. Surplus of the Corporation to the extent so reserved will not be available for the payment of dividends or other distributions by the Corporation.
Section 3. Telephone and Similar Meetings. Stockholders, directors and committee members may participate in and hold meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Participation in such a meeting will constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
Section 4. Books and Records. The Corporation will keep correct and complete books and records of account and minutes of the proceedings of its stockholders and Board of Directors, and will keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of the shares held by each.
Section 5. Fiscal Year. The fiscal year of the Corporation will be fixed by resolution of the Board of Directors.
Section 6. Seal. The Corporation may have a seal, and the seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Any officer of the Corporation will have authority to affix the seal to any document requiring it.
Section 7. Advances of Expenses. The Corporation will advance to its directors and officers expenses incurred by them in connection with any "Proceeding," which term includes any threatened, pending or completed action, suit or proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature (including all appeals therefrom), in which a director or officer may be or may have been involved as a party or otherwise, by reason of the fact that he is or was a director or officer of the Corporation, by reason of any action taken by him or of any inaction on his part while acting as such, or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise ("Official," which term also includes directors and officers of the Corporation in their capacities as directors and officers of the Corporation), whether or not he is serving in such capacity at the time any liability or expense is incurred; provided that the Official undertakes to repay all amounts advanced unless:
(i) in the case of all Proceedings other than a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, that he did not have reasonable cause to believe his conduct was unlawful; provided that the termination of any such Proceeding by judgment, order of court, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not by itself create a presumption as to whether the Official acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any
criminal proceeding, as to whether he had reasonable cause to believe his conduct was unlawful; or
(ii) in the case of a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided that if in such a Proceeding the Official is adjudged to be liable to the Corporation, all amounts advanced to the Official for expenses must be repaid except to the extent that the court in which such adjudication was made shall determine upon application that despite such adjudication, in view of all the circumstances, the Official is fairly and reasonably entitled to indemnity for such expenses as the court may deem proper.
Section 8. Indemnification. The Corporation will indemnify its directors to the fullest extent permitted by the General Corporation Law of the State of Delaware and may, if and to the extent authorized by the Board of Directors, so indemnify its officers and any other person whom it has the power to indemnify against any liability, reasonable expense or other matter whatsoever.
Section 9. Insurance. The Corporation may at the discretion of the Board of Directors purchase and maintain insurance on behalf of the Corporation and any person whom it has the power to indemnify pursuant to law, the Certificate of Incorporation, these Bylaws or otherwise.
Section 10. Resignation. Any director, officer or agent may resign by giving written notice to the President or the Secretary. Such resignation will take effect at the time specified therein or immediately if no time is specified therein. Unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective.
Section 11. Amendment of Bylaws. These Bylaws may be altered, amended, or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors present at such meeting.
Section 12. Invalid Provisions. If any part of these Bylaws is held invalid or inoperative for any reason, the remaining parts, so far as possible and reasonable, will be valid and operative.
Section 13. Relation to the Certificate of Incorporation. These Bylaws are subject to, and governed by, the Certificate of Incorporation of the Corporation.
EXHIBIT 4.1
[LOGO OF EAGLE AND U.S. FLAG APPEARS HERE]
[CERTIFICATE NUMBER [NUMBER OF SHARES
APPEARS HERE] APPEARS HERE]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
GLOBALSCAPE, INC.
The Corporation is authorized to issue 15,000,000 Common Shares - Par Value $0.001each
THIS CERTIFIES THAT ____________________________________________________ is the registered holder of _______________________________ fully paid and non- assessable Shares of the above Corporation transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and to be sealed with the Seal of the Corporation .
Dated _________________
[SEAL OF THE COMPANY APPEARS HERE]
_____________________________[Back of Certificate]___________________________
For value received the undersigned hereby sells[], assigns and transfers unto ________________ __________________________________ Shares represented by the within certificate, and hereby irrevocably constitutes and appoints _______________________________ Attorney to transfer the said shares on the books of the within-named Corporation with full power of substitution in the premises.
THE TRANSFER AND RIGHTS OF SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS AND CONDITIONS AS SET FORTH IN THE BYLAWS OF THE CORPORATION, DATED AS OF MAY 8, 2000. A COPY OF THE BYLAWS WILL BE FURNISHED WITHOUT CHARGE TO THE RECORD HOLDER HEREOF UPON WRITTEN REQUEST BY SUCH HOLDER TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
EXHIBIT 4.2
respect to such options (which determinations of the Board of Directors shall be conclusive).
The Board of Directors or the Committee, as the case may be, shall have the sole authority and power, subject to the express provisions and conditions hereof, to construe this Plan and the Options granted hereunder, and to adopt, prescribe, amend, and rescind rules and regulations relating to this Plan, and to make all determinations necessary or advisable for administering this Plan. The Board or Committee shall also have the authority and power to modify any provision of this Plan to render the Plan consistent with any amendments to Rule 16b-3 or Form S-8 of the Securities Act of 1933, as amended (the "Securities Act"), including amendments which permit the grant of Options on terms which are less restrictive than the terms set forth herein. The interpretation by the Board or Committee of any provision of the Plan with respect to any incentive stock option granted hereunder shall be in accordance with section 422 of the Internal Revenue Code of 1986 and the regulations issued thereunder, as amended from time to time (the "Internal Revenue Code"), in order that the incentive stock options granted hereunder ("Incentive Stock Options") shall constitute "incentive stock options" within the meaning of section 422 of the Internal Revenue Code. Options granted under the Plan which are not intended to be Incentive Stock Options are referred to herein as "Nonqualified Stock Options." The term "Options" as used herein shall refer to Incentive Stock Options and Nonqualified Stock Options, either collectively or without distinction. The interpretation and construction by the Board or Committee, if any, of any provisions of the Plan or of any Option granted hereunder shall be final and conclusive. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted hereunder.
Options under the Plan may be exercised by payment of the Option Price in cash or, if the Common Stock is then registered under the Exchange Act and is then traded on NASDAQ or one or more securities exchanges, by delivery of the equivalent fair market value of Common Stock or by a "cashless exercise" procedure in which an Optionee is permitted to exercise an Option by arranging with the Company and his or her broker to deliver the appropriate Option Price from the concurrent market sale of the acquired shares, or a combination of the foregoing (subject to the discretion of the Committee or the Board). An employee's withholding tax due upon exercise of a Nonqualified Stock Option may be satisfied either by a cash payment or the retention from the exercise of a number of shares of Common Stock with a fair market value equal to the required withholding tax, as the Committee or the Board may permit.
In addition, with respect to the exercise of any Nonqualified Stock Option, the Board or the Committee (or an authorized representative) shall advise the optionee, upon receipt of notice of intent to exercise such Option, of the income tax withholding consequences to such Optionee of such exercise, the amount of the appropriate withholding tax and any other payments due by reason thereof. Such Optionee must satisfy all of the preceding payment requirements in order to receive stock upon exercise of such Option.
date the Incentive Stock Option is granted.
under this Plan (b) the number of shares subject to each outstanding Option, and (c) the Option Price per share thereof, so that upon exercise of the Option the Optionee shall receive the same number of shares the Optionee would have received had the Optionee been the holder of all shares subject to such outstanding Options immediately before the effective date of such change in the number of issued shares of the Common Stock of the Company. Any such adjustment shall not result in or entitle the Optionee to the issuance of fractional shares. Instead, appropriate adjustments to any such Option and, in the aggregate, all other options of the Company of the same class (that is, Incentive Stock Options or Nonqualified Stock Options) held by each Optionee shall be made so that such Option and other options of the same class, if any, held by any such Optionee cover the greatest whole number of shares of the Common Stock which does not exceed the number of shares which would be covered applying such adjustments in the absence of any restriction on the issuance of fractional shares. Any excess fractional share shall be redeemed in cash at the then-current fair market value of the Common Stock (determined as provided in Section 4(A) hereof) multiplied by the appropriate fraction of a share.
EXHIBIT 4.3
GLOBALSCAPE, INC.
2000 STOCK OPTION PLAN
ARTICLE I
THE PLAN
1.1 Name. This Plan shall be known as the "GLOBALSCAPE, INC. 2000
----
Stock Option Plan." Capitalized terms used herein are defined in Article VII
hereof.
|
(a) The admission of the Plan Shares to listing on all stock exchanges on which the Common Stock is then listed, unless the Committee determines in its sole discretion that such listing is neither necessary nor advisable;
(b) The completion of any registration or other qualification of the offer or sale of the Plan Shares under any federal or state law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body that the Committee shall in its sole discretion deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any federal or state governmental agency that the Committee shall in its sole discretion determine to be necessary or advisable.
require a Participant to furnish evidence satisfactory to the Company, including without limitation a written and signed representation letter and consent to be bound by any transfer restrictions imposed by law, legend, condition, or otherwise, that the Plan Shares are being acquired only for investment and without any present intention to sell or distribute the shares in violation of any state or federal law, rule, or regulation. Further, each Participant shall consent to the imposition of a legend on the certificate representing the Plan Shares issued pursuant to the exercise of an Option restricting their transfer as required by law or this section.
(a) Death. Except as otherwise limited by the Committee at the date of the grant of an Option, if an Optionee dies while serving as an Employee, Nonemployee Director, or Advisor or within three months after ceasing to be an Employee, Nonemployee Director, Advisor, his Option shall become fully exercisable on the date of his death and shall expire 12 months thereafter, unless by its terms it expires sooner or unless, with respect to a Nonqualified Stock Option, the Committee agrees, in its sole discretion, to further extend the term of such Nonqualified Stock Option. During such period, the Option may be fully exercised, to the extent that it remains unexercised on the date of death, by the Optionee's personal representative or by the distributees to whom the Optionee's rights under the Option shall pass by will or by the laws of descent and distribution.
(b) Disability. If an Optionee ceases to serve as an Employee, Nonemployee Director, or Advisor as a result of Permanent Disability, the Optionee's Option shall become fully exercisable and shall expire 12 months thereafter, unless by its terms it expires sooner or, unless, with respect to a Nonqualified Stock Option, the Committee agrees, in its sole discretion, to extend the term of such Nonqualified Stock Option.
(c) Cause. If an Optionee ceases to be employed by the Company or a subsidiary or affiliate thereof or ceases to serve as a Nonemployee Director or Advisor because the Optionee's relationship with the Company, subsidiary or affiliate is terminated for Cause, the Optionee's Options shall automatically expire on the date of such termination. If any facts that would constitute Cause for termination or removal of an Optionee are discovered after the Optionee's relationship with the Company or the subsidiary or affiliate has ended, any Options then held by the Optionee may be immediately terminated by the Committee. Notwithstanding the foregoing, if an Optionee is an Employee employed pursuant to a written employment agreement with the Company or a subsidiary or affiliate thereof, the Optionee's relationship with the Company or a subsidiary or affiliate thereof shall be deemed terminated for Cause for purposes of the Plan only if the Optionee is considered under the circumstances to have been terminated "for cause" for purposes of such written agreement or the Optionee voluntarily ceases to be an Employee in breach of such Optionee's employment agreement with the Company or a subsidiary or affiliate thereof.
ARTICLE II
ADMINISTRATION
which a quorum is present or any action taken without a meeting evidenced by a writing executed by all members of the Committee shall constitute the action of the Committee. Meetings of the Committee may take place by telephone conference call.
ARTICLE III
INCENTIVE STOCK OPTIONS
ARTICLE IV
NONQUALIFIED STOCK OPTIONS
ARTICLE V
TERMINATION, AMENDMENT, AND ADJUSTMENT
be granted under the Plan. A corresponding adjustment changing the number or kind of shares allocated to unexercised Options or portions thereof that shall have been granted prior to any such change shall likewise be made. Any such adjustment in outstanding Options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the Options, but with a corresponding adjustment in the price for each share covered by the Options. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined solely by the Committee, and any such adjustment may provide for the elimination of fractional share interests.
ARTICLE VI
MISCELLANEOUS
ARTICLE VII
DEFINITIONS
As used herein with initial capital letters, the following terms have the meanings hereinafter set forth unless the context clearly indicates to the contrary:
thereof; the commission of any other act that causes or reasonably may be expected to cause substantial injury to the Company; or, in addition to the foregoing, as otherwise defined in any employment or similar agreement between the Company and such Optionee.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing Plan was duly adopted by the Board of Directors of the Company as of the 9th day of May, 2000.
GLOBALSCAPE, INC.
By:________________________________________ Name:______________________________________ Title:_____________________________________
EXHIBIT 4.4
[FORM OF 1998 STOCK OPTION PLAN RIGHTS TERMINATION LETTER AGREEMENT
OF DIRECTORS TO CANCEL OPTIONS DATED FEBRUARY 4, 2000]
February 4, 2000
[Director]
GlobalSCAPE, Inc.
Re: GlobalSCAPE, Inc. 1998 Stock Option Plan (the "Stock Option Plan")
Dear [Director]:
On April 30, 1999 you and GlobalSCAPE, Inc. ("GlobalSCAPE") signed a letter under which GlobalSCAPE granted you an option to purchase 1000 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the Option vesting on January 1, 1999; and on July 1, 1999, you and GlobalSCAPE signed a letter under which GlobalSCAPE granted you an option to purchase 1000 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the option vesting on May 13, 1999 (the April 30, 1999 grant and July 1, 1999 grant referred to collectively as the "Option").
On January 18, 2000, the Board of Directors of GlobalSCAPE and American Telesource International, Inc. ("ATSI") approved a distribution and offering of shares of GlobalSCAPE common Stock (the "Financing Plan").
To resolve various issues arising in connection with the Stock Option Plan and to facilitate the Financing Plan, the Board of Directors of GlobalSCAPE has resolved to cancel the Option as well as certain options issued to other directors and employees of GlobalSCAPE. We ask you to acknowledge that you agree that it is in the best interest of GlobalSCAPE, and therefore your best interest as an option holder, to cancel the Option, and that you will not make any claim against GlobalSCAPE or ATSI with respect to the cancellation of the Option.
Please sign this letter where indicated below and return it to me to acknowledge your agreement.
Sincerely,
Secretary H. Douglas Saathoff
Agreed:
EXHIBIT 4.5
CONFIDENTIAL
February 4, 2000
[Director]
GlobalSCAPE, Inc.
Re: GlobalSCAPE, Inc. 1998 Stock Option Plan
Dear Director:
On January 1, 1998 you and GlobalSCAPE, Inc. ("GlobalSCAPE") signed a letter under which GlobalSCAPE granted you an option to purchase 16,190 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the option vesting on January 1, 1999; on April 30, 1999 you and GlobalSCAPE signed a letter under which GlobalSCAPE granted you an option to purchase 1000 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the Option vesting on January 1, 1999; and on July 1, 1999, you and GlobalSCAPE signed a letter under which GlobalSCAPE granted you an option to purchase 1000 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the option vesting on May 13, 1999 (the January 1, 1998 grant, April 30, 1999 grant and July 1, 1999 grant referred to collectively as the "Option").
As you know, GlobalSCAPE would like to offer shares of its common stock to the public to raise money to finance its future growth. If completed, this transaction will benefit you since it will create a market for your GlobalSCAPE shares when you exercise your Option.
We have to plan and budget carefully in order to complete all the steps necessary to close the offering, and the steps we take depend on whether there are any shareholders of GlobalSCAPE other than ATSI. If you were to exercise any part of your Option during time leading up to the offering it would be difficult for us to revise our plans and still close the offering within the time frame that we believe is desirable. Therefore, to facilitate this offering, GlobalSCAPE would like you to agree that you will not exercise your Option until the offering is complete. We cannot guaranty [sic] that the offering will be complete by a certain date, but we anticipate that it will be complete by August 31, 2000.
If you agree not to exercise your option as described in this letter, please sign below where indicated and return a signed copy of this letter to me. If we have not completed the offering by August 31, 2000, or if we decide not to proceed with the offering prior to that time, then you will be free to exercise your option. Also, if your employment is terminated four months or more prior to the completion of the offering, and you and the Board of Directors of GlobalSCAPE have not agreed to extend the time that you have to exercise your Option, then you will be free to exercise your Option on the last day of the four month period following the termination of your employment.
Sincerely,
H. Douglas Saathoff Secretary
AGREED:
Date:____________
EXHIBIT 4.6
CONFIDENTIAL
February 4, 2000
[Director]
American TeleSource International, Inc.
Re: GlobalSCAPE, Inc. 1998 Stock Option Plan (the "Stock Option Plan")
Dear [Director]:
On January 1, 1998 you and GlobalSCAPE, Inc. ("GlobalSCAPE") signed a letter under which GlobalSCAPE granted you an option to purchase 16,190 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the option vesting on January 1, 1999; on April 30, 1999 you and GlobalSCAPE signed a letter under which GlobalSCAPE granted you an option to purchase 1000 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the Option vesting on January 1, 1999; and on July 1, 1999, you and GlobalSCAPE signed a letter under which GlobalSCAPE granted you an option to purchase 1000 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the option vesting on May 13, 1999 (the January 1, 1998 grant, April 30, 1999 grant and July 1, 1999 grant referred to collectively as the "Option").
As a member of the management team of GlobalSCAPE, you have participated in discussions regarding the means of financing GlobalSCAPE's growth, both in general and with respect to the Financing Plan, specifically. You have also participated in discussions regarding the best means of balancing ATSI's interest as sole shareholder of GlobalSCAPE against the interest of option holders under the Stock Option Plan. Although there have been differences of opinion between the parties to these discussions, a consensus has been reached that the best course of action currently available is to proceed with the Financing Plan.
We ask you to acknowledge that you agree that it is in the best interest of GlobalSCAPE, and therefore your best interest as an option holder, to proceed with the Financing Plan. We also ask you to facilitate the Financing Plan by agreeing that you will not claim any right of adjustment in the number of common shares underlying your Option under the terms of the letter and the Plan as a result of the consummation of the Financing Plan.
Please sign this letter where indicated below and return it to me to acknowledge your agreement on these issues. This letter constitutes the final and complete agreement of the parties with respect to its subject matter, and supercedes any prior agreements, discussions or understandings, written or oral.
Sincerely,
H. Douglas Saathoff Secretary
Agreed:
Date:_________
EXHIBIT 4.7
CONFIDENTIAL
February 8, 2000
[Employee/Consultant]
GlobalSCAPE, Inc.
Re: GlobalSCAPE, Inc. 1998 Stock Option Plan
Dear [Employee/Consultant]:
On _____________, 1999 you and GlobalSCAPE, Inc. signed a letter under which GlobalSCAPE granted you an option to purchase [_______] shares of GlobalSCAPE for $0.10 per share, with the Option vesting over a three year period (the "Option").
GlobalSCAPE would like to offer shares of its common stock to the public to raise money to finance its future growth. I have described to you the steps involved in completing the offering. To facilitate this transaction GlobalSCAPE would like to satisfy its obligations under the Option at this time. Therefore, in exchange for your agreement that GlobalSCAPE may cancel your Option, GlobalSCAPE will pay you $1000 now, and agree to issue you [_______] shares of GlobalSCAPE common stock at the time the offering is closed.
GlobalSCAPE has two reasons for making this offer.
First, we have to plan and budget carefully in order to complete all the steps necessary to close the offering. The steps we take depend on whether there are any shareholders of GlobalSCAPE other than American TeleSource International, Inc. If you were to exercise any part of your Option during the time leading up to the offering it would be difficult for us to revise our plans and still close the offering within the time frame that we believe is desirable.
We believe this transaction is in GlobalSCAPE's best interest, and in your personal interest as well since it will result in a public market for GlobalSCAPE's shares.
If you agree to the cancellation of your Option as described in this letter, please sign below where indicated and return a signed copy of this letter to me. If we have not completed the offering by August 31, 2000 (or if we decide not to proceed with the offering prior to that time) then you can keep the $1000, and your Option will be reinstated as if you have not signed this letter.
We must stress again that this proposed transaction is confidential at this time. If you discuss this transaction prior to the time that a public announcement is made, you may subject yourself and others to serious liability. By signing this letter, you agree that you will not discuss the proposed transaction with anyone until announcement is made.
This letter is the final and complete agreement between you and GlobalSCAPE with respect to your Option, and replaces any prior agreements, discussions or understandings, written or oral, between you and GlobalSCAPE.
Sincerely,
GlobalSCAPE, Inc.
By: Sandra Poole-Christal, President
Agreed:
Date:_______________
EXHIBIT 4.8
CONFIDENTIAL
February 8, 2000
[Officer]
GlobalSCAPE, Inc.
Re: GlobalSCAPE, Inc. 1998 Stock Option Plan (the "Stock Option Plan")
Dear [Officer]:
On January 1, 1998 you and GlobalSCAPE, Inc. ("GlobalSCAPE") signed a letter under which GlobalSCAPE granted you an option vesting over a three year period beginning January 1, 1998 (the "Option").
Please sign this letter where indicated below and return it to me to acknowledge your agreement.
Sincerely,
Arthur L. Smith Chairman of the board of GlobalSCAPE
Agreed:
Date:_____________
EXHIBIT 4.9
CONFIDENTIAL
February 8, 2000
[Officer]
GlobalSCAPE, Inc.
Re: GlobalSCAPE, Inc. 1998 Stock Option Plan
Dear [Officer]:
On January 1, 1998 you and GlobalSCAPE, Inc. ("GlobalSCAPE") signed a letter under which GlobalSCAPE granted you an option to purchase 291,429 shares of GlobalSCAPE common stock for $0.10 (ten cents) per share with the option vesting over three year period beginning January 1, 1998.
As you know, GlobalSCAPE would like to offer shares of its common stock to the public to raise money to finance its future growth. If completed, this transaction will benefit you since it will create a market for your GlobalSCAPE shares when you exercise your Option.
We have to plan and budget carefully in order to complete all the steps necessary to close the offering, and the steps we take depend on whether there are any shareholders of GlobalSCAPE other than ATSI. If you were to exercise any part of your Option during time leading up to the offering it would be difficult for us to revise our plans and still close the offering within the time frame that we believe is desirable. Therefore, to facilitate this offering, GlobalSCAPE would like you to agree that you will not exercise your Option until the offering is complete. We cannot guaranty [sic] that the offering will be complete by a certain date, but we anticipate that it will be complete by August 31, 2000.
If you agree not to exercise your option as described in this letter, please sign below where indicated and return a signed copy of this letter to me. If we have not completed the offering by August 31, 2000, or if we decide not to proceed with the offering prior to that time, then you will be free to exercise your option. Also, if your employment is terminated four months or more prior to the completion of the offering, and you and the Board of Directors of GlobalSCAPE have not agreed to extend the time that you have to exercise your Option, then you will be free to exercise your option on the last day of the four month period following the termination of your employment.
Sincerely,
Arthur L. Smith Chairman of the Board of Directors
Agreed:
Date: ________________
Exhibit 10.1
COMMERCIAL LEASE
ARTICLE 1.00 - BASIC LEASE TERMS
1.01 Parties. This lease agreement ("Lease") is entered into by and between the following Lessor and Lessee:
ACLP University Park S.A. II, a limited partnership ("Lessor"), and GlobalSCAPE. Inc., a Texas corporation ("Lessee").
1.02 Leased Premises. In consideration. of the rents, terms. provisions and covenants of this Lease, Lessor hereby leases, lets and demises to the Lessee the following described premises ("Leased Premises"). The area shown on the attached Exhibit "A" consisting of approximately 7,350 rentable square feet at the eastern end of the building to be constructed and called University Park Tech Center II in San Antonio. Texas 78249, which consists of 84,525 square feet, and which is located on the land shown on Exhibit "B" attached hereto and incorporated herein for all purposes, consisting of 7,350 rentable square feet to be leased by Lessee beginning an the Commencement Date (the "Initial Space"), and 7,350 additional square feet to be leased by Lessee on or before twelve (12) calendar months following the Commencement Date (the "Must Take Space").
Lessor and Lessee agree that final square footage for the purpose of rent calculations will be determined by Lessee's architect, using then-current BOMA standards (except that the space shall be measured from the edge of the roof for the exterior space adjacent to the exterior doorways) based on Lessee Improvements Final Plans and Specifications, subject to Lessor's approval, which may not be unreasonably refused or delayed.
1.03 Term. Subject to and upon the conditions set forth herein, the term (the "Term") of this Lease commences on December 15, 1999 (the "Commencement Date") and terminates one hundred and two (102) months thereafter (the "Termination Date"); Except as provided in Addendum I attached hereto and incorporated herein for all purposes, Lessee agrees that Lessor will not be liable to Lessee if Lessor does not deliver possession of the Leased Premises to Lessee on the Commencement Date, and Lessor's non-delivery of the Leased Premises to Lessee on the Commencement Date will not change the terms of this Lease or the obligations of Lessee hereunder. If delivery of the Leased Premises is delayed for any reason other than Lessee Delay (as hereinafter defined), Lessor and Lessee agree that the Commencement Date will be delayed until Substantial Completion (as hereinafter defined) of the Leased Premises, in which event the Term will be automatically extended for a period of time equal to the delay in Substantial Completion of the Leased Premises. If the Commencement Date is delayed, Lessor and Lessee shall, upon such delivery, execute an amendment to this Lease setting forth the actual Commencement Date and Termination Date. If Lessee enters the Leased Premises prior to Substantial Completion, Lessee shall execute and deliver to Lessor an Early Occupancy Agreement in a reasonable form provided by Lessor whereby Lessee releases Lessor from all liabilities, claims and causes of action arising out of any construction or other work performed at the Leased Premises and agrees to pay utility charges incurred by Lessee during such early occupancy. If the Termination Date falls on a day other than the last day of a month, the parties
Commercial Lease - Page 1 of 44
agree that the Term is automatically extended by the number of days necessary to cause the Term to end on the last day of a month.
1.04 Base Rent, Security Deposit. Base Rent is $7,276.50 net per month based upon an assumed 7,350 rentable square footage in the Leased Premises and shall be adjusted by $11.88 per rentable square foot per year based on the recalculation under Section 1.02 above. Security Deposit is $ 3,638.25.
1.05 Addresses.
Lessor's Address: Lessee's Address:
ACLP University Park SA, L.P. GlobalSCAPE. Inc.
17400 Dallas Parkway _________________________ Suite 216 _________________________ Dallas, Texas 75287 San Antonio, Texas FAX (972) 407-9068 FAX (_____) |
*[use Leased Premises address]
With a copy to:
CMC Commercial Realty Group, Inc.
5400 LBJ Freeway
Suite 1450
Dallas, Texas 75240
FAX (972) 770-2805
1.06 Permitted Use. The Leased Premises may be used for office space, and assembly, distribution and sales of software.
1.07 Leasing Term Limitation on Adjacent Space and Right of First Refusal.
Lessor agrees that Lessee may lease the Bay shown on Exhibit "A" adjacent to the
Leased Premises at any time prior to Lessor leasing the Bay to another person.
Lessor agrees that it will notify Lessee at least thirty (30) days prior to
entering into a lease of the Bay, and will not enter into a lease for the Bay
for a term that continues longer than sixty (60) months. Lessor further agrees
that it will notify Lessee ninety (90) days prior to the expiration of any lease
of the Bay (or immediately upon learning that the Bay is to become available
prior to the expiration of its lease) and Lessee will have fifteen (15) days
following receipt of notice to notify Lessor that it elects to lease the Bay. If
Lessee does not notify Lessor that it elects to lease the Bay within fifteen
(15) days, Lessor may re-let the Bay for a term of up to sixty (60) Months. If
Lessee elects to lease the Bay pursuant to this Section, then Lessor and Lessee
will execute a modification of this Lease such that the Bay becomes part of the
Leased Premises and is leased on the same terms and conditions as provided in
this Lease for the initial Leased Premises, including renewal options, but not
including the rental per square foot, finish out allowance, and refurbishment
allowance, with an additional security deposit to be calculated in the same
manner as the security deposit for the Leased Premises, and with the term of the
lease for the Bay to expire on the Termination Date. If Lessee elects to lease
the Bay prior to the time that Lessor completes the Lessee Improvements, then
the Bay will be leased on all of the same terms and
Commercial Lease - Page 2 of 44
conditions as the initial Leased Premises, including rental per square foot. renewal options. finish out allowance, and refurbishment allowance. The date for completion of Lessee Improvements in the Bay will be established consistently with the time frames for completion of Lessee Improvements for the initial Leased Premises.
1.08 Lessee's Future Expansion Needs. Lessor acknowledges that Lessee expects its business to grow significantly and that Lessee may require space in addition to the Leased Premises and the Bay. Lessor will keep Lessee informed of the status of the remaining space in the Building and give Lessee a reasonable opportunity to lease additional space that becomes available on reasonable terms and conditions.
1.09 Renewal Terms. Lessor agrees that Lessee may renew the Lease for two
successive sixty (60) month renewal terms (each a "Renewal Term") by giving
Lessor written notice of renewal at least one hundred eighty (180) days prior to
the expiration of the Term or the first Renewal Term, respectively The Lease
will continue on the same terms and conditions during any Renewal Term, except
that the rental rate per square foot shall be adjusted to ninety five percent
(95%) of the prevailing market rate for comparable buildings in San Antonio at
the time of renewal (taking into consideration the age and quality of the
structure, type of building, location of the space in the building, definition
of the leased area, estimated lease-up time, credit standing and financial
status of the Lessee, term, extent of services provided by landlord, brokerage
fees, leasehold improvement allowances, moving allowances, rental abatements and
other incentive being offered). If there is a difference in opinion between
Lessor and Lessee regarding the prevailing market rate of rental at the time of
Renewal, Lessor and Lessee will negotiate in good faith to resolve the
difference. Lessor and Lessee will also negotiate in good faith to establish a
refurbishment allowance for the Leased Premises, which shall be administered by
Lessor on the same terms and conditions as the Improvement Allowance for the
Initial Lessee Improvements. Lessee may withdraw its notice of renewal if
agreement on the prevailing market rate of rental is not reached within sixty
(60) days of the beginning of the proposed Renewal Term.
1.10 Contingencies. Lessor agrees that if by May 1, 1999, Lessor has failed to acquire title to the land on which the Building is to be constructed. or if by June 1, 1999 it has not commenced construction of the Building. Lessee may terminate this Lease on one (1) day's advance written notice. Lessor agrees that Lessee's security deposit and is due upon execution of the Lease; however Lessor and Lessee further agree that such payment will not be deposited until such time as Lessor has acquired title to the land on which the Building is to be constructed, and seventh month's rent is due upon Lessor's commencement of Lessee improvements.
1.11 Must Take Space. Lessee will notify Lessor at least three (3) calendar months prior to the date that Lessee desires to lease the Must Take Space and will provide Lessor with its preliminary plans and specifications for Lessee Improvements to the Must Take Space within forty-five (45) days of the date that it desires to take possession of the Must Take Space. The date for completion of Lessee Improvements to the Must Take Space will be established consistently with the time frames for completion of Lessee Improvements for the Initial Space.
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ARTICLE 2.00 - RENT
2.01 Base Rent. Lessee agrees to pay monthly as base rent during the term of this Lease without notice, demand, counter-claim, set-off or abatement, except as otherwise set forth herein, the sum of money set forth in Section 1.04 of this Lease, which amount is payable to Lessor at the address shown above, except that Lessee shall not pay any base rent for the first six full calendar months following the Commencement Date. One monthly installment of rent is due and payable on the date of execution of this Lease by Lessee for the seventh month's rent and a like monthly installment is due and payable on or before the first day of each succeeding calendar month during the term of this Lease; provided, if the Commencement Date should be a date other than the first day of a calendar month, the free rental period set forth above will begin on the Commencement Date and the rental for the remainder of the calendar month in which the free rental period ends will be prorated and will be due on the first day of the calendar month first following the end of the free rental period. Lessee shall pay, as additional rent, all other sums due under this Lease. If Lessee elects to lease the Must Take Space and the lease of the Must Take Space begins prior to the end of the free rental period (or would have begun during the free rental period except for Lessor Delay), Lessee will not be obligated to pay rent on the Must Take Space for the remainder of the free rental period.
2.02 Additional Rent. Lessee agrees to pay as additional rent, without deduction or set-off of any kind except as otherwise set forth herein, Lessee's pro rata share of all ad valorem taxes and installments of special assessments (including dues and assessments by means of deed restrictions and/or owner's associations) lawfully levied or assessed against the Building (as hereinafter defined) of which the Leased Premises are a part and any and all insurance required herein or which is standard for similar projects (specifically including fire and casualty, commercial general liability and rent loss insurance). Said ad valorem taxes, assessments and insurance shall be prorated and paid on or before the first day of every month commencing on the Commencement Date, in advance, as additional rent. The proration shall be based upon Lessor's estimate of ad valorem taxes, assessments and insurance for the current calendar year, provided, that in the event Lessor is required under a mortgage, deed of trust, underlying lease or loan agreement covering the Building to escrow ad valorem taxes, assessments or insurance, Lessor may but shall not be obligated, to use the amount required to be escrowed as a basis for its estimate. There will be an annual accounting as to actual ad valorem taxes, assessments and insurance and appropriate payment or credits made. To the extent the Commencement Date or Termination Date of the Lease is not on the first day of the calendar year or last day of the calendar year respectively, Lessee's liability for ad valorem taxes, assessments and insurance shall be subject to a pro rata adjustment based on the number of days of any such year during which the Term is in effect. Lessee shall have the right at its expense to contest or appeal by appropriate proceedings any value assessment rendered by applicable taxing authorities and Lessor shall cooperate to the extent reasonably necessary in such contest or appeal. To the extent the Leased Premises are part of a multi-occupancy building, Lessee shall pay a pro rata share of such ad valorem taxes, assessments and insurance, such pro rata share to be equal to the product obtained by multiplying the total of such real property taxes assessments and insurance by a fraction, the numerator of which shall be the number of square feet of floor area of the Leased Premises and the denominator of which shall be the number of square feet of floor area in the Building of which the Leased Premises are a part.
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2.03 Operating Expenses. Lessee agrees to pay, as additional rent, Lessee's pro rata share (as determined by the formula set forth in Section 2.02 above) of Lessor's Operating Expenses for the Building without deduction or set-off of any kind except as otherwise set forth herein. Lessor may invoice Lessee monthly for Lessee's pro rata share of the estimated Operating Expenses for each calendar year, which amount shall be adjusted from time-to-time based upon anticipated Operating Expenses. As of the date hereof, it is estimated that the Operating Expenses, taxes and insurance for calendar year 2000 will be approximately $2.20 per rentable square foot. Lessor agrees that the Lessee's portion of the Operating Expenses for common area maintenance, less costs of utilities, costs required to meet applicable laws, and capitalized costs of capital improvements and operating efficiency devices, will not exceed seventy-eight cents ($78) per rentable square foot during the first year of the Term (the "Base Amount"), and will not increase for any year by more than five percent (5%) per year (cumulative) over the Base Amount. Within four months following the close of each calendar year, Lessor shall provide Lessee an accounting showing in reasonable detail all computations of additional rent due under this Section. In the event the accounting shows that the total of the monthly payments made by Lessee exceeds the amount of additional rent due by Lessee under this Section, such amount shall be credited against the next required payment of base rent. In the event the accounting shows that the total of the monthly payments made by Lessee is less than the amount of additional rent due by Lessee under this Section, the account shall be accompanied by an invoice for the additional rent. If this Lease shall terminate on a day other than the last day of a calendar year, the amount of any additional rent payable by Lessee applicable to the year in which such termination shall occur shall be prorated on the ratio that the number of days from the commencement of the calendar year to and including the termination date bears to 365. Provided Lessee is not in default of any terms of this Lease, Lessee shall have the right, at its own expense, to audit Lessor's books relevant to the additional rent payable under this Section. With respect to such audit, Lessee 1) may review Lessor's books during office hours, 2) must perform such audit at the location of Lessor's books, 3) must request such audit within six (6) months of receipt of its annual reconciliation of Operating Expenses, 4) must deliver to Lessor a copy of the results of such audit, 5) may not audit the same calendar year more than one time. If, as a result of such audit, it is determined that the Operating Expenses have been overstated by 3% or more, Lessor shall be required to reimburse Lessee for the costs of such audit. Assignees of Lessee may only audit periods for which they occupy the Leased Premises and subtenants of Lessee shall have no audit rights. Lessee agrees to pay any additional rent due under this Section within ten (10) days following receipt of the invoice or accounting showing additional rent due.
2.04 Definition of Operating Expenses. The term "Operating Expenses" includes all expenses incurred by Lessor with respect to the maintenance and operation of the Building (except for items described below) and includes, but is not limited to, the following: maintenance, repair and replacement costs; security; wages and benefits payable to employees of Lessor to the extent their duties are directly connected with the operation and maintenance of the Building; management fees, all services, utilities for common areas, supplies, repairs, replacement or other expenses for maintaining and operating the common parking and plaza areas; the cost, amortized over its useful life, of any expense required to be capitalized under GAAP principles other than capital improvements; the cost, amortized over its useful life, of any capital improvement made to the Building by Lessor after the date of this Lease, if required
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under any governmental law or regulation other than improvements made to the Building to effect compliance with the Americans With Disabilities Act (the "ADA") or as otherwise set forth herein, which capital improvements must be of mutual benefit to all tenants of the Building; and the cost, amortized over its useful life, of installation of any device or other equipment to the extent it improves the operating efficiency of any system within the Leased Premises and thereby reduces Operating Expenses, provided that, prior to installing any such device or equipment, Lessor will inform Lessee of such installation and the estimated cost savings and Lessor and Lessee must reasonably agree upon the estimated cost savings before agreeing to such installation. The term Operating Expenses does not include the following: expenses incurred to maintain the roof, foundation and structural soundness of the exterior walls of the Building; expenses incurred should the entire roof the Building need to be replaced; expenses to bring the Building into compliance with applicable law such as the ADA and Environmental Laws, expenses incurred to abate or remove any Hazardous Substance in the Building that was placed there by Lessor, income and franchise taxes of Lessor; expenses incurred in leasing to or procuring of lessees, leasing commissions, advertising expenses and expenses for the renovating of space for new lessees; interest or principal payments on any mortgage or other indebtedness of lessor; compensation paid to any employee of Lessor other than maintenance and property management personnel to the extent these services are directly associated with the operation and maintenance of the Building; any depreciation allowance or expense (except for depreciation of capital improvements and equipment specifically included within the definition of Operating Expenses); or operating expenses which are the responsibility of Lessee or any other lessee of the Building; or expenses (herein called "Defect Expenses") incurred as a result of or caused by latent defects, punch list items, or Lessor's failure to construct the Shell Building Improvements or Lessee Improvements in accordance with the requirements of this Lease and substantially in accordance with the Final Shell Plans and Specifications and Lessee Improvements Final Plans and Specifications as provided herein (such items being herein called "Defects"); and/or operating expenses otherwise caused by or resulting from Lessor's breach of its obligations under the Lease.
2.05 Late Payment Charge. Other remedies for nonpayment of rent
notwithstanding, if the monthly rental payment is not received by Lessor on or
before the fifth day of the month for which the rent is due, or if any other
payment due Lessor by Lessee is not received by Lessor on or before the fifth
day of the month next following the month in which Lessee was invoiced, Lessee
agrees to pay a late payment charge of five percent (5%) of such past due amount
in addition to such amounts owed under this Lease, provided, however, that
Lessee is hereby granted a waiver of this late payment charge once every twelve
(12) months during the term of this Lease. In addition, Lessor is entitled to
charge one-hundred dollars ($100.00) for each check or payment which is not
honored by Lessee's bank. Said charge is in addition to any other amounts owed
under this Lease.
2.06 Security Deposit. The security deposit set forth above will be held by Lessor for the performance of Lessee's covenants and obligations under this Lease, it being expressly understood that the deposit is not an advance payment of rental or a measure of Lessor's damage in case of default by Lessee. Upon the occurrence of any event of default by Lessee or breach by Lessee of Lessee's covenants under this Lease, Lessor may, from time to time, without prejudice to any other remedy, use the security deposit to the extent necessary to make good any arrears of
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rent, or to repair any damage or injury, or pay any expense or liability incurred by Lessor as a result of the event of default or breach of covenant, and any remaining balance of the security deposit will be returned by Lessor to Lessee within a reasonable period of time following termination of this Lease. If any portion of the security deposit is so used or applied, Lessee shall upon ten days written notice from Lessor, deposit with Lessor by cash or cashier's check an amount sufficient to restore the security deposit to its original amount.
2.07 Holding Over. In no event may Lessee remain in the Leased Premises following the expiration or termination of this Lease without Lessor's prior written consent. If Lessee does not vacate the Leased Premises upon the expiration or termination of this Lease, Lessee agrees that it will be a tenant at will for the holdover period and that all of the terms and provisions of this Lease are applicable during that period, except that Lessee shall pay Lessor as base rental for the period of such holdover an amount equal to 1.50 times the base rent being paid by Lessee immediately prior to the expiration or termination of the Lease. Lessee agrees to vacate and deliver the Leased Premises to Lessor immediately upon Lessee's receipt of notice from Lessor to vacate. Such notice may be given pursuant to the notice provisions of Section 14.07 herein. Lessee agrees to pay the rental payable during the holdover period to Lessor on demand. No holding over by Lessee, whether with or without the consent of Lessor and notwithstanding receipt by Lessee of an invoice from Lessor for holdover rent, will extend the term of this Lease. Additionally, Lessee shall pay to Lessor all damages sustained by Lessor as a result of such holding over by Lessee.
ARTICLE 3.00 - OCCUPANCY AND USE
3.01 Use. Lessee warrants and represents to Lessor that the Leased Premises may be used and occupied only for the purpose as set forth in Section 1.06. Lessee shall occupy the Leased Premises, conduct its business and control its agents, employees, invitees and visitors in such a manner as is lawful, reputable, will not create a nuisance, interfere with standard Building operations, or affect the structural integrity or design capabilities of the Building. Lessee shall not permit any operation which emits any odor or matter which intrudes outside the Leased Premises, attracts rodents, use any apparatus or machine which makes undue noise or causes vibration in any portion of the Building or otherwise interfere with, annoy or disturb any other party outside the Leased Premises, including without limitation, any other tenant in the Building. Lessee shall neither permit any waste on the Leased Premises nor allow the Leased Premises to be used in any way which would, in the reasonable opinion of Lessor, be extra hazardous on account of fire or which would in any way increase or render void the fire insurance on the Building. If at any time during the Term the State Board of Insurance or other insurance authority disallows any of Lessor's sprinkler credits or imposes an additional penalty or surcharge in Lessor's insurance premiums because of Lessee's original or subsequent placement or use of storage racks or bins, method of storage or nature of Lessee's inventory or any other act of Lessee, Lessee agrees to pay as additional rent the increase in Lessor's insurance premiums. Notwithstanding anything set forth in this Section 3.01, in no way does Lessor warrant or represent, either expressly or impliedly, that Lessee's use of the Leased Premises is in accordance with applicable codes or ordinances of the municipality within which the Building is located. Lessee agrees to indemnify and hold Lessor harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of
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the use of the Leased Premises by Lessee in violation of applicable codes or ordinances of the municipalities or any other government bodies within which the building is located. The foregoing indemnification and the responsibilities of Lessee survive the termination or expiration of this Lease.
3.02 Signs. No sign of any type or description may be erected, placed or painted in or about the Leased Premises of Building, including those advertising the Leased Premises for sublease, except (i) those signs which are in conformance with Lessor's sign criteria attached as Exhibit "C" and, (ii) at Lessee's option and expense, a free-standing "monument" sign consistent in quality and appearance with the architectural standards of the Building, and as approved in advance by Lessor. All signs must be in conformance with applicable governmental requirements and limitations (including any applicable restrictive covenants). Such permitted signs must be removed by Lessee upon expiration or termination of the Lease at Lessee's sole cost and expense. Any damage or discoloration from such removal will be repaired at Lessee's sole cost and expense.
3.03 Compliance with Laws, Rules and Regulations. Lessee, at Lessee's sole cost and expense (except as provided in Section 2.04 hereof), shall comply with all laws, ordinances, orders, rules and regulations now in effect or enacted subsequent to the date hereof by state, federal, municipal or other agencies or bodies having jurisdiction over Lessee or the use, condition and occupancy of the Leased Premises except that Lessor shall be responsible for construction of the Lessee Improvements in compliance therewith as of the Commencement Date, including, but not limited to, compliance with the ADA as to the Building, but excluding the interior of the Leased Premises which is Lessee's responsibility. Lessee will comply with the rules and regulations of the Building adopted by Lessor which are set forth on a schedule attached to this Lease. At any time, Lessor may change and amend the rules and regulations in any reasonable manner not inconsistent with the terms of this Lease as may be deemed advisable for the safety, care, cleanliness, preservation of good order and operation or use of the Building or the Leased Premises. All changes and amendments to the rules and regulations of the Building will be sent by Lessor to Lessee in writing and must thereafter be carried out and observed by Lessee.
3.04 Warranty of Possession and Enjoyment. Lessor warrants that it has the right and authority to execute this Lease, and Lessee, upon payment of the required rents and subject to the terms, conditions, covenants and agreements contained in this Lease, is entitled to possession and quiet enjoyment of the Leased Premises during the full term of this Lease as well as any extension or renewal thereof. Lessor is not responsible for the acts or omissions of any other lessee or third party that may interfere with Lessee's use and enjoyment of the Leased Premises.
3.05 Inspection. Lessor or its authorized agents may at any and all reasonable times enter the Leased Premises to inspect the same, conduct tests, environmental audits or other procedures to determine Lessee's compliance with the terms hereof; to supply any other service to be provided by Lessor; to show the Leased Premises to prospective purchasers, lessees, (within six months prior to termination of this Lease), or mortgagees; to alter, improve or repair the Leased Premises or any other portion of the Building or for any other purpose Lessor deems
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reasonably necessary. LESSEE HEREBY WAIVES ANY CLAIM FOR DAMAGES FOR INJURY OR INCONVENIENCE TO OR INTERFERENCE WITH LESSEE'S BUSINESS, ANY LOSS OF OCCUPANCY OR USE OF THE LEASED PREMISES, AND ANY OTHER LOSS OCCASIONED BY INSPECTIONS MADE UNDER THIS SECTION INCLUDING CLAIMS RESULTING FROM THE NEGLIGENCE OF LESSOR BUT EXCLUDING ANY CLAIMS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR. Lessee shall not change Lessor's lock system or in any other manner prohibit Lessor from entering the Leased Premises. Lessor is entitled to use any and all means which Lessor may deem proper to open any door in an emergency without liability therefor. During the final one-hundred eighty days of the Lease term, Lessor or its authorized agents have the right to erect or maintain on or about the Leased Premises or the Building customary signs advertising the Leased Premises for lease or sale.
3.06 Hazardous Waste. The term "Hazardous Substances," as used in this Lease means pollutants, contaminants, toxic or hazardous wastes, or any other substances, the use and/or the removal of which is required or the use of which is regulated, restricted, prohibited or penalized by any "Environmental Law," which term means any federal, state or local law, ordinance or other statute of a governmental or quasi-governmental authority relating to pollution or protection of the environment. Lessee hereby agrees that (i) no activity will be conducted on the Leased Premises that will produce any Hazardous Substance, except for such activities that are part of the ordinary course of Lessee's business activities (the "Permitted Activities"), provided said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Lessor; Lessee shall obtain all required permits and pay all fees and conduct any testing required by any governmental agency; (ii) the Leased Premises will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that are used in the ordinary course of Lessee's business (the "Permitted Materials") provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and approved in advance in writing by Lessor; Lessee shall obtain all required permits and pay all fees and conduct any testing required by any governmental agency in connection with the Permitted Materials; (iii) no portion of the Leased Premises or Building will be used as a landfill or a dump; (iv) Lessee will not install any underground or above ground tanks of any type; (v) Lessee will not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute a public or private nuisance; (vi) Lessee will not permit any Hazardous Substances to be brought onto the Leased Premises or Building, except for the Permitted Materials, and if so brought or found located thereon (except for pre-existing conditions or matters caused by the Lessor), the same must be immediately removed, with proper disposal, and all required cleanup procedures must be diligently undertaken pursuant to all Environmental Laws. Lessor or Lessor's representative's may, but are not required to, enter the Leased Premises for the purpose of inspecting the storage, use and disposal of Permitted Materials to ensure compliance with all Environmental Laws. Should it be determined, in Lessor's sole opinion, that said Permitted Materials are being improperly stored, used, or disposed of, then Lessee shall immediately take such corrective action as requested by Lessor. Should Lessee fail to take such corrective action within twenty-four (24) hours, Lessor has the right to perform such work and Lessee shall promptly reimburse Lessor for any and all costs
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associated with said work. If at any time during or after the term of the Lease, the Leased Premises or Building are found to be so contaminated or subject to said conditions as a result of Lessees breach of the terms of this Lease, Lessee shall diligently institute proper and thorough cleanup procedures at Lessee's sole cost. Before taking any action to comply with Environmental Laws or to clean up Hazardous Substances contaminating the Leased Premises or Building, Lessee shall submit to Lessor a plan of action, including any and all plans and documents required by any Environmental Law to be submitted to a governmental authority (collectively a "plan of action"). Such plan of action must be implemented by a licensed environmental contractor. Before Lessee begins the actions necessary to comply with Environmental Laws or to clean up contamination from Hazardous Substances, Lessor must have (1) approved the nature, scope and timing of the plan of action, and (2) approved any and all covenants and agreements to effect the plan of action. Lessee agrees to indemnify and hold Lessor harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of the use of the Leased Premises or Building by Lessee in violation of this Section 3.06 but excluding pre-existing conditions or matters resulting from the negligence or willful misconduct of Lessor. The foregoing indemnification and the responsibilities of Lessee survive the termination or expiration of this Lease. Lessee represents that it has not been previously cited for any environmental violations by any applicable governmental agency and that there are no Permitted Materials to be stored in or upon the Leased Premises. In no event will any Permitted Materials be stored in or upon the Leased Premises without Lessor's prior written consent.
3.07 Parking and Road Use. Except as the number of spaces may be reduced pursuant to Section 3.08, Lessor will ensure that Lessee will have available to use, for the benefit of Lessee, its employees, customers, invitees and licensees, six (6) parking spaces for each 1000 rentable square feet of Leased Premises in the parking areas adjacent to the Building of which the Leased Premises are a part on an unassigned, unreserved basis, subject to reasonable regulation by Lessor. Lessor may use additional parking spaces if available, on a first come, first serve basis unless such use interferes with another tenant's rights. Lessor reserves the right in its sole discretion to designate specific areas within the parking areas for the exclusive use of visitors and invitees to the Building and others. Included in the aggregate allowance of parking spaces shall be five (5) designated, reserve parking spaces for the exclusive use of Lessee, location of such spaces to be agreed upon by Lessor and Lessee and to be shown on the site plan attached hereto as Exhibit "A", provided that Lessor shall not be responsible for monitoring use of such spaces. Should Lessee increase the square footage of the Leased Premises at any time, Lessee shall be allowed additional parking spaces according to the ratio set forth herein. Any parking permitted by Lessor on any common drive areas by Lessee or any of Lessee's employees, customers, invitees or licensees will be permitted upon the express condition that all such drives must be kept clear for through traffic of all vehicles, including tractor-trailers. No driving or parking of any vehicles on non-paved areas adjoining the Building or within the Project of which the Building is a part is permitted. Lessee's failure to use all of the parking spaces allocated to it under this Section will not constitute a waiver by Lessee of the right to use those parking spaces at a later time.
3.08 Satellite Dishes. Lessor agrees that Lessee may locate one or more satellite dishes or other telecommunications equipment on the roof of the Building or on the land on
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which the Building is constructed, provided the placement of the satellite dishes or other telecommunications equipment does not effect the structural integrity of the Building or materially impair the appearance of the Building or the land on which the Building is constructed and Lessee obtains Lessor's written approval as to location and size of satellite prior to the installation of such.
ARTICLE 4.00 - UTILITIES, SERVICE, SIGNAGE
4.01 Security Lighting. Lessor shall install security lighting at all entrances to the Leased Premises and in the parking lots adjacent to the Leased Premises at its expense; provided, however, the Lessor shall make no representation or warranty as to the sufficiency or adequacy of such lighting or the effectiveness thereof for security.
4.02 Building Services. Lessor shall provide the normal utility service connections to the Building. Lessee shall pay directly to the appropriate supplier the cost of all utility services to the Leased Premises, including, but not limited to, any required security deposits and initial connection charge, all charges for gas, electricity, telephone, water, sanitary and storm sewer service and security systems. If any services are jointly metered with other Leased Premises or property (for example, exterior lighting), Lessor shall make a reasonable determination of Lessee's proportionate share of the cost of such services and Lessee shall pay such share to Lessor within ten (10) days of receipt of any invoice thereof. Lessee shall pay all costs caused by Lessee introducing excessive pollutants or solids other than ordinary human waste into the sanitary sewer system, including permits, fees and charges levied by any governmental subdivision for any such pollutants or solids. Lessee shall be responsible for the installation and maintenance of any dilution tanks, holding tanks, settling tanks, sewer sampling devices, sand traps, grease traps or similar devices as may be required by any governmental subdivision for Lessee's use of the sanitary sewer system. If the Leased Premises are in a multi- occupancy Building, Lessee shall pay all surcharges levied due to Lessee's use of sanitary sewer or waste removal services insofar as such surcharges affect Lessor or other Lessees in the Building. Except as set forth herein, Lessor shall not be required to pay for any utility service, supplies or upkeep in connection with the Leased Premises or Building. Utility services for the common areas shall be part of Operating Expenses.
Lessee agrees that Lessor is not liable to Lessee in any respect for damages to either person, property or business on account of any interruption or failure of utilities or services furnished by Lessor provided that Lessor uses reasonable diligence to repair the same promptly. No such interruption or failure may be construed as an eviction of Lessee or entitle Lessee to (i) any abatement of rent, (ii) terminate the Lease, or (iii) be relieved from fulfilling any covenant or agreement contained herein. Should any malfunction of the improvements or facilities to the Leased Premises or Building (which by definition do not include any improvements or facilities of Lessee above Building standard improvements) occur for any reason, Lessor shall use reasonable diligence to repair same promptly, but Lessee will not be entitled to any claim for rebate or abatement of rent or damages on account of such malfunction or of any interruptions in service occasioned thereby or resulting therefrom.
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4.03 Theft or Burglary. Lessee expressly acknowledges that whether or not Lessor, from time to time, elects to provide security services, Lessor has not, nor will Lessor be deemed to have, warranted the efficiency of any security personnel, service, procedures or equipment and Lessor is not liable in any manner for the failure of any of the foregoing to prevent or control or apprehend anyone suspected of theft, personal injury, property damage or any criminal conduct in, on or around the Building. Lessee agrees that Lessor is not liable to Lessee for losses to Lessee's property or personal injury caused by criminal acts or entry by unauthorized persons into the Leased Premises. Lessee is responsible for the cost of repairs of damage and restoration of the Leased Premises following any such act.
ARTICLE 5.00 - REPAIRS AND MAINTENANCE
5.01 Existing Conditions. On the Commencement Date, Lessee shall be deemed to have accepted the Leased Premises in their then existing condition, subject to all recorded matters, laws, ordinances, and governmental regulations and orders; provided that, Lessee's acceptance of the Leased Premises shall not relieve Lessor from any maintenance and repair obligations under this Lease. Lessee acknowledges that neither Lessor nor any agent of Lessor has made any warranty or representation of any kind, either express or implied as to the condition of the Leased Premises or the suitability of the Leased Premises for Lessee's intended use other than that the Leased Premises will be constructed in accordance with the Lessee Improvements Final Plans and Specifications and will be free from Hazardous Materials. The taking of the possession of the Leased Premises by Lessee is intended by the parties to be conclusive evidence that Lessee accepts the Leased Premises and Lessor has complied with its obligations of Section 6.01 herein except for Defects (as defined in Section 2.04 hereof), the presence of Hazardous Materials, and punch list items. Prior to taking occupancy of the Leased Premises, Lessee shall sign a copy of the space plan of the Leased Premises acknowledging its condition on the date thereof (unless Lessor waives such requirement) and execute the Certificate of Acceptance form attached as Exhibit "D" accepting such condition of the Premises except for Defects, the presence of Hazardous Materials and punch list items.
5.02 Lessor Repairs And Maintenance. Lessor shall manage the Building in accordance with property management standards customary to the area and will keep the Building in compliance with all legal and regulatory requirements (including Environmental Laws, Americans with Disabilities Act, and municipal codes and ordinances). Lessor agrees to indemnify and hold Lessee harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of the failure of the building to be in compliance with applicable laws and regulation. Lessor is not required to make any improvements, replacements or repairs of any kind or character to the Leased Premises during the Term. Lessor shall maintain the roof, foundation and structural soundness of exterior walls of the Building, mechanical, electrical and plumbing systems serving the Building and common areas, in good repair and condition except for reasonable wear and tear. Lessor shall also perform all ground maintenance, landscaping, pest control, and removal of debris from outside receptacles. Lessee agrees that Lessor is not liable to Lessee, except as expressly provided in this Lease, for any damage or inconvenience, and Lessee is not entitled to any abatement or reduction of rent by reason of any repairs, reasonable alterations or additions made by Lessor under this Lease. Should Lessor not repair or maintain the Building or the Leased
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Premises as required hereunder, after providing written notice to Lessor and after a thirty (30) day opportunity to cure by Lessor, or such longer period as shall be necessary, provided that Lessor has not commenced such repair within such 30 day period and has not diligently pursued same thereafter, Lessee may make such repairs or perform such maintenance and Lessor shall promptly reimburse Lessee for any reasonable expenses incurred by Lessee in performing such work, or if the Leased Premises are untenantable, Lessee may terminate this Lease.
5.03 Lessee Repairs And Maintenance. Lessee shall, at its sole cost and expense, maintain and repair the Leased Premises in good repair and condition, including, but not limited to carpet or other floor covering, interior partitions, doors, interior side of dernising(??sp??) walls, telephone and computer cabling that serves Lessee's equipment exclusively, any supplemental air conditioning, interior water closets, kitchens and plumbing in connection therewith and any alterations, additions or improvements made by or on behalf of Lessee. Lessee shall take good care of all personal property and fixtures located within the Leased Premises. Lessee shall repair and pay for any damage caused by any act or omission of Lessee or Lessee's agents, employees, invitees, licensees or visitors to the Leased Premises, the Building, or the project. If Lessee fails to maintain, repair or replace promptly as required herein, Lessor may, at its option, and following at least thirty (30) days' advance written notice to Lessee, perform on Lessee's behalf and charge the cost of such performance to Lessee as additional rent which is due and payable by Lessee within ten (10) days from receipt of Lessor's invoice. Costs incurred under this section are the total responsibility of Lessee.
5.04 Request for Repairs. All requests for repairs or maintenance that are the responsibility of Lessor pursuant to any provision of this Lease must be made in writing to Lessor at the address in Section 1.05 and delivered pursuant to Section 14.07. After receipt of written notice, Lessor is entitled to a reasonable time within which to perform such repairs or maintenance.
5.05 Lessee Damages. Lessee shall not allow any damage to be committed on any portion of the Leased Premises or Building, and at the termination of this Lease, by lapse of time or otherwise, Lessee shall deliver the Leased Premises to Lessor in as good condition as existed at the Commencement Date of this Lease, ordinary wear and tear and casualty loss excepted. Lessor's standard move-out checklist will be followed by Lessee to ensure compliance with this provision. The cost and expense of any repairs necessary to restore the condition of the Leased Premises must be borne by Lessee. Should Lessor be required to expend any sums to ensure compliance with this Section 5.05, Lessee shall reimburse Lessor within ten (10) days of receipt of notice from Lessor.
5.06 Maintenance Contract. Lessor may, as an Operating Expenses, during the term of this Lease maintain a regularly scheduled preventative maintenance/service contract on an annual basis with a maintenance contractor for the servicing of all general sprinkler systems, hot water, heating and air conditioning systems and equipment within or servicing the Building. Lessee shall maintain, at Lessee's sole cost and expense, a regularly scheduled preventative maintenance/service contract on an annual basis with a maintenance contractor for the servicing of all hot water, heating and air conditioning systems within or exclusively servicing the Leased Premises.
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ARTICLE 6.00 - ALTERATIONS AND IMPROVEMENTS
6.01 Initial Lessee Improvements.
A. Lessee Improvements. Lessee shall prepare final plans and
specifications for construction of the Lessee Improvements desired by
Lessee and shall deliver to Lessor by July 1, 1999, two (2) copies of such
plans and specifications and the names of two proposed contractors to
construct the Lessee Improvements for Lessor approval. Lessor will
promptly either approve of the plans and specifications and the
contractors, or communicate its objections, and if Lessor has objections,
the Lessor will work diligently with Lessee to resolve any objections such
that approval of the plans and specifications and names of contractors is
given within fifteen (15) days of receipt. Lessor shall be deemed to have
approved the plans and specifications and the contractors unless Lessor
shall have provided written notice to Lessee of Lessor's objections
thereto within fourteen (14) days following the delivery thereof by Lessee
to Lessor. The Lessor approved final plans and specifications for the
Lessee Improvements are herein called the "Lessee Improvements Final Plans
and Specifications". All reasonable costs involved in approving, drafting
and preparing the Lessee Improvements Final Plans and Specifications shall
be charged against the Improvement Allowance described below. Lessor shall
apply for building permits to construct the Lessee Improvements and will
submit bid requests to the two contractors selected by Lessee and the
contractor for the Shell Building Improvements no later than two (2) days
following approval of the Lessee Improvements Final Plans and
Specifications. Contractors will be required to submit their bids no later
than thirty (30) days following receipt of the bid request. Lessee shall
have fifteen (15) days from receipt of all bids to select the contractor
for the Lessee Improvements. Except for immaterial field changes,
modifications to the Lessee Improvements Final Plans and Specifications
must be made and accepted only by written change order or agreement signed
by Lessor and Lessee and will constitute an amendment to this Lease.
Lessee shall be responsible for payment in advance of all work and
construction resulting from changes in the Lessee Improvements Final Plans
and Specifications requested by Lessee if the additional cost attributable
to the changes exceed the Improvement Allowance by more than $3.00 as
described in subparagraph (c) below. The Lessee Improvements Final Plans
and Specifications (when approved by Lessor and Lessee) are incorporated
in this Lease by reference. For the purpose of this Section, an
"immaterial field change" shall mean such field changes which are required
by any governmental authority or changes which (i) do not affect the size,
configuration, structural integrity, quality, character, architectural
appearance and standard of workmanship contemplated in the Lessee
Improvements Final Plans and Specifications, (ii) will not result in any
default in any obligation to any person or violation of any governmental
requirements, and (iii) the cost of or reduction resulting from any single
field change or extra does not exceed $5,000.00.
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B. Subject to the Lessee's payment obligations under (c) below, Lessor shall cause the Lessee Improvements to be completed in a good and workmanlike manner, in accordance with all applicable laws and regulations, and in accordance with the Lessee Improvements Final Plans and Specifications. Lessor shall coordinate construction of Lessee Improvements, keeping Lessee informed on the progress of the work and of any expenditures made to perform such work and for such services shall be paid a construction management fee of five percent (5%) of the Hard Costs of such Lessee Improvements, which fee shall be paid out of the Improvement Allowance (as hereinafter defined). "Hard Costs" are the costs of labor, material and permits and licenses necessary to construct the Lessee Improvements, and do not include any legal, architectural, management or engineering expenses. Lessor agrees that all construction contracts and architectural contracts shall provide that the general contractor and architect for the project shall provide status reports and other reports relating to the construction of the Lessee Improvements to Lessee as well as to Lessor, and Lessee shall have the right at any and all times to inspect the Lessee Improvements at all stages of construction. Lessor agrees to cooperate with Lessee on any changes to the Lessee Improvements and agrees to provide to Lessee copies of all draw requests and the underlying documentation relating to the draw requests to Lessee. Lessor agrees to keep the Leased Premises free from any and all mechanic's or materialman's liens and to pay promptly for all work to be performed relative to the construction project. In the event any such lien attaches to the Leased Premises as a result of Lessor's actions, and if Lessor does not contest the lien diligently and in good faith or does not proceed in its effort to remove the lien, then, in addition to any other right or remedy of Lessee, Lessee may, but is not obligated to, obtain the release or otherwise discharge the same or to obtain a bond in satisfaction of same. Any amount paid by Lessee in order to release or discharge any such lien must be paid by Lessor to Lessee on demand.
C. Lessor shall provide Lessee with an improvement allowance of $22.00
per rentable square foot of the Leased Premises (the "Improvement
Allowance"). The Improvement Allowance shall be paid out from time to
time to pay for costs incurred by Lessor in connection with the Lessee
Improvements, including costs of Lessee's architect and/or space
planner, the construction management fee of five percent (5%) of the
Hard Costs of construction, and third party contractors as the Lessee
Improvements progress. Lessee shall pay those costs of construction of
the Lessee Improvements in excess of the Improvement Allowance, if
any, and such amounts shall be paid by Lessee to Lessor within thirty
(30) days following receipt by Lessee of a written request therefor
from Lessor. In the event the costs and expenses of the Lessee
Improvements shall exceed the Improvement Allowance, then at the
option of Lessee and upon written request by Lessee and approval by
Lessor's mortgagee/lender, the Lessor shall fund up to $3.00 per
rentable square foot within the Leased Premises of such excess amounts
and such excess amounts so funded by Lessor shall be paid by Lessee to
Lessor as additional monthly rent. The amount to be added on a monthly
basis to Base Rent
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shall be that monthly amount necessary to fully amortize, on a straight line basis, the excess amount over the term of this Lease at a ten percent (10%) interest rate.
6.02 Additional Lessee Improvements. Except as provided in Section 6.01 above, Lessee shall not make or allow to be made any material alterations or physical additions in or to the Leased Premises without complying with all local, state and federal ordinances, laws, statutes and without first obtaining the written consent of Lessor, which consent may not be unreasonably withheld. In any event, Lessee shall provide Lessor with a copy of the plans and specifications for any such alterations or improvements. Any alterations, physical additions or improvements to the Leased Premises (including Lessee Improvements) made by Lessor or Lessee become the property of Lessor and must be surrendered to Lessor upon the termination of this Lease without credit to Lessee. This clause does not apply to moveable equipment, trade fixtures, personal property or furniture owned by Lessee, which may be removed by Lessee at the end of the term of this Lease if Lessee is not then in default, if such equipment and furniture are not then subject to any other rights, liens and interest of Lessor and such removal can be accomplished without material damage to the Leased Premises and, if there shall exist any damage caused by such removal, such damage shall be repaired by Lessee. Upon completion of any such work by Lessee, Lessee shall provide Lessor with "as built plans", copies of all construction contracts and proof of payment for all labor and materials. Notwithstanding the above, Lessee shall be allowed, without prior approval of Lessor, to make $5,000.00 in non-structural alterations in any one calendar year, not to exceed an aggregate of $25,000.00 over the initial term of the Lease.
6.03 Mechanic's Lien. Lessee will not permit any mechanic's or materialman's lien(s) or other lien to be placed upon the Leased Premises or the Building and nothing in the Lease is intended in any way to constitute the consent by (or request of) Lessor, express or implied, by inference or otherwise, to any person for the performance of any labor or the furnishing of any materials to the Leased Premises, or any part that would give the rise to any mechanic's or materialman's or other lien against the Leased Premises. In the event any such lien attaches to the Leased Premises as a result of Lessee's actions, and if Lessee does not contest the lien diligently and in good faith or does not succeed in its effort to remove the lien, then, in addition to any other fight or remedy of Lessor, Lessor may, but is not obligated to, obtain the release or otherwise discharge the same or to obtain a bond in satisfaction of same. Any amount paid by Lessor in order to release or discharge any such lien must be paid by Lessee to Lessor on demand as additional rent.
ARTICLE 7.00 - CASUALTY AND INSURANCE
7.01 Substantial Destruction. If the Leased Premises or any part thereof are damaged by fire or other casualty, Lessee shall give prompt written notice thereof to Lessor. 1) If the Leased Premises are totally destroyed by fire or other casualty, 2) if the Leased Premises are damaged so that rebuilding cannot reasonably be completed within one hundred eighty (180) days after the date of written notification by Lessee to Lessor of the destruction, 3) if the Leased Premises are part of a Building which is substantially destroyed (even though the Leased Premises are not totally or substantially destroyed), 4) if the Leased Premises or Building is damaged by fire or other casualty and applicable law would prevent rebuilding to substantially
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the condition prior to such fire or casualty, 5) if any mortgagee requires the insurance proceeds payable as a result of such casualty to be applied to the payment of the mortgage debt or 6) the Leased Premises are materially damaged and less than two (2) years remain on the Term on the date of such casualty, Lessor or Lessee may at their option terminate this Lease by providing the other written notice thereof within sixty (60) days of such casualty and all obligations under the Lease shall terminate as of the date of the casualty; provided, however, Lessee shall not have the right to terminate this Lease if Lessor has theretofore commenced and is diligently pursuing rebuilding.
7.02 Partial Destruction. If this Lease is not terminated under Section 7.01, Lessor shall at its sole risk and expense proceed with reasonable diligence to rebuild or repair the Building or other improvements to substantially the same condition in which they existed prior to the damage, provided, Lessor has no obligation to repair or rebuild Lessee's furniture, fixtures or personal property. If the destruction was caused by an act or omission of Lessee, its employees, agents, or invitees, Lessee shall pay Lessor the difference between the actual cost of rebuilding or repairing the Leased Premises and any insurance proceeds received by Lessor. If the Leased Premises are to be rebuilt or repaired and are untenantable in whole or in part following the damage, either because of the damage or the rebuilding or repairing, and the damage or destruction was not caused or substantially contributed to by any act or negligence of Lessee, its agents, employees, invitees or those for whom Lessee is responsible, the rent payable under this Lease during the period for which the Leased Premises are untenantable will be adjusted to such an extent as may be fair and reasonable under the circumstances. If Lessor fails to complete the necessary repairs or rebuilding within one hundred fifty days from the date of the destruction, Lessee may at its option terminate this Lease by delivering written notice of termination to Lessor, whereupon all rights and obligations under this Lease cease to exist. If any damage or destruction occurs to the Leased Premises during the last twenty-four (24) months of the Lease term, Lessor may elect to terminate this Lease as of the date Lessee notifies Lessor of such damage. Lessor and Lessee hereby waive the provisions of any law from time to time in effect during the Term relating to the effect upon leases of partial or total destruction of Leased property and agree that their respective rights in the event of damage or destruction are those specifically set forth herein.
7.03 Property Insurance. Lessor shall at all times during the term of this Lease maintain a policy or policies of insurance with the premiums paid in advance, issued by and binding upon some solvent insurance company having an "A" rating or better, insuring the Building against all risk of direct physical loss in an amount equal to the full replacement cost of the Building structure and its improvements as of the date of the loss, providing protection against all perils, including, without limitations fire, extended coverage, vandalism, malicious mischief, a standard mortgagee clause and rental coverage; provided, Lessor is not obligated in any way or manner to insure any personal property (including, but not limited to, any furniture, machinery, goods or supplies) of Lessee upon or within the Leased Premises, any fixtures installed or paid for by Lessee upon or within the Leased Premises, or any improvements which Lessee may construct on the Leased Premises. The rental insurance policy will be for the full rental value for a period of one year, which insurance also covers real estate taxes, insurance and other amounts which might be due Lessor from Lessee pursuant to the terms of this Lease. Lessee agrees that it is not entitled to the proceeds of any policy of insurance maintained by
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Lessor even if the cost of such insurance is borne by Lessee as set forth in Article 2.00. Notwithstanding the foregoing, in the event Lessor has a net worth in excess of $50,000,000, it shall be entitled to self insure against all risk provided for in this paragraph in lieu of obtaining the insurance set forth herein.
7.04 Waiver of Subrogation. ANYTHING IN THIS LEASE TO THE CONTRARY NOT
WITHSTANDING, LESSOR AND LESSEE HEREBY WAIVE AND RELEASE EACH OTHER OF AND FROM
ANY AND ALL RIGHT OF RECOVERY, CLAIM, ACTION OR CAUSE OF ACTION, AGAINST EACH
OTHER, THEIR AGENTS, OFFICERS AND EMPLOYEES, FOR ANY LOSS OR DAMAGE THAT MAY
OCCUR TO THE LEASED PREMISES, IMPROVEMENTS TO THE BUILDING OF WHICH THE LEASED
PREMISES ARE A PART, OR PERSONAL PROPERTY WITHIN THE BUILDING, BY REASON OF
FIRE, EXPLOSION, OR ANY OTHER OCCURRENCE, REGARDLESS OF CAUSE OR ORIGIN,
INCLUDING NEGLIGENCE OF LESSOR OR LESSEE AND THEIR AGENTS, OFFICERS AND
EMPLOYEES. LESSOR AND LESSEE AGREE IMMEDIATELY TO GIVE THEIR RESPECTIVE
INSURANCE COMPANIES WHICH HAVE ISSUED POLICIES OF INSURANCE COVERING ALL RISK OF
DIRECT PHYSICAL LOSS, WRITTEN NOTICE OF THE TERMS OF THE MUTUAL WAIVERS
CONTAINED IN THIS SECTION AND TO HAVE THE INSURANCE POLICIES PROPERLY ENDORSED,
IF NECESSARY, TO PREVENT THE INVALIDATION OF THE INSURANCE COVERAGE BY REASON OF
THE MUTUAL WAIVERS.
7.05 Hold Harmless. Lessor will not be liable to Lessee's employees, agents, invitees, licensees or visitors, or to any other person, for an injury to person or damage to property on or about the Leased Premises caused by any act or omission of Lessee, its agents, servants or employees, any tenant in the Building of which the Leased Premises are a part, or of any other person entering upon the Leased Premises under express or implied invitation by Lessee, the failure or cessation of any service provided by Lessor (including security service and devices or caused by leakage of gas, oil, water or steam or by electricity emanating from the Leased Premises) except as provided in this Lease. Lessee agrees to indemnify and hold harmless Lessor of and from any loss, attorney's fees, expenses or claims arising out of any such damage or injury except for damages or injury caused by Lessor's negligence, recklessness or willful misconduct.
7.06
A. At all times commencing on and after the earlier of the Commencement Date and the date Lessee or its agents, employees or contractors enters the Leased Premises for any purpose, Lessee shall carry and maintain, at its sole cost and expense:
1. Commercial General Liability Insurance applicable to the Leased Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of Two Million Dollars ($2,000,000.00), with a contractual liability endorsement covering Lessee's indemnity obligations under this Lease;
Commercial Lease - Page 18 of 44
2. All Risks of Physical Loss Insurance written at replacement cost value and with a replacement cost endorsement covering all of Lessee's personal property and improvements in the Leased Premises;
3. Workers' Compensation Insurance as required by the state in which the Leased Premises is located and in amounts as may be required by applicable statute;
4. Business interruption or loss of income insurance in amounts satisfactory to Lessor; and
5. Whenever good business practice, in Lessor's reasonable judgment, indicates the need of additional insurance coverage or different types of insurance in connection with the Leased Premises or Lessee's use and occupancy thereof, Lessee shall, upon request, obtain such insurance at Lessee's expense and provide Lessor with evidence thereof.
B. Before any repairs, alterations, additions, improvements, or construction are undertaken by or on behalf of Lessee, Lessee shall carry and maintain, at its expense, or Lessee shall require any contractor performing work on the Leased Premises to carry and maintain, at no expense to Lessor, in addition to Workers' Compensation Insurance as required by the jurisdiction in which the Building is located, All Risk Builder's Risk Insurance in the amount of the replacement cost of any alterations, additions or improvements (or such other amount reasonably required by Lessor) and Commercial General Liability Insurance (including, without limitation, Contractor's Liability coverage, Contractual Liability coverage and Completed Operations coverage,) written on an occurrence basis with a minimum combined single limit of Two Million Dollars ($2,000,000.00) and adding "the named Lessor hereunder (or any successor thereto), and its respective members, principals, beneficiaries, partners, officers, directors, employees, agents and any Mortgagee(s)", and other designees of Lessor as the interest of such designees appear, as additional insureds (collectively referred to as the "Additional Insureds").
C. Any company writing any insurance which Lessee is required to maintain or cause to be maintained pursuant to the terms of this Lease (all such insurance as well as any other insurance pertaining to the Leased Premises or the operation of Lessee's business therein being referred to as "Lessee's Insurance"), as well as the form of such insurance, are at all times subject to Lessor's reasonable approval, and each such insurance company must have an A.M. Best rating of "A-" or better and be licensed and qualified to do business in the state in which the Leased Premises are located. All policies evidencing Lessee's Insurance (except for Workers' Compensation Insurance) must specify Lessee as named insured and the Additional Insureds as additional insureds. Provided that the coverage afforded Lessor and any designees of Lessor is not reduced or otherwise adversely affected, all of Lessee's Insurance may be carried under a blanket policy covering
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the Leased Premises and any other of Lessee's locations. All policies of Lessee's Insurance must contain endorsements requiring that the insurer(s) give Lessor and its designees at least thirty (30) days' advance written notice of any change, cancellation, termination or lapse of said insurance. Lessee shall be solely responsible for payment of premiums for all of Lessee's Insurance. Lessee shall deliver to Lessor at least fifteen (15) days prior to the time Lessee's Insurance is first required to be carried by Lessee, and upon renewals at least fifteen (15) days prior to the expiration of any such insurance coverage, certified copies of all policies procured by Lessee in compliance with its obligations under this Lease. The limits of Lessee's Insurance do not in any manner limit Lessee's liability under this Lease.
D. Lessee shall not do or fail to do anything in, upon or about the Leased Premises which will (1) violate the terms of any of Lessor's insurance policies; (2) prevent Lessor from obtaining policies of insurance acceptable to Lessor or any Mortgagees; or (3) result in an increase in the rate of any insurance on the Leased Premises, the Building, any other property of Lessor or of others within the Building. In the event of the occurrence of any of the events set forth in this Section, Lessee shall pay Lessor upon demand, as additional rent, the cost of the amount of any increase in any such insurance premium, provided that the acceptance by Lessor of such payment may not be construed to be a waiver of any rights by Lessor in connection with a default by Lessee under the Lease. If Lessee fails to obtain the insurance coverage required by this Lease, Lessor may, at its option, obtain such insurance for Lessee, and Lessee shall pay, as additional rent, the cost of all premiums thereon and all of Lessor's costs associated therewith.
ARTICLE 8.00 - CONDEMNATION
8.01 Substantial Taking. If all or a substantial portion of the Leased Premises or a substantial portion of the Building of which the Leased Premises are a part (even though the Leased Premises are not taken) are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the Leased Premises or the Building of which the Leased Premises are a part for the purpose for which it is then being used, then Lessor and Lessee have the option to terminate this Lease and to abate the rent during the unexpired portion of this Lease effective on the date title or physical possession is taken by the condemning authority, whichever occurs first. All proceeds of any taking are the sole property of Lessor and Lessee agrees that Lessee is not entitled to any condemnation award or proceeds in lieu thereof.
8.02 Partial Taking. If a portion of the Leased Premises or a portion of the Building of which the Leased Premises are a part are taken for any public or quasipublic use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and this Lease is not terminated as provided in Section 8.01 above, Lessor shall at Lessor's sole risk and expense, restore and reconstruct the Building and other improvements on the Leased Premises to the extent necessary to make it reasonably tenantable; provided, if the
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damages received by Lessor are insufficient to cover the costs of restoration, Lessor may terminate this Lease. The rent payable under this Lease during the unexpired portion of the term will be adjusted to such an extent as may be fair and reasonable under the circumstances. All proceeds of any taking are the sole property of Lessor and Lessee agrees that Lessee is not entitled to any condemnation award or proceeds in lieu thereof.
ARTICLE 9.00 - ASSIGNMENT OR SUBLEASE
9.01 Lessor Assignment. Lessor may sell, transfer or assign, in whole or in part, its rights and obligations under this Lease and in the Leased Premises. Any such sale, transfer or assignment will release Lessor from any and all liabilities under this Lease arising after the date of such sale, assignment or transfer, so long as such transferee or assignee assumes the obligations of Lessor hereunder.
9.02 Lessee Assignment. Except for an assignment to an affiliate and except in the case of a merger or consolidation by Lessee with or into another entity, Lessee shall not assign, in whole or in part, this Lease, or allow it to be assigned, in whole or in part, or mortgage or pledge the same or sublet the Leased Premises, in whole or in part, without the prior written consent of Lessor which consent may not be unreasonably withheld, and in no event will any such assignment or sublease ever release Lessee or any guarantor from any obligation or liability hereunder unless consented to by Lessor. No assignee or sublessee of the Leased Premises or any portion thereof may assign or sublet the Leased Premises or any portion thereof.
9.03 Conditions of Assignment. If Lessee desires to assign or sublet all or any part of the Leased Premises or grant any license, concession or other right of occupancy of any portion of the Leased Premises, it must so notify Lessor at least thirty days in advance of the date on which Lessee desires to make such assignment or sublease. Lessee must provide Lessor with a copy of the proposed assignment or sublease and such information as Lessor might reasonably request concerning the proposed sublessee or assignee to allow Lessor to make informed judgments as to the financial condition, reputation, operations and general desirability of the proposed sublessee or assignee. Within fifteen days after Lessor's receipt of Lessee's proposed assignment or sublease and all required information concerning the proposed sublessee or assignee, Lessor may, in its reasonable discretion, either: (1) consent to the proposed assignment or sublease, or (2) refuse to consent to the proposed assignment or sublease, which refusal is deemed to have been exercised unless Lessor gives Lessee written notice providing otherwise. Upon the occurrence of an event of default, if all or any part of the Leased Premises are then assigned or sublet, Lessor, in addition to any other remedies provided by this Lease or provided by law, may, at its option, collect directly from the assignee or sublessee all rents becoming due to Lessee by reason of the assignment or sublease, and Lessor will be entitled to a security interest in all properties on the Leased Premises to secure payment of such sums. Lessee agrees that any collection directly by Lessor from the assignee or sublessee is not intended to constitute a novation or a release of Lessee or any guarantor from the further performance of its obligations under this Lease.
9.04 Subordination. Lessee accepts this Lease subject and subordinate to any recorded mortgage or deed of trust lien presently existing or hereafter created upon the Building
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or project of which the Leased Premises are a part (provided, however, that any such mortgagee may, at any time, subordinate such mortgage, deed of trust or other lien to this Lease) and to all existing recorded restrictions, covenants, easements and agreements with respect to the Building and to any renewals thereof. Lessee agrees that this clause is self-operative and no further instrument of subordination is required to effect such subordination. Lessor is hereby irrevocably vested with full power and authority to subordinate Lessee's interest under this Lease to any first mortgage or deed of trust lien hereafter placed on the Leased Premises, and Lessee agrees upon demand to execute additional reasonable instruments subordinating this Lease as Lessor may require. If the interests of Lessor under this Lease are transferred by reason of foreclosure or other proceedings for enforcement of any first mortgage or deed of trust lien on the Leased Premises, Lessee is bound to the transferee (sometimes called the "Purchaser") at the option of the Purchaser, under the terms, covenants and conditions of this Lease for the balance of the term remaining, including any extensions or renewals, with the same force and effect as if the Purchaser were Lessor under this Lease, and, if requested by the Purchaser, Lessee agrees to attorn to the Purchaser, including the first mortgagee under any such mortgage if it be the Purchaser, as its Lessor. Lessee will not be entitled to any credits as against Purchaser any prepaid rents or offsets against or credits due from Lessor, except as provided under the terms of any non-disturbance agreement provided pursuant to Section 13.14 of this Lease.
9.05 Estoppel Certificates. Lessee agrees to furnish, from time to time, within ten (10) days after receipt of a request from Lessor, Lessor's mortgagee or any potential purchaser of the Building, a statement certifying, if applicable, the following: Lessee is in possession of the Leased Premises; the Leased Premises are acceptable; the Lease is in full force and effect; the Lease is unmodified; Lessee claims no present charge, lien, or claim of offset against rent; the rent is paid for the current month, but is not prepaid for more than one month and will not be prepaid for more than one month in advance; there is no existing default by reason of some act or omission by Lessor; and such other matters as may be reasonably required by Lessor, Lessor's mortgagee or any potential purchaser. Lessee's failure to deliver such statement, in addition to being a default under this Lease, may be deemed to establish conclusively that this Lease is in full force and effect except as declared by Lessor, that Lessor is not in default of any of its obligations under this Lease and that Lessor has not received more than one month's rent in advance. Any notice and cure provisions set forth in any other part of this Lease does not apply to a default of this Section 9.05.
ARTICLE 10.00 - LIENS
10.01 Landlord's Lien. As security for payment of rent, damages and all other payments required to be made by this Lease, Lessee hereby grants to Lessor a lien upon all property of Lessee now or subsequently located upon the Leased Premises and Lessee agrees to not remove such property from the Leased Premises except in the ordinary course of business, provided at the time of such removal Lessee is not in default. If Lessee abandons or vacates any substantial portion of the Leased Premises or is in default in the payment of any rentals, damages or other payments required to be made by this Lease or is in default of any other provision of this Lease, Lessor may enter upon the Leased Premises, by picking or changing locks if necessary, and take possession of all or any part of the personal property, and may sell all or any part of the personal property at a public or private sale, in one or successive sales, with or without notice, to
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the highest bidder for cash, and, on behalf of Lessee, sell and convey all or part of the personal property to the highest bidder, delivering to the highest bidder all of Lessee's title and interest in the personal property sold. The proceeds of the sale of the personal property shall be applied by Lessor toward the reasonable costs and expenses of the sale, including attorney's fees, and then toward the payment of all sums then due by Lessee to Lessor under the terms of this Lease. Any excess remaining will be paid to Lessee or any other person entitled thereto by law.
10.02 Uniform Commercial Code. This Lease is intended as and constitutes a security agreement within the meaning of the Uniform Commercial Code of the state in which the Leased Premises are situated. Lessor, in addition to the rights prescribed in this Lease, has all of the rights, titles, liens and interests in and to Lessee's property, now or hereafter located upon the Leased Premises, which may be granted a secured party, as that term is defined, under the Uniform Commercial Code to secure to Lessor payment of all sums due and the full performance of all Lessee's covenants under this Lease. Lessee will on request execute and deliver to Lessor a financing statement for the purpose of perfecting Lessor's security interest under this Lease or Lessor may file this Lease or a copy thereof as a financing statement. Unless otherwise provided by law and for the purpose of exercising any right pursuant to this Section, Lessor and Lessee agree that reasonable notice has been given if such notice is given by ten days written notice, certified mail, return receipt requested, to Lessor or Lessee at the addresses specified herein.
10.03 Landlord's Lien Waiver. Upon request by Lessee, Lessor will execute a lien waiver in favor of Lessee's lender in the form prescribed by Lessee's lender.
ARTICLE 11.00 - DEFAULT AND REMEDIES
11.01 Default by Lessee. The following are events of default by Lessee under this Lease:
A. Lessee fails to pay, within ten (10) days of when due, any installment of rent or any other payment required pursuant to this Lease, and such failure shall be continuing five (5) days following written notice (which notice may include the cancellation notice described in Section 11.02(E) hereof) thereof from Lessor to Lessee; provided, however, in no event shall Lessee have the right to receive or Lessor have the obligation to provide, as a prerequisite to an event of default, more than two (2) written notices within any twelve (12) month period;
B. Lessee fails to comply with any term, provision or covenant of this Lease, other than the payment of rent and fails to cure the failure within thirty (30) days of receipt of written notice (which notice may include the cancellation notice described in Section 11.02(E) hereof) from Lessor;
C. Lessee or any guarantor of Lessee's obligations hereunder files a petition or is adjudged bankrupt or insolvent under any applicable federal or state bankruptcy or insolvency law, or admits that it cannot meet its financial obligations as they become due; or a receiver or trustee is appointed for all or substantially all of the assets of Lessee or such guarantor; or Lessee or any guarantor of Lessee's
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obligations hereunder makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors; or
D. Lessee does or permits to be done any act which results in a lien being filed against the Leased Premises or the Building and Lessee fails to contest the lien diligently and in good faith or does not prevail, within sixty (60) days of the date the lien is filed, in its efforts to remove the lien.
11.02 Remedies for Lessee's Default. Upon the occurrence of any event of default set forth in this Lease, Lessor is entitled to pursue any one or more of the remedies set forth herein without any notice or demand.
A. Without declaring the Lease terminated, Lessor may enter upon and take possession of the Leased Premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the Leased Premises without being liable for any claim for damages, and relet the Leased Premises on behalf of Lessee and receive the rent directly by reason of the reletting; provided however, that Lessor has no obligation to relet the Leased Premises so as to mitigate the amount for which Lessee is liable. Lessee agrees to pay Lessor on demand any deficiency that may arise by reason of any reletting of the Leased Premises; further, Lessee agrees to reimburse Lessor for any reasonably expenditures made by it in order to relet the Leased Premises, including, but not limited to, leasing commissions, lease incentives, remodeling and repair costs.
B. Without declaring the Lease terminated, Lessor may enter upon the Leased Premises, by picking or changing locks if necessary, without being liable for any claim for damages, except for damages arising from Lessor's negligence, recklessness or willful misconduct, and do whatever Lessee is obligated to do under the terms of this Lease. Lessee agrees to reimburse Lessor on demand for any expenses which Lessor may incur in effecting compliance with Lessee's obligations under this Lease.
C. Lessor may terminate this Lease, in which event Lessee shall immediately surrender the Leased Premises to Lessor, and if Lessee fails to surrender the Leased Premises, Lessor may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Leased Premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the Leased Premises without being liable for any claim for damages. Lessee agrees to pay on demand the amount of all loss and damage which Lessor may suffer by reason of the termination of this Lease under this Section, including without limitation, loss and damage due to the failure of Lessee to maintain and or repair the Leased Premises as required hereunder and/or due to the inability to relet the Leased Premises on terms satisfactory to Lessor or otherwise, and any reasonable expenditures made by Lessor in order to relet the Leased Premises,
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including, but not limited to, leasing commissions, lease incentives, and remodeling and repair costs; provided however, that Lessor will have no obligation to relet the Leased Premises so as to mitigate the amount for which Lessee is liable. In addition, upon termination Lessor may collect from Lessee the value of all future rentals required to be paid under this Lease from the date Lessor terminates the Lease until the original termination date in accordance with applicable law less amounts collected as rent by Lessor if the Leased Premises are re-let. Notwithstanding anything contained in this Lease to the contrary, this Lease may be terminated under this section by Lessor only by mailing or delivering written notice of such termination to Lessee, and no other act or omission of Lessor constitutes a termination of this Lease.
D. In the event that Lessor exercises its remedy to lock out Lessee in accordance with any provision of this Lease, Lessee agrees that no notice is required to be posted by Lessor on any door to the Leased Premises (or elsewhere) disclosing the reason for such action or any other information, and that Lessor is not obligated to provide a key to the changed lock to Lessee unless Lessee has first:
1. brought current all payments due to Lessor under this Lease (unless Lessor has terminated this Lease, in which event payment of all past due amounts do not obligate Lessor to provide a key);
2. fully cured and remedied to Lessor's reasonable satisfaction all other defaults of Lessee under this Lease (unless Lessee has abandoned or vacated the Leased Premises, in which event Lessor is not obligated to provide the new key to Lessee under any circumstances); and
3. provided Lessor with additional security deposit and assurances reasonably satisfactory to Lessor that Lessee intends to and is able to meet and comply with its future obligations under this Lease, both monetary and nonmonetary. Lessor may, upon written request by Lessee, at Lessor's convenience, upon receipt by Lessor of an amount necessary to reimburse itself for time and expense in providing such service, and upon Lessee's execution and delivery of such waivers and indemnities as Lessor may require at Lessor's option either:
a. escort Lessee or its specifically authorized employees or agents to the Leased Premises to retrieve personal belongings of Lessee's employees and property of Lessee that is not subject to a Security Interest provided in this Lease; or
b. obtain from Lessee a list of such property and arrange for such items to be removed from the Leased Premises and made available to Lessee at such place at such time as Lessor may designate, provided however, that if Lessor elects option (ii), then Lessee shall pay Lessor in cash in advance, the estimated costs that Lessor may incur upon moving and storage
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charges theretofore incurred by Lessor with respect to such property. THE PROVISIONS OF THIS ARTICLE ARE INTENDED TO OVERRIDE AND SUPERSEDE ANY CONFLICTING PROVISIONS OF THE TEXAS PROPERTY CODE AND ANY AMENDMENTS OR SUCCESSOR STATUTES THERETO, AND OF ANY OTHER LAW, TO THE MAXIMUM EXTENT PERMITTED BY THE LAW.
E. Notwithstanding any other remedy set forth in this Lease, if Lessor has made rent concessions of any type or character, or waived any base rent (i.e. given free rent), and Lessee fails to take possession of the Leased Premises on the Commencement Date or there occurs a Lessee event of default at any time during the term of this Lease, the rent concessions, including any waived base rent, are canceled and the amount of the base rent or other rent concessions are due and payable immediately as if no rent concessions or waiver of any base rent had ever been granted; provided, however, in the event of a default under 11.01(A) or 11.02(B) hereof, that in order for such cancellation of rent concessions to be effective, Lessor must give Lessee express notice of the free rent cancellation in the written notice described in Section 11.01(A) and 11.01(B). A rent concession or waiver of the base rent will not relieve Lessee of any obligation to pay any other charge due and payable under this Lease including without limitation any sums due under Section 2.02 herein.
F. If Lessor exercises any of its rights provided in this Article 11 and Lessee subsequently cures such default, Lessor is entitled to receive a service charge of $500.00 from Lessee for its time and expense, in addition to any other amounts owed hereunder, prior to allowing the Lessee to reenter and reoccupy the Leased Premises.
G. Lessee hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Lessee being evicted or dispossessed for any cause, or in the event of Lessor obtaining possession of the Leased Premises by reason of the violation by Lessee of any of the covenants and conditions of this Lease or otherwise. The rights given to Lessor herein are in addition to any rights that may be given to Lessor by any statute or otherwise.
H. Lessor's pursuit of any remedy specified in this Lease will not constitute an election to pursue that remedy only, nor preclude Lessor from pursuing any other remedy available at law or in equity, nor constitute a forfeiture or waiver of any rent or other amount due to Lessor as described herein.
I. If Lessee or any guarantor of Lessee's obligations hereunder is the subject of any insolvency, bankruptcy, receivership, dissolution, reorganization or similar proceeding, federal or state, voluntary or involuntary, under any present or future law or act, Lessor is entitled to the automatic and absolute lifting of any automatic stay as to the enforcement of its remedies under this Lease, including specifically the stay imposed by Section 362 of the United States Federal Bankruptcy Code, as
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amended. Lessee hereby consents to the immediate lifting of any such automatic stay, and may not contest any motion by Lessor to lift such stay. Lessee expressly acknowledges that the Leased Premises is not now and will never be necessary to any plan or reorganization of any type.
11.03 Lessor's Liability. The liability of Lessor to Lessee for any default by Lessor under the terms of this Lease is limited to Lessee's actual direct, but not consequential, damages therefor and is recoverable only from the interest of Lessor in the Building, and Lessor is not personally liable for any deficiency.
ARTICLE 12.00 - DEFINITIONS
12.01 Abandon. "Abandon" means the vacating of all or a substantial portion of the Leased Premises by Lessee or any approved sublessee, whether or not Lessee or any approved sublessee is in default of the rental payments due under this Lease.
12.02 Building. "Building" as used in this Lease means the building described in Section 1.02, including the Leased Premises and the land upon which the Building is situated.
12.03 Commencement Date. "Commencement Date" is the date set forth in
Section 1.03. The Commencement Date constitutes the commencement of the term of
this Lease for all purposes, whether or not Lessee has actually taken
possession.
ARTICLE 13.00 - MISCELLANEOUS
13.01 Waiver. Failure of Lessor to declare an event of default immediately upon its occurrence, or delay in taking any action in connection with an event of default, will not constitute a waiver of the default, but Lessor has the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Pursuit of any one or more of the remedies set forth in Article 11.00 or Article 12.00 above will not preclude pursuit of any one or more of the other remedies provided elsewhere in this Lease or provided at law or in equity, nor will pursuit of any remedy constitute forfeiture or waiver of any rent or damages accruing to Lessor by reason of the violation of any of the terms, provisions or covenants of this Lease. Lessee agrees that failure by Lessor to enforce one or more of the remedies provided upon an event of default will not constitute a waiver of the default or of any other violation or breach of any of the terms, provisions and covenants contained in this Lea se.
No act or thing done by Lessor or its agents during the Lease Term may be deemed an acceptance of an attempted surrender of the Leased Premises, and no agreement to accept a surrender of the Leased Premises will be valid unless made in writing and signed by Lessor. No reentry or taking possession of the Leased Premises by Lessor may be construed as an election on its part to terminate this Lease, unless a written notice of such intention, signed by Lessor, is given by Lessor to Lessee. Notwithstanding any such reletting or reentry or taking possession, Lessor may at any time thereafter elect to terminate this Lease for a previous event of default. Lessee and Lessor agree that Lessor's acceptance of rent following an event of default hereunder will not constitute Lessor's waiver of such event of default. The failure of Lessor to enforce any
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of the Rules and Regulations described in Section 3.03 against Lessee or any other Lessee in the Building will not constitute a waiver of any such Rules and Regulations. No waiver of any provision of this Lease is effective unless such waiver is in writing and signed by Lessor. All rights granted to Lessor in this Lease are cumulative of every other right or remedy which Lessor may otherwise have at law or in equity, and the exercise of one or more rights or remedies does not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.
13.02 Act of God. Lessor or Lessee is not required to perform any covenant or obligation in this Lease, or be liable in damages to the other, so long as the performance or non-performance of the covenant or obligation is delayed, caused or prevented by Force Majeure or by the other party.
13.03 Attorney's Fees. If either party defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and the other party places in the hands of an attorney the enforcement of all or any part of this Lease, the collection of any rent due or to become due or recovery of the possession of the Leased Premises, agrees to pay the non-defaulting party's costs of collection, including reasonable attorney's fees for the services of the attorney, whether suit is actually filed or not.
13.04 Successors. This Lease is binding upon and inures to the benefit of Lessor and Lessee and their respective heirs, personal representatives, successors and assigns. It is hereby covenanted and agreed that should Lessor's interest in the Leased Premises cease to exist for any reason during the term of this Lease, then notwithstanding the happening of such event this Lease nevertheless will remain unimpaired and in full force and effect, and Lessee hereunder agrees to attorn to the then owner of the Leased Premises.
13.05 Rent Tax. If applicable in the jurisdiction where the Leased Premises are situated, Lessee shall pay and be liable for all rental, sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Lessor by Lessee under the terms of this Lease. Any such payment must be paid concurrently with the payment of the rent, additional rent, operating expenses or other charge upon which the tax is based as set forth above.
13.06 Captions. The captions appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of any Section.
13.07 Notice. All rent and other payments required to be made by Lessee must be paid to Lessor at the address set forth in Section 1.05. All payments required to be made by Lessor to Lessee are payable to Lessee at the address set forth in Section 1.05 or at any other address within the United States as Lessee may specify from time to time by written notice. For purposes hereof, any notice or document required or permitted to be delivered by the terms of this Lease (other than delivery of rental payments) will be deemed to be delivered upon the earlier of actual receipt, or (whether or not actually received) three days after being deposited in the United States Mail, postage prepaid, certified mail, return receipt requested, addressed to the parties at the respective addresses set forth in Section 1.05, or transmission by facsimile and
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receipt of confirmation of successful transmission by the transmitting facsimile; provided, however, any notice given by facsimile must be followed up by notice in one of the other manners set forth herein within five (5) days thereafter. Rental payments will be deemed received upon actual receipt only. Except as specifically set forth herein, in no event will notice by facsimile transmission be proper notice under the terms of this Lease.
13.08 Submission of Lease. Submission of this Lease to Lessee for signature does not constitute a reservation of space or an option or offer to lease. This Lease is not deemed effective until execution by and delivery to both Lessor and Lessee.
13.09 Representations, Warranties and Covenants of Lessee and Lessor. Lessee represents, warrants and covenants that it is now in a solvent condition; that no bankruptcy or insolvency proceedings are pending or contemplated by or against Lessee or any guarantor of Lessee's obligations under this Lease; that all reports, statements and other data furnished by Lessee to Lessor in connection with this Lease are true and correct in all material respects; that the execution and delivery of this Lease by Lessee does not contravene, result in a breach of, or constitute a default under any contract or agreement to which Lessee is a party or by which Lessee may be bound and does not violate or contravene any law, order, decree, rule or regulation to which Lessee is subject, and that there are no judicial or administrative actions, suits, or proceedings pending or threatened against or affecting Lessee or any guarantor of Lessee's obligations under this lease.
Lessor represents, warrants and covenants that it is now in a solvent condition; that no bankruptcy or insolvency proceedings are pending or contemplated by or against Lessor or any guarantor of Lessor's obligations under this Lease; that all reports, statements and other data furnished by Lessor to Lessee in connection with this Lease are true and correct in all material respects; that the execution and delivery of this Lease by Lessor does not contravene, result in a breach of, or constitute a default under any contract or agreement to which Lessee is a party or by which Lessee may be bound and does not violate or contravene any law, order, decree, rule or regulation to which Lessor is subject; and that there are no judicial or administrative actions, suits, or proceedings pending or threatened against or affecting Lessor or any guarantor of Lessor's obligations under this lease.
13.10 Corporate Authority.
If Lessee executes this Lease as a corporation, Lessee represents and warrants that Lessee is a duly authorized and existing corporation, that Lessee is qualified to do business in the state in
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which the Leased Premises are located, that the corporation has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. Lessee shall additionally deliver (1) a corporate resolution authorizing execution of this Lease and confirming the authority of those persons executing the Lease, 2) certified Articles of Incorporation and 3) a certificate of existence and good standing from the State of Texas or if Lessee is not incorporated in Texas, a certificate of existence and good standing from Lessee's state of incorporation and a certificate evidencing Lessee's authority to do business in the State of Texas.
If Lessor executes this Lease as a corporation, Lessor represents and warrants that Lessor is a duly authorized and existing corporation, that Lessor is qualified to do business in the state in which the Leased Premises are located, that the corporation has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. Lessor shall additionally deliver (1) a corporate resolution authorizing execution of this Lease and confirming the authority of those persons executing the Lease, 2) certified Articles of Incorporation and 3) a certificate of existence and good standing from the State of Texas or if Lessee is not incorporated in Texas, a certificate of existence and good standing from Lessee's state of incorporation and a certificate evidencing Lessee's authority to do business in the State of Texas.
13.11 Partnership Authority. If Lessee executes this Lease as a general or limited partnership, Lessee represents and warrants that Lessee is a duly authorized and existing partnership, that, if applicable, Lessee is qualified to do business in the state where the Leased Premises are located, that the partnership has full right and authority to enter into this Lease, and that each person signing on behalf of the partnership is authorized to do so. Lessee, must additionally deliver a copy of its partnership agreement, and if a limited partnership, a copy of its certificate of limited partnership. The party executing the Lease on behalf of Lessee, if a corporate managing general partner or general partner, must additionally deliver 1) a corporate resolution authorizing execution of this Lease and confirming the authority of those executing this Lease, 2) certified Articles of Incorporation, 3) a certificate of existence and good standing from the State of Texas or if such party is not incorporated in Texas, a certificate of existence and good standing from such party's state of incorporation and a certificate evidencing such party's authority to do business in the State of Texas.
If Lessor executes this Lease as a general or limited partnership, Lessor represents and warrants that Lessor is a duly authorized and existing partnership, that, if applicable, Lessor is qualified to do business in the state where the Leased Premises are located, that the partnership has full right and authority to enter into this Lease, and that each person signing on behalf of the partnership is authorized to do so. Lessor, must additionally deliver a copy of its partnership agreement, and if a limited partnership, a copy of its certificate of limited partnership. The party executing the Lease on behalf of Lessee, if a corporate managing general partner or general partner, must additionally deliver 1) a corporate resolution authorizing execution of this Lease and confirming the authority of those executing this Lease, 2) certified Articles of Incorporation, 3) a certificate of existence and good standing from the State of Texas or if such party is not incorporated in Texas, a certificate of existence and good standing from such party's state of incorporation and a certificate evidencing such party's authority to do business in the State of Texas.
13.12 Severability. If any provision of this Lease or the application thereof to any person or circumstance is ever determined by a court of competent jurisdiction to be invalid or unenforceable to any extent, Lessor and Lessee agree that the remainder of this Lease and the application of such provisions to other persons or circumstances will not be affected thereby and will be enforced to the greatest extent permitted by law.
13.13 Lessor's Liability. If Lessor is in default under this Lease and, if as a consequence of such default, Lessee recovers a money judgment against Lessor, such judgment may be satisfied only out of the right, title and interest of Lessor in the Leased Premises as the same may then be encumbered and neither Lessor nor any person or entity comprising Lessor
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has any liability for any deficiency. In no event does Lessee have the right to levy execution against any property of Lessor nor any person or entity comprising Lessor other than its interest in the Leased Premises as herein expressly provided.
13.14 Non Disturbance Agreement. Lessor shall deliver a non-disturbance agreement from each of Lessors mortgagees within sixty (60) days of the execution of this Lease in form satisfactory to Lessee in its reasonable judgment. If any new lien or mortgage is placed on the Building or Leased Premises during the term of this Lease, Landlord will deliver additional non- disturbance agreements as soon as practical in form satisfactory to Lessee in its reasonable judgment.
13.15 Notice to Mortgagees. Provided that Lessee has received prior written notice of the name and address of such lender, Lessee shall serve written notice of any claimed default or breach by Lessor under this Lease upon any lender which is a beneficiary under any deed of trust or mortgage against the Leased Premises, and no notice to Lessor is effective against Lessor unless such notice is served upon said lender; notwithstanding anything to the contrary contained herein, Lessee shall allow such lender the same period following lender's receipt of such notice to cure such default or breach as is afforded Lessor.
13.16 No Recordation. Lessee may not record this Lease.
13.17 Counterparts. This Lease may be executed in two or more counterparts, and it is not necessary that any one of the counterparts be executed by all of the parties hereto. Each fully or partially executed counterpart may be deemed an original, but all such counterparts taken together constitute but one and the same instrument.
13.18 Governing Law. THIS LEASE IS INTENDED BY THE PARTIES TO BE GOVERNED BY, AND CONSTRUED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA AS APPLICABLE TO TRANSACTIONS WITHIN THE STATE OF TEXAS.
13.19 Broker. Lessee represents and warrants that Lessee has dealt with no broker except Providence Commercial Real Estate Services, Inc., for Lessee, and Pruitt Realty, for Lessor, the brokers which has been identified to Lessor and Lessee, and that, insofar as Lessee and Lessor know, no other broker negotiated this Lease or is entitled to any commission in connection herewith. Lessor agrees to indemnify and hold harmless Lessee from and against any liability or claim, whether meritorious or not, arising with respect to any broker whose claim arises by, through or on behalf of Lessor. Lessee agrees to indemnify and hold harmless Lessor from and against any liability or claim, whether meritorious or not, arising with respect to any broker whose claim arises by, through or on behalf of Lessee.
13.20 Publication. Each party hereby agrees that the other has the right, but not the obligation, at its own expense to publicize and/or advertise the execution of this Lease and the related transaction.
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13.21 DTPA Waiver. LESSEE WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF LESSEE'S OWN SELECTION, LESSEE VOLUNTARILY CONSENTS TO THIS WAIVER.
13.22 Construction of Lease. Lessee declares that Lessee has read and understands all parts of this Lease, including all printed parts hereof. It is agreed that, in the construction and interpretation of the terms of this Lease, the rule of construction that a document is to be construed most strictly against the party who prepared the same shall not be applied, it being agreed that both parties hereto have participated in the preparation of the final form of this Lease. Wherever in this Lease provision is made for liquidated damages, it is because the parties hereto acknowledge and agree that the determination of actual damages (of which such liquidated damages are in lieu) is speculative and difficult to determine; the parties agree that liquidated damages herein are not a penalty.
13.23 Financial Statements. Lessee acknowledges that it has provided Lessor with its financial statement(s) as a primary inducement to Lessor's agreement to lease the Leased Premises to Lessee, and that Lessor has relied on the accuracy of said financial statement(s) in entering into this Lease. Lessee represents and warrants that the information contained in said financial statement(s) is true, complete and correct in all material aspects, and agrees that the foregoing representations are conditions to all of Lessor's obligations under this Lease.
At the request of Lessor (only upon the sale or refinancing of the Building,
or upon any extension or renewal hereof), Lessee shall, not later than thirty
(30) days following such request, furnish to Lessor a financial statement of
Lessee as of the end of the prior fiscal year accompanied by a statement of
income and expense for the year then ended, together with a certificate of the
chief financial officer, owner or partner of Lessee to the effect that the
financial statements have been prepared in conformity with generally accepted
accounting principles consistently applied and fairly present the financial
condition and results of operations of Lessee as of and for the periods covered.
13.24 Time of Essence. With respect to all required acts of Lessee, time is of the essence of this Lease.
13.25 Joint and Several Liability. If there is more than one Lessee, the obligations hereunder imposed upon Lessee are joint and several. If there is a guarantor(s) of Lessee's obligations hereunder, the obligations of Lessee are joint and several obligations of Lessee and each such guarantor, and Lessor need not first proceed against Lessee hereunder before proceeding against each such guarantor, nor will any such guarantor be released from its guarantee for any reason whatsoever, including, without limitation, any amendment of this Lease, any forbearance by Lessor or waiver of any of Lessor's rights, the failure to give Lessee or any such guarantor any notices, or the release of any party liable for the payment or performance of any of Lessee's obligations hereunder.
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13.26 Taxes and Lessee's Property. Lessee is solely liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Lessee in the Premises. If any such taxes for which Lessee is liable are levied or assessed against Lessor or Lessor's property and if Lessor elects to pay the same or if the assessed value of Lessor's property is increased by inclusion of personal property, furniture or fixtures placed by Lessee in the Premises, and Lessor elects to pay the taxes based on such increase, Lessee shall pay Lessor upon demand that part of such taxes for which Lessee is primarily liable hereunder.
13.27 Constructive Eviction. Lessee shall not be entitled to claim a constructive eviction from the Leased Premises unless Lessee has first notified Lessor in writing of the condition giving rise thereto, and, if the complaints are justified, unless Lessor has failed to remedy such conditions with a reasonable time after receipt of said notice.
ARTICLE 14.00 - AMENDMENT AND LIMITATION OF WARRANTIES
14.01 Entire Agreement. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE.
14.02 Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
14.03 Limitation of Warranties. LESSOR AND LESSEE EXPRESSLY AGREE THAT THERE
ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND
THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS
LEASE.
ARTICLE 15.00 - SIGNATURES
SIGNED this 13th day of April. 1999.
LESSOR: LESSEE: ACLP UNIVERSITY PARK SAN ANTONIO II GLOBALSCAPE, INC., A Texas limited partnership a Texas corporation |
BY: ACLP UNIVERSITY PARK SAN ANTONIO II
GP, INC., a Texas corporation
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By: /s/ Sandra Poole-Christal
----------------------------
Name: Sandra Poole-Christal
----------------------------
By: /s/ Sue Shelton Title: President
------------------------------- ----------------------------
Name: Sue Shelton
Title: Executive Vice President
|
LESSEE ACKNOWLEDGES THAT THIS LEASE
INCLUDES THE INDEMNIFICATION PROVISIONS
SET FORTH IN SECTIONS 3.01. 3.06,7.05
AND 13.19 HEREOF.
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RULES AND REGULATIONS
1. Lessor agrees to furnish Lessee two keys without charge. Additional keys will be furnished at a nominal charge. Lessee shall not change locks or install additional locks on doors without prior written consent of Lessor. Lessee shall not make or cause to be made duplicates of keys procured from Lessor without prior approval of Lessor. All keys to Leased Premises shall be surrendered to Lessor upon termination of this Lease.
2. Lessee will refer all contractors, contractors representatives and installation technicians rendering any service on or to the Leased Premises for Lessee to Lessor for Lessor's approval before performance of any contractual service. Lessee's contractors and installation technicians shall comply with Lessor's rules and regulations pertaining to construction and installation. This provision shall apply to all work performed on or about the Leased Premises or project, including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings and equipment or any other physical portion of the Leased Premises or project.
3. Lessee shall not at any time occupy any part of the Leased Premises or project as sleeping or lodging quarters.
4. Lessee shall not place, install or operate on the Leased Premises or in any part of the building any engine, stove or machinery, or conduct mechanical operations or cook thereon or therein, or place or use in or about the Leased Premises or project any explosives, gasoline, kerosene, oil, acids, caustics, or any flammable, explosive or hazardous material without written consent of Lessor, except that Lessee may provide a kitchen for use by its employees during normal business hours.
5. Lessor will not be responsible for lost, stolen or damaged personal property, equipment, money or jewelry from the Leased Premises by a third party or the project regardless of whether such loss occurs when the area is locked against entry or not.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or about the Leased Premises or project.
7. Employees of Lessor shall not receive or carry messages for or to any Lessee or other person or contract with or render free or paid services to any Lessee or to any of Lessee's agents, employees or invitees.
8. None of the parking, plaza, recreation or lawn areas, entries, exits, passages, doors, elevators, hallways or stairways shall be blocked or obstructed or any rubbish, litter, trash, or material of any nature placed, emptied or thrown into these areas or such area used by Lessee's agents, employees or invitees at any time for purposes inconsistent with their designation by Lessor.
9. The water closets and other water fixtures shall not be used for any purpose other than those for which they were constructed, and any damage resulting to them from misuse,
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including improper disposal of any materials, or by the defacing or injury of any part of the Building shall be borne by the person who shall occasion it. No person shall waste water by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the Building by the use of any radios, record players, tape recorders, musical instruments, the making of unseemly noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or down the stairways or other passages.
12. Lessee and its employees, agents and invitees shall park their vehicles only in those parking areas designated by Lessor. Lessee shall furnish Lessor with state automobile license numbers of Lessee's vehicles and its employees' vehicles within five days after taking possession of the Leased Premises and shall notify Lessor of any changes within five days after such change occurs. Lessee shall not leave any vehicle in a state of disrepair (including without limitation, flat tires, out of date inspection stickers or license plates) on the Leased Premises or project. If Lessee or its employees, agents or invitees park their vehicles in areas other than the designated parking areas or leave any vehicle in a state of disrepair, Lessor, after giving written notice to Lessee of such violation, shall have the right to remove such vehicles at Lessee's expense.
13. Parking in a parking garage or area shall be in compliance with all parking rules and regulations including any sticker or other identification system established by Lessor. Failure to observe the rules and regulations shall terminate Lessee's right to use the parking garage or area and subject the vehicle in violation of the parking rules and regulations to removal and impoundment. No termination of parking privileges or removal of impoundment of a vehicle shall create any liability on Lessor or be deemed to interfere with Lessee's right to possession of its Leased Premises. Vehicles must be parked entirely within the stall lines and all directional signs, arrows and posted speed limits must be observed. Parking is prohibited in areas not striped for parking, in aisles, where "No Parking" signs are posted, on ramps, in cross hatched areas, and in other areas as may be designated by Lessor. Parking stickers or other forms of identification supplied by Lessor shall remain the property of Lessor and not the property of Lessee and are not transferable. Every person is required to park and lock his vehicle. All responsibility for damage to vehicles or persons is assumed by the owner of the vehicle or its driver.
14. Lessee shall not lay floor covering within the Leased Premises without written approval of the Lessor. The use of cement or other similar adhesive materials not easily removed with water is expressly prohibited.
15. Lessee agrees to cooperate and assist Lessor in the prevention of canvassing, soliciting and peddling within the Building or project.
16. It is Lessor's desire to maintain in the Building or project the highest standard of dignity and good taste consistent with comfort and convenience for Lessees. Any action or
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condition not meeting this high standard should be reported directly to Lessor. Your cooperation will be mutually beneficial and sincerely appreciated. As provided in the Lease, Lessor reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be necessary, for the safety, care and cleanliness of the Leased Premises and for the preservation of good order therein.
17. The parking spaces provided to Lessee shall not be fewer than six spaces per 1000 rentable square feet of Leased Premises.
18. All signage must be approved by Lessor and be within Lessor's specifications in accordance with Section 3.02 of the Lease.
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ADDENDUM I TO COMMERCIAL LEASE AGREEMENT
ARTICLE 16.00
Lessor Improvements
16.01 Lessor Improvements. Prior to Lessee's occupancy, Lessor shall, at its own cost and expense, construct the Building and improvements (the "Shell Building Improvements") as generally shown on the site plan and artist's rendering prepared by Rehler Vaughn & Koone, Inc., and attached hereto as Exhibit "A". Lessor warrants that the Shell Building Improvements will be generally consistent in quality with the building shown in the artist's rendering attached as Exhibit "A" and with other buildings in Dallas, Texas, which were shown to Lessee's representatives as samples of Lessor's projects. The Final Shell Plans and Specifications shall be provided to Lessee on or before June 1, 1999. Lessor will begin construction of the Shell Building Improvements no later than June 1, 1999 and shall have completed the Shell Building Improvements to the extent to allow construction of the Lessee Improvements no later than September 15, 1999. Except for immaterial field changes, modifications to the Final Shell Plans and Specifications must be made and accepted only by written change order or agreement signed by Lessor and Lessee and will constitute an amendment to this Lease. Lessee shall be responsible for payment in advance of all work and construction resulting from changes in the Final Shell Plans and Specifications requested by Lessee. The Final Shell Plans and Specifications (when approved by Lessor and Lessee) are incorporated in this Lease by reference. For the purpose of this Section, an "immaterial field change" shall mean such field changes which are required by any governmental authority or changes which (i) do not affect the size, configuration, structural integrity, quality, character, architectural appearance and standard of workmanship contemplated in the Final Shell Plans and Specifications, (ii) will not result in any default in any obligation to any person or violation of any governmental requirements, and (iii) the cost of or reduction resulting from any single field change or extra does not exceed $20,000 and the aggregate amount of all such changes and extras does not exceed $100,000. Lessor agrees to construct the improvements substantially in accordance with the Final Shell Plans and Specifications, in a good and workmanlike manner and in full compliance with all provisions of federal, state and local authorities having jurisdiction over the Leased Premises.
ARTICLE 17.00 - Completion
17.01 Completion Date.
(a) If (i) this Lease is executed and delivered by Lessee by April 13, 1999, (ii) the Lessee Improvement Final Plans and Specifications are approved by Lessor by July 15, 1999 (iii) Lessee has selected by September 1, 1999, the contractor who will construct the Lessee Improvements, and (iv) the building permit for the Lessee Improvements is issued by September 15, 1999, then Lessor shall cause Substantial Completion (as defined in Section 17.04 hereof) to occur no later than December 15, 1999 (such date being extended by the longest number of days that the satisfaction of any of the above conditions is delayed, Force Majeure and Lessee Delays with the date, as extended, being hereinafter referred to as the "Threshold Date"). In the event that the foregoing conditions are satisfied and Substantial Completion does not occur by the Threshold Date, then Lessee, as Lessee's sole and exclusive remedy and measure of damages for
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or related to the delay in Substantial Completion, shall have the right to receive one day of free rent, in addition to the free rent described in Section 3.01, for each day of unexcused delay beyond the Threshold Date, up to a maximum of sixty (60) days, and in the event of unexcused delay beyond sixty (60) days after the Threshold Date, the Lessee shall have the right to receive two (2) days of free rent, in addition to the free rent described in Section 3.01, for each day of unexercised delay beyond sixty days after the Threshold Date, and in the event of unexcused delay beyond one hundred twenty (120) days after the Threshold Date, the Lessee shall have the right to terminate this Lease by written notice thereof to Lessor within ten (10) days following the one hundred twentieth day after such Threshold Date; provided, however, in the event Lessee fails to deliver such termination notice within such ten (10) day period, the Lessee shall be deemed to have waived any right to terminate this Lease for delay provided in this Section.
17.02 Force Majeure. "Force Majeure" delay shall mean a delay caused by reason of fire, acts of God, unreasonable delays in transportation, embargo, weather, strike, other labor disputes, governmental preemption of priorities or other controls in connection with a national or other public emergency, or shortages of fuel, supplies or labor or any similar cause not within the reasonable control of the party claiming the benefits of any Force Majeure provisions. The party claiming the benefits of any Force Majeure provisions shall be required (as a condition to the effectiveness thereof) to provide written notice of the occurrence of such Force Majeure event within ten (10) days following such occurrence.
17.03 Lessor and Lessee Delay.
(a) The terms "Lessor Delays", "Delays caused by Lessor", "Lessee Delay" or "Delays caused by Lessee" shall mean delay in completion of construction of the Shell Building Improvements or the Lessee Improvements caused by:
(1) Unless due to the acts or omissions of the other party or such party's agents, employees or contractors, the respective party's failure to perform its design approval obligations or its construction period obligations by the dates or within the time periods shown in the Lease or this Addendum 1; and
(2) Any subsequent changes, modifications or alterations to the final plans and specifications or the Final Tenant Improvement Plans and specifications which reasonably cause delay in the completion thereof; and
(b) "Lessee Delay" or "Delays caused by Lessee" shall also mean delays due to the scope and extent of the Lessee Improvements to be constructed by Lessor. For purposes of determining Lessee Delay under this Section, the Lessor must provide notice to Lessee of the existence of excessive Lessee Improvements, special design or construction considerations or other matters which will extend the time necessary for the construction of the Lessee Improvements beyond two (2) days; such notice to be provided by Lessor to Lessee together with Lessor's delivery of approval and/or objections to Lessee's plans and specifications for the Lessee Improvements from time-to-time. Such notice shall specify the reasons for the delay and the estimated length of delay and, unless the Lessee's plans and specifications are modified to eliminate such items, the estimated length of the delay shall be included as a Lessee Delay. For
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purposes of determining delay, the terms Lessor and Lessee shall include their respective contractors, agents and employees. In addition, the party claiming the benefits of such delay shall be required (as a condition to the effectiveness thereof) to provide written notice of the occurrence of such delay within ten (10) days following such occurrence.
17.04 "Substantial Completion" shall mean that time when the following conditions are satisfied:
(a) Lessor secures and delivers to Lessee the required temporary or permanent certificate of occupancy, final inspection report or the substantial equivalent under applicable state or local law relative to the Shell Building Improvements and the Lessee Improvements; and
(b) The construction is completed in accordance with the Final Shell Plans and Specifications and the Lessee Improvements Final Plans and Specifications as acknowledged by Lessor's architect in writing to Lessee, subject to normal punch list items which will not materially interfere with Lessee's ability to utilize the Leased Premises for its intended purposes.
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EXHIBIT "D"
CERTIFICATE OF ACCEPTANCE
This certificate is being executed pursuant to the Commercial Lease (the "Lease") for Leased Premises (as defined in the Lease) in the Building named above, executed on the ___ day of _____________, 1999, between Lessor and Lessee.
Lessee certifies to and agrees with Lessor and Lessor's successors, assigns, prospective purchasers and prospective lenders that:
1. Lessor has substantially completed all construction work and leasehold improvements required of Landlord under the terms of the Lease and/or any other agreement between Lessor and Lessee concerning the Leased Premises, and the Leased Premises have been delivered to Lessee in the conditional contemplated by Lessee, except for Defects, the presence of Hazardous Materials (as those terms are defined in the Lease) and punch list items.
2. Lessee has taken possession of and has accepted the Premises, and the Base Rent, additional rent, and/or other charges payable under the Lease are presently accruing in accordance with the terms of the Lease or if not, will commence to accrue on the day ___ of ____________, 1999.
3. The Lease has not been modified, altered or amended except as noted herein.
4. There are no offsets or credits against rentals, nor have rentals been prepaid except as may be provided in the Lease, but in no event have rentals been prepaid more than thirty (30) days in advance, except for the 7th month's rent.
5. The Lease Term will commence on _____ day of ______________, 1999, and will expire on the _____ day of _____________, _____, unless sooner terminated or extended pursuant to any provision of the Lease.
Certified and Agreed to this _____ day of _____________, 1999.
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EXHIBIT "A"
BUILDING SHELL CRITERIA
A. Utilities
All utilities are available at the site or will be brought in by the landlord for the use of this project.
B. Drainage
Include on-site storm sewer as needed.
C. Grading
Regrade site to allow proper drainage.
D. Exterior Paving
Provide asphalt paving and concrete curbs and gutters.
A. Foundation
Based on the soils information, foundations under walls and columns shall be drilled either straight shaft or belled piers as specified by the structural engineer, and consisting of minimum 3,000 p.s.i. concrete.
B. Walls
Walls shall be job cast reinforced load bearing concrete with face brick masonry as designed by the Architect and the reinforcement and thickness as designed by the structural engineer. Rear walls shall be painted with exterior grade latex paint on the exterior surface only.
C. Floor Slab
Floor slab shall be a minimum of 6" thick, 3,000 p.s.i. reinforced concrete, and provided with cast expansion joints and saw cut control joints as required by the structural engineer. Provide 10 mil. poly beneath the slab.
D. Roof Framing
Roof structure shall be supported on steel columns, trusses and joists, and load bearing walls. Steel members shall be light gray and the roof deck shall be gray
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primer. All interior columns shall be factory finished round columns of the size designed by the structural engineer.
E. Clear Height
Minimum clear height to structural joists shall be [an] average of 18'- 0".
F. Roofing
Roofing shall be 3 ply built up or single ply ballasted system installed over insulation board. Roofing shall have a (10) ten year No Dollar Limit (NDL) warranty. Roof can be modified to accommodate added wind load requirements.
G. Miscellaneous Metal
Provide one exterior roof ladder with cage at the rear of the building.
H. Glass and Glazing
Storefronts and windows in the exterior walls shall be Kawneer or equal with 1/4" thick solar coal gray glazing.
I. Fire Protection
Provide automatic fire protection system as required by the City of San Antonio standard.
A. Office Finish
Finish out is Included as a part of Tenant Finish Allowance.
The building site shall be landscaped and irrigated to meet the minimum requirements of the city and the park covenants.
The following items are NOT included in the base building.
1) Furniture.
2) Security systems.
3) Telephone System (except main line connection at the panel board).
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4) Computer equipment.
5) Coax Cables.
6) Drapes and blinds.
7) Raised computer floor.
8) Material handling equipment.
9) Any monument sign for tenant.
10) Dock levelers, dock lights.
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EXHIBIT 10.2
PATENT LICENSE AGREEMENT
Codec
This Patent License Agreement (hereinafter referred to as this "Agreement") dated as of the Effective Date (as hereinafter defined) is made and entered into
between
GlobalSCAPE, Inc., a corporation duly organized and existing under the laws of Texas, United States of America and having its principal office and place of business at 800 Isom Rd, Suite 400, San Antonio, Texas 78216, USA,
(hereinafter referred to as "Licensee")
and
Thomson Consumer Electronics Sales GmbH, a corporation duly organized and existing under the laws of the Federal Republic of Germany and having its principal office and place of business at Karl Wiechert Allee 74, 30625 Hannover, Germany,
(hereinafter referred to as "TCE").
WITNESSETH:
WHEREAS,
TCE has acquired the exclusive sublicensing rights under certain patents
owned by Fraunhofer Gesellschaft zur Forderung der Angewandten Forschung
e.V., Munich, Germany (hereinafter referred to as "FhG") relating to MPEG
Layer-3; and
WHEREAS,
TCE and a sister company of TCE, called Deutsche Thomson-Brandt GmbH, Villingen, Germany, are the owners of certain other patents relating to MPEG Layer-3; and
WHEREAS,
Licensee desires to obtain the right to manufacture, sell and distribute certain products incorporating inventions protected by such patents and patent applications; and
WHEREAS,
Licensee has developed by its own resources a software utilizing MPEG Layer-3, without having received any particular know-how and/or software from FhG; and
WHEREAS,
Licensee has requested TCE to grant to Licensee a license under the patents of FhG and TCE relating to such products; and
WHEREAS,
TCE is willing to grant such license to Licensee.
NOW THEREFORE,
in consideration of the premises and the faithful performance of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purpose of this Agreement, the following terms when used with a capital initial letter shall have the respective meanings set forth below:
1.1. "LICENSED DECODERS" means software products of Licensee, marketed under an established or registered brandname or trademark of Licensee and/or Licensee's Affiliates, utilizing MPEG Layer-3 compression technologies according to the teaching of the Licensed Patents capable of decoding data, but not of encoding any kind of data.
1.2. "LICENSED CODECS" means software products of Licensee, marketed under an established or registered brandname or trademark of Licensee and/or Licensee's Affiliates utilizing MPEG Layer-3 compression technologies according to the teaching of the Licensed Patents capable of encoding data. A Licensed Codec may, but is not required to, include a Licensed Decoder:
1.2.1. "FREE LIMITED LICENSED CODECS" means Licensed Codecs which are not sold, used, leased or otherwise disposed of by Licensee, Licensee's Affiliates and/or third party authorized by Licensee and/or Licensee's Affiliates against a compensation in money or any other consideration, but instead are disposed of for free, solely for the purpose of generating upgrade business to Licensed Codecs without any restriction concerning their functionality and have:
a) the capability of encoding a limited number of data files (i.e. not more than 20 (twenty) copies), or
b) a limited life time, i.e. that the functionality of the software ceases after a given period of time (i.e. a period not longer than 30 (thirty) days after installation).
1.3. "LICENSED PRODUCTS" means Licensed Decoders and/or Licensed Codecs.
1.4. "LICENSED PATENTS" means any patent or patent application which TCE owns, or has sub-licensing rights to from FhG, during the term of this Agreement, that cover MPEG Layer-3 audio technology, including but not limited to, the patents and patent applications listed in Annex 1 to this Agreement and any continuations, continuations-in-part, reissues, reexaminations, divisionals or corresponding applications or patents that issue therefrom in any jurisdiction in the world.
1.5. "LICENSEE'S AFFILIATES" means any company which is owned or controlled, as hereinafter defined, by Licensee, but only as long as such control or ownership by Licensee exists.
1.6. "TCE'S AFFILIATES" means any company which is owned or controlled, as hereinafter defined, by TCE and/or by Thomson multimedia S.A., Boulogne- Billancourt, France, the parent company of TCE, but only as long as such control or ownership exists.
1.7. As used in Articles 1.5. and 1.6. a company shall be deemed to own or control another if such company directly or indirectly owns more than 50% (fifty percent) in nominal value of the issued equity share capital of such other company, or more than 50% (fifty percent) of the shares entitled to vote upon the election of:
(i) the directors, or
(ii) persons performing functions similar to those performed by directors or
(iii) persons otherwise having the right to elect or appoint (a)
directors having the majority vote of the Board of Directors or
(b) other persons having the majority vote of the highest and
most potent directive body, of such other company.
1.8. "EFFECTIVE DATE" means January 01, 2000.
1.9. "TERRITORY" means any countries of the world.
2. GRANT OF RIGHT AND LICENSE
TCE hereby grants Licensee and Licensee's Affiliates a non-exclusive and (except as otherwise provided in Article 8.2. with respect to Licensee's limited right to transfer or assign the same) non-transferable, non-assignable right and license, under the Licensed Patents, without the right to sublicense as of the Effective Date:
(i) to manufacture and/or authorize others to manufacture Licensed Products in the Territory, and
(ii) to sell, use, lease and/or otherwise dispose of Licensed Products in the Territory and to authorize others to do so.
Notwithstanding anything in this Agreement to the contrary, no license is herein granted, and no act or acts hereunder shall be construed as or result in conveying any license to Licensee or to any third party, expressly or by implication, estoppel or otherwise excepting the licenses herein expressly granted to Licensee and excepting under patents of the countries under which such licenses are so granted.
Further the license herein granted is limited to the ISO / MPEG Layer-3 compression technologies as defined in ISO / IEC IS 11172-3 and ISO / IEC IS 13818-3 and thus excluding any other compression technology.
Notwithstanding anything in this Agreement to the contrary, no license is granted under the Licensed Patents for the use of Licensed Codecs in real time broadcasting (terrestrial, satellite, cable or other media) or broadcasting via Internet or other networks, such as but not limited to intranets etc. or in pay- audio or audio-on-demand applications.
Notwithstanding anything in this Agreement to the contrary, with respect to Licensed Decoders the rights and licenses granted under this Agreement are limited to those Licensed Decoders sold, used, leased or otherwise disposed of by Licensee, Licensee's Affiliates and/or third party authorized by Licensee and/or Licensee's Affiliates against a compensation in money or any other consideration. Licensed Decoders disposed of for free and for the personal use of end-users (hereinafter referred to as "Free Decoders") are not licensed under this Agreement, nevertheless TCE commits itself not to assert the Licensed Patents against such Free Decoders during the term of this Agreement and thereafter.
For avoidance of doubt, the term "Free Decoders" shall not include any software decoders operating on integrated circuits, DSP (Digital Signal Processor) devices, hardware decoding devices, handheld devices (such as Windows CE devices) and the like.
3. CONSIDERATION - CALCULATION AND TERMS OF PAYMENT
3.1. In consideration of the rights and licenses granted by TCE under Article
2. hereof, Licensee agrees to pay to TCE:
3.1.1. a royalty of US $ 2.50 (in words: two and a half US Dollar) per copy of a Licensed Codec (hereinafter also referred to as "Running Royalty") manufactured and/or sold, used, leased and/or otherwise disposed of during the term of this Agreement; and/or
3.1.2. a royalty of US $ 0.50 (in words: one half US Dollar) per copy of a Licensed Decoder (hereinafter also referred to as "Running Royalty") manufactured and/or sold, used, leased and/or otherwise disposed of
against a compensation in money or any other consideration during the term of this Agreement; and in addition
3.1.3. a non-refundable annual minimum of US $ 15 000. -- (in words: fifteen thousand US Dollars) per calendar year (hereinafter also referred to as "Minimum Royalty").
3.1.4. The payment of the Minimum Royalty according to Article 3.1.3. for the period from the Effective Date to December 31, 2000 shall be due and payable within one (1) month after the date upon which the last of the parties hereto shall have signed this Agreement.
3.1.5. Licensee shall within one (1) month after the first day of January of each year during the term of this Agreement effect the payment of the Minimum Royalty according to Article 3.1.3. without set-off or recoupment, to the account of TCE as specified in Article 3.5.
3.1.6. If the amount(s) of Running Royalties due for sales, use, lease or other disposition of Licensed Products per calendar year exceed the amount of the Minimum Royalty paid by Licensee in advance with respect to such Licensed Products, Licensee will pay such exceeding amount(s) together with the quarterly reports according to Article 3.4. to the account of TCE as specified in Article 3.5.
If the amount(s) of Running Royalties due for sales, use, lease or other disposition of Licensed Products per calendar year does not exceed the amount of the Minimum Royalty paid by Licensee in advance for Licensed Products, Licensee will not be entitled to any reimbursement or credit.
3.1.7. No royalty or other consideration shall be due with respect to Free Limited Licensed Codecs disposed of by Licensee, Licensee's Affiliates and/or any third party authorized by Licensee and/or Licensee's Affiliates.
Nevertheless, Licensee, Licensee's Affiliates and/or any third party authorized by Licensee and/or Licensee's Affiliates will use their best efforts to stimulate users of the Free Limited Licensed Codecs to upgrade to Licensed Codecs without any restriction concerning their functionality.
3.2. No more than a single royalty payment shall be due on any Licensed Product manufactured and/or sold and/or used and/or leased and/or otherwise disposed of by Licensee and/or Licensee's Affiliates.
3.3. A Licensed Product shall be considered sold when invoiced, or if not invoiced prior to delivery, when delivered for sale to a third party.
Further a Licensed Codec shall be considered sold when upgraded and/or changed and/or modified from a Free Limited Licensed Codec to a Licensed Codec without any restriction concerning its functionality.
A Licensed Product shall be considered used when first:
(a) leased or loaned to third parties; or
(b) bartered or exchanged by Licensee and/or Licensee's Affiliates with third parties for goods or services; or
(c) otherwise transferred by Licensee and/or Licensee's Affiliates to third parties.
3.4. Within one (1) month after March 31, June 30, September 30 and December 31 of each year during the term of this Agreement, Licensee shall:
3.4.1. Submit to TCE a royalty statement in writing and in electronic form as provided for in Annex 2, certified by a duly authorized representative of Licensee, setting forth with respect to the preceding calendar quarter - and, in the case of the first statement, which shall cover the period from the Effective Date to March 31, 2000 -:
(a) a product identification of the Licensed Product, which allows to identify the product on the market; and
(b) the quantity of each Licensed Product used, sold, leased or otherwise disposed of by Licensee or Licensee's Affiliates; and
(c) such other information as requested in Annex 2 or which is reasonably necessary to enable TCE to understand Licensee's or Licensee's Affiliates' calculation of the royalty due under this Agreement; and
3.4.2. Without set-off (except against the Minimum Royalty) or recoupment, pay to the account of TCE as specified in Article 3.5. the amount of Running Royalties due in US Dollars.
3.5. Payments of the Minimum Royalty and the Running Royalty shall be made to the account of Thomson Consumer Electronics Sales GmbH at Commerzbank AG, Hannover, Germany (S.W.I.F.T. Code COBADEFF 250, Bank Code Germany 250 400 66) account No. 3000 700 01 (Reference: MPEG License) in US Dollars
(Details of remittance:
Commerzbank AG, New York Branch, Two World Financial Center, New York, NY 10281-1050, USA Phone +1 212 266 7200, Fax +1 212 266 7235, ABA 026 008 044: For further credit to Commerzbank Hannover Germany, (S.W.I.F.T. Code COBADEFF 250; Bank Code Germany 250 400 66) account No. 3000 700 01)
Minimum Royalty and Running Royalty shall not be deemed paid until actually received at such account and freely withdrawable by TCE to the same extent as cash.
3.6. If the provisions of this Agreement require the conversion of currency with respect to any amount payable under this Agreement, the currency amount payable under this Agreement shall be determined on the basis of the rate of exchange quoted by the Deutsche Bundesbank (German Federal Bank) or its legal substitute, for transactions of comparable amount on the day on which the payment for such amount is due
hereunder, or in the case of late payments, at such later date if conversion then results in greater Deutsche Mark proceeds.
If such exchange rate shall not be published or available, the exchange rate shall be determined on the basis of the rate of exchange quoted by a reputable first class international bank chose by TCE.
3.7. Each of the amounts payable under this Agreement shall, when overdue, bear interest equal to the then current annual discount rate of the Deutsche Bundesbank (German Federal Bank) or its legal substitute plus three and a half percent (3.5%).
If such interest rate shall not be published or available, Licensee shall pay interest at a rate of one percent (1%) per month starting on the due date of the payment accrued under this Agreement.
3.8. Licensee shall apply for the exemption to pay withholding taxes under the double taxation convention between the United States of America and Germany. TCE shall assist Licensee in this respect and shall provide necessary declarations of will for such exemption under the relevant double taxation convention without undue delay.
If any payment under this Agreement is subject to tax in the United States of America and such tax is:
(i) required to be withheld from the payment by Licensee hereunder and
(ii) permitted to be withheld from the payment to TCE under any applicable tax convention between Germany and the United States of America,
the amount of such tax shall be deducted from the payment by Licensee.
Licensee shall promptly furnish to TCE all appropriate tax receipts to enable TCE to obtain correspondent tax credits.
Any other tax or cost relating to the payment from Licensee to TCE shall be borne by Licensee.
3.9. Licensee shall keep complete and accurate records of all transactions relating to Licensed Products upon which the royalty provided for hereunder shall accrue, which records shall be open, during normal business hours, for three (3) years (whether during this Agreement or thereafter), after the end of the particular period for which the record was made, to an independent certified public accountant selected by TCE, who shall have access to said record not more often than once each calendar year, for the sole purpose of verifying the royalty accrued as herein provided. The verification will take place at TCE's expense if an error of three (3%) or less is revealed and at Licensee's expense otherwise.
If an underpayment is revealed by such verification, Licensee will pay the amount overdue as well as the interest, as specified in the following
sentence, within thirty days after receipt of the report of the independent certified public accountant. The amount overdue will bear interest of one percent (1%) per month starting on the due date of the three (3) month royalty reporting period during which the Licensed Product was used.
If an overpayment is revealed by such verification, the amount overpaid will be credited against the next payment of royalties according to Article 3. of this Agreement.
3.10. Licensee will deliver free of charge and at its own expense ten (10) samples of each type of Licensed Products due for release, as soon as they become available, to the address of TCE as specified in Article 9.
4. TRADEMARKS
Neither party shall be entitled to use in its advertising, publicity, or otherwise the other party's trademarks or trade-names in any manner or form, except as otherwise agreed in writing e.g. for the purposes of patent marking.
5. LIMITATIONS
5.1. Nothing in this Agreement shall constitute or be construed as:
(i) a warranty or representation by TCE or FhG as to the validity, enforceability or scope of any of the Licensed Patents, or
(ii) a requirement that TCE or FhG shall file any patent application, secure any patent or maintain any patent in force, or
(iii) an obligation on the part of TCE or FhG to furnish any technical information, technical support, software of any kind or any information concerning pending patent applications of FhG or TCE.
5.2. If any patent included in the Licensed Patents is declared void or unenforceable any payment made by Licensee under Article 3. hereof prior to such event will not be reimbursed to Licensee.
5.3. TCE and/or FhG make no representation, extend no warranties or indemnification of any kind, expressed or implied, nor assume any responsibilities whatsoever with respect to the commercial utility of any of the Licensed Patents or Licensed Products or with respect to the manufacture, use, sale or other disposition by Licensee, vendee or transferee of products incorporating or made by use of inventions licensed under this Agreement.
5.4. The license granted under this Agreement does not extend to the manufacture, sale, use, lease and/or other disposal of materials, recording machines and apparatus and methods for the reproduction or duplication of Licensed Products.
5.5. Nothing in this Agreement shall constitute or be construed as a warranty or representation by TCE or FhG that any of the Licensed Patents or Licensed Products is free from any claim of infringement of any patent or
any other intellectual property right owned by any third party arising out of the manufacture, sale or use of the Licensed Products by and for Licensee or Licensee's Affiliates.
5.6. TCE declares and guarantees herewith that TCE is duly authorized and entitled by the owners of the Licensed Patents to grant the license according to the provisions of this Agreement under such Licensed Patents listed in Annex 1 to this Agreement.
5.7. Licensee shall use its best efforts to bring Licensed Codecs to market through a thorough, vigorous and diligent program for exploitation and to continue active, diligent marketing efforts for Licensed Codecs, especially for upgrades from Free Limited Licensed Codecs to Licensed Codecs during the term of this Agreement.
5.8. Licensee commits itself to undertake all reasonable technical and legal efforts to prohibit the redistribution of the Licensed Products by its customers.
Licensee commits itself to undertake all reasonable technical and legal efforts to prohibit the redistribution or reinstallation of Free Limited Licensed Codecs instances on the same computer system.
5.9. With respect to Free Decoders, Licensee agrees to hold TCE and/or FhG harmless from any and all claims of third parties arising by virtue of utilizing such Free Decoders.
6. DURATION AND TERMINATION OF AGREEMENT
6.1. This Agreement shall be effective as of the Effective Date, after the last of the parties hereto has signed this Agreement.
This Agreement shall continue in full force and effect until the expiration of the last to expire of the Licensed Patents.
6.2. In the event a party hereto substantially fails to comply with any of its obligations under this Agreement or of any Annex hereto and does not remedy the failure of performance within one (1) month after it has been notified in writing thereof, the other party may, by written notice, terminate this Agreement at the end of said period, without prejudice to any damages or legal redress to which it may be entitled. Any such termination shall not affect any payments, the rights to which have fallen due under this Agreement prior to such termination, or the furnishing of the related statements as provided in Article 3. and explanatory information.
6.3. Should either party hereto become insolvent or be subjected to bankruptcy or winding up proceedings, the other party may, by written notice, terminate this Agreement immediately.
6.4. Should a third party, which does not own or control (as defined in Article 1.7.) Licensee as of the Effective Date, come to own or control Licensee after the execution of the Agreement by the parties, TCE may,
by written notice, terminate this Agreement immediately to the extent allowed by law.
6.5. To the extent allowed by law, TCE is entitled to terminate this Agreement in accordance with Article 6.2. of this Agreement, should Licensee and/or Licensee's Affiliates file a revocation or nullity action or an opposition against one or several or all of the Licensed Patents.
7. PATENT MARKINGS
Licensee shall place, or shall use its reasonable best effort to cause the users of Licensed Products to place, appropriate patent and/or patent application markings on an exposed surface of the packaging of or in electronic form incorporated in each Licensed Product made or sold hereunder, with the following wording:
"MPEG Layer-3 audio compression technology licensed by Faunhofer IIS and THOMSON multimedia."
The form, location and language used in such markings shall be in accordance with the laws and practices of the country where such markings are used.
8. ASSIGNMENT
8.1. TCE may assign this Agreement to any other company, person, firm or entity; provided, however, that TCE shall give notice of such assignment to Licensee prior to or concurrently with the effective date of such assignment and provided further, however, that all of the terms and conditions of this Agreement shall be binding upon such assignee.
8.2. Licensee may not assign or transfer this Agreement in part or in its entirety to any third party without the prior written confirmation of TCE.
9. MISCELLANEOUS
9.1. Notices
All notices, summons and communications related to this Agreement and sent by either party hereto to the other shall be written in English and shall be given in writing by letter, telex or facsimile directed,
in respect of TCE to: Thomson Consumer Electronics Sales GmbH
Karl Wiechert Allee 74
30625 Hannover - Germany
Attn: General Manager
Intellectual Property - Legal
Telefax: +49 511 418 2714
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in respect of Licensee to: GlobalSCAPE, Inc.
800 Isom Rd., Suite 400
San Antonio, Texas 78216
United States of America
Attn: Mr. Robert Oslin
R&D Manager
Telefax: +1 210 308 8297
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or such other addresses as may have been previously specified (in the manner set forth above) in writing by either party to the other.
It is agreed by Licensee that one copy of each royalty statement according to
Article 3.4. shall be sent to:
THOMSON multimedia S.A.
46, Quai Alphonse Le Gallo
92100 Boulogne-Billancourt-France
Attn: Vice President
Licensing and Intellectual Property
Telefax: +33 1 4186 5638
9.2. Infringement
9.2.1. Neither TCE nor TCE's Affiliates shall be under any liability to Licensee or Licensee's Affiliates for any infringement or alleged infringement of any patent or other intellectual property right owned or claimed by any third party arising out of the manufacture, sale or use of the Licensed Products by or for Licensee or Licensee's Affiliates.
9.2.2. If Licensee shall become aware of any actual or apparent infringement by third parties of any of the Licensed Patents, Licensee shall give prompt written notice to TCE of such fact, it being understood and agreed that TCE alone shall decide, in its sole discretion, whether, and if so, what, measures shall be taken as a result of any such infringement.
9.2.3. Nothing contained in this Agreement shall be construed:
(a) as imposing on either party any obligation to institute any suit or action for infringement of any of the Licensed Patent hereunder, or to defend any suit or action brought by a third party which challenges or concerns the validity of any such Licensed Patent hereunder;
(b) as conferring by implication, estoppel or otherwise any license or right to copy or to simulate the appearance, trade dress and/or design of any product of TCE;
(c) as conferring by implication, estoppel or otherwise any license under the rights licensed pursuant to Article 2. hereof to
manufacture, use, sell, license or otherwise dispose of any product or device other than a Licensed Product.
9.3. Amendment
This Agreement or any provision thereof may be amended or modified only with the mutual consent of the parties as set out in a written instrument, signed by a duly authorized officer of each of the parties, and expressly stating the parties' intent to amend this Agreement.
9.4. Non-Waiver
If at any time a party shall elect not to assert its rights under any provision of this Agreement, such action or lack of action in that respect shall not be construed as a waiver of its rights under said provision or of any other provision of this Agreement.
9.5. Dispute Settlement
This Agreement shall be governed by the laws of the Federal Republic of Germany, without giving effect to its conflict of law provisions. The courts of Munich, Germany shall have exclusive jurisdiction for purposes of interpreting and enforcing this Agreement.
The institution of any proceeding shall not relieve Licensee of its obligation to make payments which accrue; hereunder during the continuance of such proceeding.
9.6. Binding Effect
This Agreement shall be binding upon and shall inure to the benefit of, the parties hereto and their assigns permitted under Article 8. hereof.
9.7. Severability
Should any part or provision of this Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining parts or provisions shall not be affected by this holding. Such unenforceable part or provision shall then be replaced, upon mutual written consent between the parties hereto, by other enforceable part or provision which, in its effect, corresponds or comes closest to the effect of such unenforceable part or provision.
9.8. Entire Agreement
This Agreement including its Annexes embodies the entire understanding of the parties and cancels and supersedes any prior representations, warranties, or agreement between the parties relating hereto, and this Agreement is executed and delivered upon the basis of this understanding.
9.9. Administrative Expenses
Licensee shall bear all those costs and expenses arising in connection with payments originating from this Agreement, including but not limited to bank charges, taxes, levies, and any additional costs of approvals for payment.
9.10. Confidentiality
Notwithstanding anything to the contrary in this Agreement, Licensee and TCE agree to maintain confidential the terms and conditions of this Agreement.
Licensee and TCE shall only disclose information concerning the content of this Agreement to employees of Licensee, Licensee's Affiliates, FhG, TCE or TCE's Affiliates on a need-to-know basis for the proper implementation of this Agreement.
TCE is entitled to disclose to third parties that Licensee has entered into this Agreement.
IN WITNESS WHEREOF,
each of the Parties hereto has caused this Agreement to be executed in three (3)
original copies, one (1) for Licensee and two (2) for TCE, by its duly
authorized officer or representative.
Thomson Consumer Electronics Sales GlobalSCAPE, Inc.
GmbH
TCE Licensee
By /s/ Detlev M. Lang By /s/ Daniel McRedmond
-------------------------------- -------------------------------
Detlev M. Lang Daniel McRedmond, Director of
General Manager/Prokurist -----------------------------
---------------------------------- Finance and Accounting
(name and title) ----------------------
(name and title)
Hannover, Germany
December 15, 1999 San Antonio, TX USA 12-20-99
---------------------------------- ---------------------------------
(place and date) (place and date)
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EXHIBIT 10.3
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is entered into effective this 16th day of January, 1999 between GlobalSCAPE, Inc., a Delaware corporation with its principal office in San Antonio, Texas ("GlobalSCAPE") and Alex Kunadze, an individual residing in Paris, France ("Kunadze").
RECITALS:
A. GlobalSCAPE and Kunadze entered into an Exclusive Distribution, OEM Agreement dated as of June 21, 1996, which was amended by that Amendment to Exclusive Distribution Agreement signed August 12, 1997, and that Amendment No. 2 to Exclusive Distribution Agreement signed September 11, 1998 (collectively, the "Distribution Agreement");
B. GlobalSCAPE and Kunadze entered into a Source Code License Agreement dated June 21, 1996 which was amended by that Amendment to Exclusive Distribution Agreement signed August 12, 1997, and that Amendment to Source Code License Agreement dated August 12, 1997 (collectively, the "License");
C. Under the Distribution Agreement and License, Kunadze, among other things, granted certain rights to GlobalSCAPE with respect to a software program developed solely by him and marketed under the trade name and mark "CuteFTP," including the right to distribute the software on a world wide basis in exchange for the payment of royalties and other consideration;
D. GlobalSCAPE has developed and distributed the CuteFTP program, and has paid Kunadze royalties pursuant to the Distribution Agreement and License;
E. Kunadze has reviewed the books and records of GlobalSCAPE to verify the accuracy and timeliness of all royalty payments paid and payable under the Distribution Agreement and License, and Kunadze is satisfied with same; and
F. Kunadze and GlobalSCAPE have now agreed that they will terminate the Distribution Agreement and License, and that Kunadze will sell all of his ownership rights in the product known as CuteFTP and certain related property of GlobalSCAPE on the terms and conditions described in this Agreement.
NOW THEREFORE, the parties agree as follows:
1. Property Purchased. Kunadze hereby transfers and assigns to GlobalSCAPE all of his worldwide right, title and interest in the computer software program known as "CuteFTP," including without limitation the source code and any common law or statutory copyright in the source code for CuteFTP versions 1.8, 2.0, 2.5 and 2.8, in any language, as they may be renewed or extended, and any subsequent releases of, or
modifications, revisions, upgrades, or fixes to the program whose core base was
originally known as "CuteFTP," (the "Software"); all documentation related to
the Software (including any user manuals, help files, and installation
instructions); and the trademark "CuteFTP" and any variations thereof employing
the formative "Cute," together with the goodwill of the business in connection
with which the mark is used and which is symbolized thereby, and any causes of
action accrued in his favor for infringement of any copyright in the Software
and the CuteFTP trademark (the Software and other property described in this
Section are referred to in this Agreement collectively as "Property").
3. Termination of Distribution Agreement and License. The Distribution Agreement and License are hereby terminated.
4. Mutual Release. Kunadze and GlobalSCAPE each release and discharge the other, and each of their respective agents, insurers, servants, employees, assigns and representatives of any kind, from any and all past or accrued claims, demands, controversies, actions, debts or causes of action of any nature either of them may have against the other arising out of or with respect to the Distribution Agreement, the License, the Property (other than those arising from this Agreement), and any prior transaction between them with respect to the Distribution Agreement, the License and Property, whether known or unknown, and whether based on contract, tort (including fraud and misrepresentation), statute, equity or any other legal principal, and those for present, future, known and unknown damages. Kunadze acknowledges that this release includes any claim for stock or options to purchase stock of GlobalSCAPE, payment of royalties due or accruing under the Distribution Agreement to and through the date of this Agreement, any other accrued but unpaid amounts under the Distribution Agreement and License, and any right to the adjustment of past royalties or other payments due under the
Distribution Agreement and License. GlobalSCAPE acknowledges that this release includes any claim it may have against Kunadze for overpayment of royalties or other payments due or accrued under the Distribution Agreement and License.
5. No Competitive Products. Kunadze shall not market, promote, sell, offer to sell, distribute, or develop or assist in the development of, any file transfer protocol related program or component for sale or distribution to any person other than GlobalSCAPE, anywhere in the world for a period of two years following the execution of this Agreement; provided, however, that the FTP server under development by Kunadze at the time of execution of this Agreement may be transferred to a third party if Kunadze first offers it to GlobalSCAPE on the same terms and conditions as the proposed transfer to a third party and GlobalSCAPE does not accept the offer within 30 days of receipt.
6. Warranties.
(a) Kunadze represents, warrants and covenants that:
1) he is the exclusive owner of all right, title and interest in the Property and has authority to enter into this Agreement;
2) the portions of the Software that have been delivered by him or his agent to GlobalSCAPE are his original work;
3) the portions of the Software that have been delivered by him or his agent to GlobalSCAPE do not infringe on the copyright, trademark, trade secret or other proprietary rights of any other person;
4) he has not provided any portion of the source code for the Software to any person other than GlobalSCAPE, and does not know of any person other than GlobalSCAPE and himself who has ever had possession of the source code, except for Kazan Software of Houston, Texas, which evaluated the source code under a confidentiality agreement in 1995;
5) he has not developed any product competitive with the Software, including any file transfer protocol related product but not including an FTP server, or used or authorized any other person to use the word "Cute" in connection with any actual or planned product or service, including a software, hardware or computer related product of any kind;
6) he has not allowed any person other than GlobalSCAPE to use, nor, to the best of his knowledge has any person other than GlobalSCAPE used, the CuteFTP trademark or any confusingly similar mark for the same or related services, and that prior to the
time that Distribution Agreement was signed, he continually used the mark since the time of its adoption and did not abandon it;
7) that the Property is in all respects free and clear and he has not and will not grant any license, lien, or otherwise encumber the Property in any manner or transfer any rights in the Property to any person other than GlobalSCAPE, nor has he or will he make any commitment to any person which will or may impair GlobalSCAPE's rights in the Property, except that Original Equipment Manufacturer Agreement between Kunadze and Performance Technology (the "OEM Agreement");
8) Neither Performance Technology nor any of its successors or assigns has exercised any rights or performed any obligations under the OEM Agreement since November 5, 1998, and Kunadze has delivered to GlobalSCAPE evidence of the termination of the OEM Agreement;
9) his rights in the Property as described in this Agreement have never been disputed, either formally or informally; and
10) there is no fact regarding the Property that is material to the transactions evidenced by this Agreement that he has not disclosed to GlobalSCAPE, and he will communication to GlobalSCAPE any such facts which become known to him in the future;
(b) GlobalSCAPE represents, warrants and covenants that:
1) it is duly organized, validly existing and in good standing under the laws of the jurisdiction under which it is organized, it has the power to enter into this Agreement, and it has taken all necessary actions to authorize and execute this Agreement;
2) it will show Kunadze as the original author of the Software in conjunction with its copyright notice on the Software;
3) Kunadze's rights in the Property have never been disputed, either formally or informally, to the knowledge of GlobalSCAPE; and
4) There is no fact which GlobalSCAPE has not disclosed to Kunadze which could have a material adverse affect on the financial condition of GlobalSCAPE or impair its ability to perform its obligation under this Agreement.
7. Indemnification. Each party shall indemnify, and hold harmless the other party from and against any and all liabilities, obligations, losses, damages, penalties, fines, punitive damages, amounts in interest, expenses and disbursements of any kind and nature whatsoever arising under any theory of legal liability (including reasonable
attorneys fees and costs) that may be imposed on, incurred by or asserted against the indemnified party, or any of its property, arising from, related to or caused by an actual or asserted breach of this Agreement, or the Distribution Agreement or License as to claims arising at a time when such agreements were in effect, by the indemnifying party (including breach of any warranty). Theories of legal liability include, but are not limited to, contract, tort, strict liability, infringement on intellectual property rights, breach of express or implied warranty, breach of implied covenant and the sole or concurrent negligence of the indemnified party or any person whose negligence, duties, actions or liabilities may be attributed or imputed to the indemnified party. A party seeking indemnification under this Section shall provide prompt notice of its claim for indemnification to the indemnifying party, provided, however, that failure to give prompt notice shall not affect the indemnifying party's obligations under this Section unless the failure materially prejudices the indemnifying party's rights. The indemnified party will have the right to select counsel to defend it in respect of any indemnified matter under this Section, provided, however, that the counsel selected must be reasonably satisfactory to the indemnifying party. The indemnified party will keep the indemnifying party informed of the status of any litigation or dispute resolution procedure, will give reasonable consideration to the suggestions and requests of the indemnifying party with respect to the conduct of the litigation or dispute resolution procedure, and will not settle any matter covered by this Section without the prior consent of the indemnifying party, which shall not be unreasonably withheld. Amounts due under this section shall be paid as incurred, and may be offset against amounts due the indemnifying party under this Agreement if not paid promptly.
8. Confidentiality. The following information is "Confidential Information":
(a) the specific terms of this Agreement (except for the Bill of Sale and Assignment) and all information exchanged by the parties during negotiations culminating in this Agreement;
(b) the specific terms of the Distribution Agreement and License and all information exchanged by the parties during negotiations culminating in the Distribution Agreement and License;
(c) any information related to either party's performance of, or failure to perform, this Agreement, the Distribution Agreement or the License;
(d) the Software; and
(e) any information related to a party's assets, liabilities; financial results, business strategies plans or operations; proprietary information, technology or know-how; and customers, vendors, contractors or suppliers;
but excluding any information which is or becomes generally available to the public other than through breach of this Agreement, or violation of law or other agreement. Each party agrees not to disclose the other's Confidential Information to any third party except
to its agents and representatives who need to know the information to any third party except to its agents and representatives who need to know the information to represent or advise it with respect to the subject matter of this Agreement; provided, however, that a party will not be liable for disclosure of the other party's Confidential Information if it is required by law or regulation to be disclosed and the disclosing party gives advance notice of the disclosure to the other party at the earliest possible time.
9. Delivery of Source Code and Other Materials. Kunadze shall deliver all copies of the Software (whether in machine or human readable form) in his possession and control to GlobalSCAPE no later than January 25, 1999. If Kunadze fails to make timely delivery, GlobalSCAPE shall be entitled to withhold any and all payments due to Kunadze hereunder, without penalty, until Kunadze has delivered the materials required under this Paragraph 9. Delivery of the Software is not a condition precedent to this Agreement.
11. Notices. Notices under this Agreement must be given in writing by 1st Class U.S. Mail, Certified, Return Receipt Requested with a facsimile transmission the same day as the original is placed in the mail to the following address:
GlobalSCAPE: Sandra Poole Christal
GlobalSCAPE, Inc.
800 Isom Road, Suite 400
San Antonio, Texas 78216
Kunadze: Ross Laughhead, Attorney at Law
5975 Lockhill Road
San Antonio, Texas 78240-2010
with a copy e-mailed to rosslau@ibm.net
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Notices will be deemed given, delivered and effective on the first business day that is three days after the notice is placed in the mail.
12. Miscellaneous.
(a) This Agreement constitutes the final and complete agreement of the parties with respect to its subject matter, and supercedes any prior agreements, discussions or understandings, written or oral.
(b) This Agreement may be modified only by a written document that refers specifically to this Agreement and is signed by both parties.
(c) A party's failure or delay in enforcing any provision of this Agreement will not be deemed a waiver of that party's rights with respect to that provision or any other provision of this Agreement. A party's waiver of any of its rights under this Agreement is not a waiver of any of its other rights with respect to a prior, contemporaneous or future occurrence, whether similar in nature or not.
(d) This Agreement shall be governed by the laws of the State of Texas, and Kunadze agrees to submit to the jurisdiction of the courts of the State of Texas for all purposes. Sole and exclusive venue for any dispute or disagreement arising under or relating to this agreement shall be in a court sitting in Bexar County, San Antonio, Texas.
(e) This Agreement may be executed in counterparts, which together will be deemed an original.
(f) This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. Kunadze shall not assign this Agreement without the prior written consent of GlobalSCAPE, which shall not be unreasonably withheld.
(g) If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other part or provision of this Agreement, unless such invalidity shall have deprived a party of substantially all of the consideration such party was to receive hereunder.
(h) The prevailing party in any action to enforce this Agreement or claims arising from the execution of this Agreement will be entitled to reimbursement of reasonable attorney fees and costs from the other party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
GlobalSCAPE, INC.
By: /s/ Sandra Poole Christal /s/ Alex Kunadze
------------------------- ----------------
Sandra Poole Christal Alex Kunadze
President
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Exhibit A Bill of Sale and Assignment
WHEREAS, I, Alex Kunadze, a citizen of Russia, residing at 32 rue de Bourgogne, Paris, France 75007 ("Assignor") have created original literary works entitled CuteFTP versions 1.8, 2.0, 2.5 and 2.8 (collectively, the "Works") and am the sole owner of valid subsisting copyrights in and thereto; and
WHEREAS, I have adopted and am using CuteFTP as a trademark for computer programs relating to file transfer protocols for the Internet (the "Trademark"); and
WHEREAS, GlobalSCAPE, Inc., a corporation organized under the laws of the State of Delaware, having a place of business in San Antonio, Texas ("Assignee") desires obtaining the entire right, title, and interest in, to and under the Works including the aforesaid copyrights and the Trademark;
NOW, THEREFORE in consideration of the sum of One Dollar ($1.00) paid by the Assignee to the Assignor simultaneously herewith, receipt of which is hereby acknowledged by the Assignor, and for other good and valuable considerations, I:
HEREBY SELL, ASSIGN, TRANSFER AND SET OVER unto the Assignee the entire right, title, and interest in and to the Works, the entire right, title, and interest in and to the aforesaid copyrights and any and all statutory or common-law copyrights or copyright registrations covering the Works, and the entire right, title and interest in and to the Trademark and the goodwill of the business in connection with which the Trademark is used and which is symbolized by the Trademark, TO HAVE AND TO HOLD THE SAME unto the Assignee, its successors, legal representatives and assigns absolutely and forever;
HEREBY authorizes and request the Register of Copyrights of the United States, and any official of any country or countries foreign to the United States, whose duty it is to issue copyright registrations or similar indicia of copyright, to issue all such copyright, registrations for said Works to Assignee, its successor, legal representatives and assigns;
HEREBY constitute and appoint the Assignee my true and lawful attorney-in-fact with full power of substitution, in my name and stead, but for the Assignee's benefit, to take any and all steps (including proceeding at law, in equity or otherwise), and to execute, acknowledge and deliver any and all instruments and assurances necessary or expedient in order to vest the aforesaid Works, copyrights, Trademark and any cause of action related to any of them more effectively in the Assignee, or to protect the same, or to enforce any claim or right of any kind with respect thereto. The Assignor hereby declares that the foregoing power is coupled with an interest and is irrevocable.
By: /s/ Alex Kunadze --------------------------- Name: Alex Kunadze |
STATE OF TEXAS (S)
COUNTY OF BEXAR (S)
Before me, the undersigned authority, on this day personally appeared Alex Kunadze, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed.
Given under my hand and seal of offices on this ___ day of January, 1999.
/s/ Melvin White ---------------- Notary Public in and for the State of Texas |
Exhibit B
Principal Amount: $378,000.00
Dated: January 15, 1999
NOTE
For the consideration described in that Purchase Agreement between GlobalSCAPE, Inc. ("GlobalSCAPE") and Alex Kunadze ("Kunadze") dated January 15, 1999 (the "Purchase Agreement"), GlobalSCAPE promises to pay Three Hundred Seventy Eight Thousand and no/100 U.S. Dollars ($378,000.00) to the order of Kunadze at 5975 Lockhill Road, San Antonio, Texas 78240-2010, or such other place in San Antonio, Texas as Kunadze may designate in writing, in six equal monthly installments of Sixty Three Thousand and 00/100 Dollars ($63,000.00), without interest, on or before the last day of each calendar month beginning August 31, 1999 with a final maturity of January 31, 2000.
This Note is subject to the Purchase Agreement. In addition any other rights or remedies that GlobalSCAPE may have against Kunadze, GlobalSCAPE may offset amounts due under this Note against amounts due GlobalSCAPE under the Purchase Agreement, for breach of the Purchase Agreement or for any other claim arising in connection with the execution of the Purchase Agreement, whether or not those amounts are matured.
The parties acknowledge and agree that this Note is given in respect of GlobalSCAPE's obligations to pay the seventh through twelfth installments of that portion of the Purchase Price (as that term is defined in the Purchase Agreement) that is described in Section 2(i) (to wit: the $756,000 to be paid in twelve installments beginning February 28, 1999), and that the amount due under this Note will not be reduced until all other portions of the Purchase Price have first been paid, and that any payments made after those amounts have been paid, will reduce the amount of this Note.
Upon and at any time after any Default (as defined below) all amounts due under this Note, at the option of Kunadze and without demand, notice or legal process of any kind, may be declared and immediately shall become due and payable. "Default" shall mean the occurrence or existence of any one or more of the following events or conditions: (i) GlobalSCAPE fails to pay when due any amount due under this Note and fails to cure such late payment within five (5) days following written receipt of notice of the late payment; or (ii) GlobalSCAPE makes an assignment for the benefit of creditors, or any proceeding is filed or commenced by or against GlobalSCAPE under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute, and any such proceeding remains undismissed or unstayed for a period of 30 days, or any of the actions sought in any such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, GlobalSCAPE or for any substantial part of its property) shall occur, or GlobalSCAPE shall take any action to authorize any of the actions set forth above in this subsection.
If Kunadze prevails in any action to collect on or enforce this Note or claims arising from the execution of this Note, then his reasonable attorney fees and costs will also be payable under this Note.
Neither party may assign this Note without the prior written consent of the other, which shall not be unreasonably withheld.
This Note may be modified only by a written document that refers specifically to this Note and is signed by both parties. A party's failure or delay in enforcing any provision of this Note will not be deemed a waiver of that party's rights with respect to that provision or any other provision of this Note. A party's waiver of any of its rights under this Note is not a waiver of any of its other rights with respect to a prior, contemporaneous or future occurrence, whether similar in nature or not. This Note shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto.
THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, AND KUNADZE AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS FOR ALL PURPOSES. SOLE AND EXCLUSIVE VENUE FOR ANY DISPUTE OR DISAGREEMENT ARISING UNDER OR RELATING TO THIS NOTE SHALL BE IN A COURT SITTING IN BEXAR COUNTY, SAN ANTONIO, TEXAS.
Made this 15th day of January, 1999.
GlobalSCAPE, INC.
By: /s/ Sandra Poole Christal
------------------------------------------------
Sandra Poole Christal
President
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GUARANTEE
American TeleSource International, Inc., being the majority shareholder of GlobalSCAPE, Inc., does hereby irrevocably guarantee payment of all amounts due Alex Kunadze under the Purchase Agreement, by and between GlobalSCOPE, Inc. and Kunadze dated January 16, 1999, conditioned only upon said Agreement being still in full force and effect.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By: /s/ Charles R. Poole
-----------------------------
Charles R. Poole
President
Date: 1/16/99
--------
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ASSIGNMENT
In consideration of the sum of One Dollar ($1.00), I, Alex Kunadze, hereby assign all of my right, title and interest in and to the following agreements to GlobalSCAPE, Inc.:
1. Original Equipment Manufacturer Agreement between Alex Kunadze and Performance Technologies under which the software known as CuteFTP was licensed to Performance Technologies,
2. a confidentiality agreement with Kazan Software of Houston, Texas,
3. any other agreement executed by me regarding the software known as CuteFTP,
TO HAVE AND TO HOLD THE SAME unto GlobalSCAPE, Inc., its successors, legal representatives and assigns absolutely and forever.
/s/ Alex Kunadze
------------------------------
Alex Kunadze
STATE OF TEXAS (S)
COUNTY OF BEXAR (S)
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Before me, the undersigned authority, on this day personally appeared Alex Kunadze, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed.
Given under my hand and seal of offices on this ___ day of January, 1999.
/s/ Melvin White ------------------------------ Notary Public in and for the State of Texas |
EXHIBIT 10.4
NTFC CAPITAL CORPORATION
$2,000,000 LOAN TO
AMERICAN TELESOURCE INTERNATIONAL, INC.
request, including but not limited to a certificate of a responsible officer of such additional Subsidiary as to the authority of such additional Subsidiary to execute, deliver and perform this Agreement and the Note and as to the incumbency and signature of the officer or officers signing Borrowing Certificates and Note.
(c) The obligation of each Borrower hereunder and under the Note evidencing amounts from time to time advanced hereunder to a Borrower shall be joint and several obligations at ATII and all other Borrowers.
2. THE NOTE AND PAYMENT TERMS: All advances of funds to a Borrower (an "Advance") shall be evidenced by a [sic] one or more promissory notes in the form of Exhibit B executed by the Borrowers (individually and collectively, the "Note"), which shall be in a form and substance satisfactory to the Lender and represent the joint and several obligations of the Borrowers to pay the aggregate unpaid advances on the base (the "Principal Amount"), plus any accrued interest thereon, and all extensions, renewals or modifications thereof including, without limitation, any expenses of Lender or other amounts due to Lender under the Note or this Agreement. The Note shall be dated the Closing Date and shall mature on the Maturity Date. Except as otherwise provided herein, the Note shall bear interest from the borrowing date on the outstanding unpaid Principal Amount thereof at the Interest Rate stated above (compounded monthly and computed on the basis of a year of 365 days for the actual days elapsed). In computing interest on the Note, the borrowing date shall be included and the date of payment excluded. Each Borrower and Lender understand that the Payment Schedule is intended to amortize fully the principal amount of the Note and any other principal and interest amounts outstanding will be added to the final payment on the Maturity Date. In any event, the entire outstanding principal amount of the Note and all accrued but unpaid interest and all other outstanding amounts due thereunder shall be paid on the Maturity Date. If a Payment Date is not a business day, the Payment Date shall be on the first business day following the nonbusiness day, and interest thereon shall be payable tat [sic] the rate in effect during such extension. Each payment shall be credited first to accrued and unpaid interest and the balance to the Principal Amount (provided that in any event the entire Principal Amount of the Note then outstanding together with any accrued and unpaid interest shall be paid on the Maturity Date). The Lender is authorized to endorse the date and amount of each Advance and each payment of the Principal Amount and interest with respect to the Note on the schedule annexed to and constituting a part of the Note, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed.
All payments shall be made in lawful money of he United States of America in immediately available funds and without set off or counterclaim to the Lender or any subsequent assignee of a Note.
any Taxes, levies, duties, fees, deductions or withholdings, restrictions or conditions of any nature imposed by or on behalf of any jurisdiction (other than the United States of America) or any taxing authority (other than the United States of America) whatsoever on the payments by Borrowers to Lender under this Agreement, any Note or the other Loan Documents and
(A) that if it is prevented by operation of law from paying any Taxes, then the interest rate or fees required to be paid under this Agreement, any Note or the other Loan Documents shall be increased by the amount necessary to yield to Lender interest or fees at the rates specified in this Agreement, any Note or the other Loan Documents after provision for the payment of all such Taxes and without taking into account any tax benefits accruing to Lender from such payment;
(B) that it shall at the request of Lender execute and deliver to Lender such further instruments as may be necessary or desirable to effect the increase in the interest or fees as provided for in clause (A) immediately above, including a new Note to be issued in exchange for any Note theretofore issued;
(C) that it shall hold Lender harmless from and against any liabilities with respect to any Taxes (whether or not properly or legally asserted); and
(D) that it shall provide Lender with the original or a certified copy of evidence of the payment of any Taxes by it, as Lender may reasonably request, or, if no taxes have been paid to provide to Lender, at Lender's request, with a certificate from the appropriate taxing authority or an opinion of counsel acceptable to Lender stating that no Taxes are payable.
Notwithstanding the foregoing, if the Borrowers shall fail to pay within five (5) days after when due any part of the Principal Amount remain, interest or any amount payable hereunder or under a Note, such amount shall bear interest at a rate per annum that is three percent (3%) higher than the Interest Rate from the due date until such overdue Principal Amount, interest, or other amounts are paid in full (before and after judgment) whether or not any notice of default in the payment thereof has been delivered.
Notwithstanding any provision of this Agreement, it is the intent of the Lender and the Borrowers that the Lender, or any subsequent holder of a Note, shall never be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum non-usurious lawful rate of interest permitted to be charged by applicable law, as amended or enacted from time to time. In the event the Lender, or any subsequent holder of a Note, ever receives, collects, reserves or applies as interest, interest in excess of the then maximum lawful rate of interest, such amount which would be excessive interest shall be deemed a partial prepayment of the Principal Amount and treated hereunder as such (except that no prepayment premium otherwise applicable shall be payable thereon), or, if the Principal Amount and all other amounts due are paid in full, any remaining excess funds shall immediately be paid to the Borrowers. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful rate of interest, the Borrowers and the Lender shall, to the maximum extent permitted under applicable law, (a) exclude voluntary prepayments and the effects thereof as it may relate to any fees charged by the Lender, and (b) amortize, prorate, allocate and spread, in equal parts, the total amount of interest throughout the entire term of the Indebtedness; provided that if the Indebtedness is paid in full prior to the end of the full contemplated term hereof, and if the interest received over the actual period of existence hereof exceeds the maximum lawful rate of interest, the Lender or any subsequent holder of a Note shall refund to the Borrowers the amount of such excess, and in such event shall not be subject to any penalties provided by any laws for contracting for, charging, reserving, collecting or receiving interest in excess of the maximum lawful rate of interest.
3. PROCEDURES FOR BORROWING: ATII (and if a borrower other than ATII is acquiring the equipment to be financed thereby, such other Borrower) shall execute and deliver to Lender, at least five (5) business days prior to the date of the requested Advance, a Borrowing Certificate in the form of Exhibit C-1 (a "Domestic Advance Borrowing Certificate") to request Advances to finance the acquisition by ATII or such other borrower of equipment which is, or is to be placed, in jurisdictions within the United States, and at least thirty (30) business days prior to the date of the requested Advance, a Borrowing Certificate in the form of Exhibit C-2 ( a "Foreign Advance Borrowing Certificate" and together with a Domestic Advance Borrowing Certificate, a "Borrowing Certificate") to request Advances to finance the acquisition by ATII or such other Borrower of equipment which is, or is to be placed, in Mexico or another Latin American jurisdiction. Each Borrowing Certificate shall be in form and substance satisfactory to Lender, and shall specify the business day on which the borrowing is to be made and the amount of the borrowing and have attached thereto the applicable purchase order issued by such Borrower and related invoice from the Supplier which is to be paid by Lender with the proceeds of the loan. On the borrowing data specified in the Borrowing Certificate, providing that all conditions precedent have been satisfied, Lender shall transmit the borrowed funds to an account maintained by and in the name of Supplier. The aggregate principal amount of each borrowing shall be not less than $25,000. Lender shall not be required to make Advances more than twice per calendar month.
4. PLACE OF PAYMENT. The Principal Amount, interest and fees, if any, shall be payable at 501 Corporate Centre Drive, Suite 600, Franklin, Tennessee 37067, or such other place as may be designated, from time to time in writing, by Lender or any subsequent holder.
5. PREPAYMENT. The Borrowers may, at their option and subject to the
satisfaction of the requirements of the next sentence, at any time and from time
to time, prepay any Advance, in whole or in part, upon at least (30) business
days prior written notice to Lender specifying the date and amount of prepayment
in a minimum amount of $50,000. Any such prepayment occurring during the first,
second and third years following the date of such Advance shall be subject to a
prepayment premium equal to a percentage of the amount being prepaid as follows:
three percent (3%) if the prepayment is made during the first year following the
date of such Advance; two percent (2%) if the prepayment is made during the
second year following the date of such Advance; and one (1) percent if the
prepayment is made during the third year following the date of such Advance.
7. DESCRIPTION OF COLLATERAL. The Collateral includes, and each Borrower hereby grants Lender a security interest in, all such Borrower's presently existing or hereafter acquired right, title and interest in, and to (i) the equipment, fixtures, and other property identified in a Borrowing Certificate pursuant to which Lender advances funds hereunder (Borrowing Certificates are collectively referred to as the "Collateral Schedule") or otherwise acquired or financed or refinances with loan proceeds from Lender, including without limitation, hardware and software, components, wiring, cabling and associated electronics and any and all replacements, additions, substitutions to or any of the foregoing, together with all attachments, components, parts,
accessions, improvements, upgrades, all accessories installed thereon or affixed thereto and all of the foregoing forming an integral part thereof; and (ii) to the extent not otherwise included, all proceeds of the foregoing, including without limitation, (A) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Collateral; (B) any and all payments (in any form whatsoever) made or due and payable to a Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the collateral by any governmental body, authority, bureau or agency (or any person action under color of governmental authority); (C) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral; and (D) any and all cash proceeds and non-cash proceeds in the form of equipment, inventory, accounts, general intangibles, chattel paper or other proceeds (collectively, "Proceeds"), The Collateral Schedule is incorporated in and made a part of this Agreement.
8. REPRESENTATIONS AND WARRANTIES: In order to induce the Lender to enter into this Agreement and to make the loans contemplated herein, each Borrower represents and warrants that on the date of the Note's execution and until payment in full of the indebtedness:
(a) Each of ATII and each Subsidiary of ATII (I) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was formed; (ii) has the power and legal authority to own or lease and operate it's business as now being conducted; (iii) is properly licensed, in good standing and duly qualified to do business in every jurisdiction where necessary; (iv) if a Borrower hereunder, has the power and authority and the legal right to make, deliver and perform this Agreement and the Note and to borrow hereunder and has received all necessary authorization from its directors or partners, as applicable, to execute, deliver and perform this Agreement, the Note and any related documents to be delivered pursuant to this Agreement, and (v) the Borrowers other than ATII are, and will remain Subsidiaries of ATII for so long as such Subsidiary remains obligated to Lender hereunder.
(b) The person executing this Agreement and the Note on behalf of each Borrower has been given the authority to bind each Borrower, and this Agreement and the Note constitute legally binding enforceable obligations of each Borrower.
(c) The execution, delivery and performance of this Agreement and the Note will not violate ATII's or any Subsidiary's charter, bylaws, partnership agreement or other organizational papers, or any law, agreement or undertaking to which ATII or any Subsidiary is a party, or by which ATII or any Subsidiary is bound or affected.
(d) All required consents relative to the execution, delivery, and performance of this Agreement and the Notes have been obtained, including any required of the Federal Communications Commission, the Commerce Commission for any state or other jurisdiction in which ATII or any Subsidiary is operating "PUC") or any other governmental authority.
(e) All information, reports and other papers and data with respect to ATII and/or each Subsidiary (other than, projections) furnished to the Lender by a Borrower at any time prior to the date hereof were, to the best knowledge of each Borrower at the time the same were furnished, true and correct in all material respects, or have been subsequently supplemented by other information, reports or other papers or data, to the extent necessary to give the Lender a true and accurate knowledge of the subject matter thereof in all material respects; and all projections with respect to ATII and/or each Subsidiary furnished by a Borrower, as supplemented were prepared or presented in good faith by such Borrower and had a reasonable basis. No fact is known to any Borrower which materially and adversely affects the business, operations, assets (taken as a whole) or financial condition of ATII or any Subsidiary which has not been set forth in the financial statements provided to Lender in connection with this Agreement or in such information, reports, papers and data, or otherwise disclosed in writing to the Lender prior to the first borrowing date relative to the initial loan made, hereunder. All financial statements have been prepared in accordance with GAAP applied consistently throughout the period involved.
(f) There have been no material adverse changes in ATII's consolidated financial position since the date of the financial statements provided to Lender in connection with the credit approval of ATII relative to this Agreement.
(g) There is no litigation, investigation or proceeding threatened or pending against ATII or any Subsidiary or against any of its assets or revenues which, if decided adversely, would have a material adverse effect upon ATII's consolidated financial condition or its business, operations or assets (taken as a whole).
(h) The Borrower requesting the Advance is the sole owner of and has good and marketable title to each item of Collateral acquired with Proceeds of an Advance (or will have at the time such Borrower acquires rights in the Collateral hereafter arising), free and clear of all security interests, claims, liens, and encumbrances except as granted to Lender. Lender has a fully-perfected first priority lien on, and security interest in, all right, title and interest of each Borrower in the Perfected Collateral enforceable against such Borrower and third parties.
(i) Neither ATII nor any Subsidiary is in default under any agreement, mortgage, note, security agreement or other documents to which it is a Party or by which it, or any of its property, is bound in any respect which could be materially adverse to the business, operations, assets or financial condition of ATII on a consolidated basis, or which could materially adversely affect the ability of any Borrower to perform its obligations under this Agreement.
(j) Each of ATII and each Subsidiary has paid all taxes due, except such taxes as are being contested in good faith and against which ATII or such Subsidiary has set up reserves satisfactory to the Lender.
(k) No Borrower is engaged nor will any engage principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meaning of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System now, and from time to time, hereafter in effect. No part of the proceeds any loan will be used for "purchasing" or "carrying" "margin stock" as defined or for any purpose which violates, or which would be inconsistent with, the provisions of the regulations of such Board of Governors.
(l) No Borrower is an "investment company" or company "controlled" by an "investment company," within the meaning the Investment Company Act of 1940 as amended.
(m) Neither ATII nor any Subsidiary is in violation of a federal or state law, rule or regulation or determination of an arbitral court or other governmental authority, in each case applicable or binding upon ATII or any Subsidiary or any of its properties or to which ATII any such Subsidiary or any of its properties are subject, in each ca [sic] which individually or in the aggregate would have a material adverse effect on the rights of the Subsidiary or the security interest of Lender the Collateral or ATII's consolidated financial condition or operations assets taken as a whole.
(n) There is no event which is, or with notice or lapse time, or both, would be an Event of Default as defined in Section 14 this Agreement.
(o) Purchase Agreement has been duly executed and delivered by the Borrower and the Supplier with respect to the Collateral which proceeds of an Advance are being requested by such Borrower and will be in full force and effect on the date of such Advance.
(p) ATII has reviewed its operations and those of its Subsidiaries with a view to assessing whether its business (together wit [sic] the businesses of its Subsidiaries on a consolidated basis), will be vulnerable to a Year 2000 Problem or will be vulnerable to the effects of Year 2000 Problem suffered by any major commercial customers of ATII or of any of its Subsidiaries, and has a reasonable basis to believe that no Year 2000 Problem will cause a material adverse effect to ATII on a consolidated basis. For purposes of this Agreement, "Year 2000 Problem means any significant risk that computer hardware, software or equipment containing embedded microchips essential to the business or operations of ATII or any other Borrower will not, in the"case of dates or time periods occurring after December 31, 1999, function at least at effectively and reliably as in the case of times or time periods occurring before January 1, 2000, including the making of leap year calculations.
(q) Each Domestic Subsidiary of ATII is a signatory to this Agreement.
9. CONDITIONS PRECEDENT:
(a) Initial Loan. The obligation of the leader to make the initial loan on the first borrowing date shall be subject to the fulfillment prior to or contemporaneously with the making of such loan of the following conditions precedent:
(i) The Lender shall have received an opinion of legal counsel to ATII and each other Borrower as of such date, dated the first borrowing date, in a form and substance satisfactory to Lender.
(ii) Lender shall have received a certificate of a responsible officer of ATII and each other Borrower as of such date, dated the first borrowing date, as to the authority of such Borrower(s) to execute, deliver and perform this Agreement and the Note.
(iii) The Lender shall have received a certificate of a responsible officer of ATII and each other Borrower as of such date, dated the first borrowing date, as to the incumbency and signature of the officer or officers signing the Agreement, the Note and any other certificate or other documents to be delivered pursuant thereto, together with evidence of the incumbency of each responsible officer.
(iv) The Lender shall have received copies of all consolidated financial statements of ATII as required by Lender.
(v) The Lender shall have received copies, certified by a responsible officer of ATII to the satisfaction of Lender, of contracts in effect between one or more Borrowers and Qwest and Primetec containing such terms as are customary for such business (including but not limited to pricing) in form and substance satisfactory to Lender.
(vi) The Lender shall have received copies, certified by a responsible officer of ATII to the satisfaction of Lender, of a [illegible] vendor financing facility in effect between one or more borrowers and Network Equipment Technologies, Inc. providing at least $1,000,000 of unrestricted borrowing availability and containing such terms as are customary (including but not limited to interest rates) in form and substance satisfactory to Lender.
(B) All Loans. The obligation of the Lender to make any loan (including the initial loan) to be made by it on any borrowing date is subject to the satisfaction of the following conditions precedent:
(i) The Lender shall have received a Note conforming to the requirements here, and fully executed by each Borrower.
(ii) The representations and warranties made by ATII and each other Borrower in this Agreement and in each Borrowing Certificate and shall be correct in all material respects on and as of such borrowing date and after giving effect to the loan to be made on such borrowing date.
(iii) No event of Default or event or condition which with notice or passage of time or both would constitute an Event of Default shall have occurred and be continuing on such borrowing date or after giving effect to the loan to be made on such borrowing date.
(iv) The Lender shall have received a Borrowing Certificate, dated such borrowing date for such loan, satisfying the requirements of Section 3.
(v) Except where waived by Lender in the exercise of its reasonable discretion, the Lender shall have received the waiver of liens and consent of the real estate lessors of the Borrower, and or such other persons as the Lender shall deem desirable, to facilitate the removal by the Lender, upon the occurrence of an Event of Default, of all items of US Collateral which are or were personalty where first located on any real property that is subject to any real estate leases and/or mortgages, such waivers of liens and consents to be in form and substance satisfactory to the Lender and its counsel.
(vi) The Borrowers shall have (1) executed and delivered to Lender all documents (including, without limitation, financing statements) necessary to create in favor of Lender a first-priority perfected security interest in, and lien on, Collateral located in the United States ("US Collateral") with evidence of any necessary filing, registration or recordation of such documents, the payment of recording, stamp or other taxes measured by indebtedness or otherwise required as a result of filing, registration or recordation of such documents and searches confirming the absence of any other liens or security interests thereon, and (2) with respect to jurisdictions in the United States for which Lender has not previously received an opinion of counsel covering its security interests in the US Collateral, delivered an opinion of counsel to the applicable Borrower(s), dated the date of such Advance, in form and substance satisfactory to Lender to the effect that the lien and security interest of Lender on such US Collateral constitutes a perfected security interest in favor of Lender.
(vii) the applicable Borrower(s) shall have (1) executed and delivered to Lender all documents necessary to create in favor of Lender a first-priority perfected security interest in, lien on, or trust or comparable security ownership interest in, Collateral located in Mexico ("Foreign Collateral," and together with US Collateral, the "Perfected Collateral"), together with evidence of (x) any necessary filing, registration or recordation of such documents, (y) the payment of recording, stamp or other taxes measured by indebtedness or otherwise required as a result of filing, registration or recordation of such documents and (z) the absence of any other liens or security interests on such Foreign Collateral, and (2) delivered an opinion of counsel to the applicable Borrower(s), dated the date of such advance, in form and substance satisfactory to Lender to the effect that (y) the documents have been validly executed and delivered by, and are binding and enforceable upon, the applicable Borrower(s) and do not conflict with the application of Borrower's organization documents, material contracts or applicable law, and (z) the security interest in, lien on, or trust or comparable security ownership interest of Lender on such Foreign Collateral "perfected" or otherwise enforceable against such Borrower and the parties in favor of Lender under the laws of such foreign jurisdiction.
(viii) All proceedings and all other documents and legal matters in connection with the transactions contemplated in the Agreement shall be satisfactory in form and in substance to the Lender and its counsel.
10. INTENTIONALLY DELETED.
11. AFFIRMATIVE COVENANTS: Each Borrower with respect to itself and its business, property and Collateral warrants, covenants and agrees that from the Agreement date and until performance and payment in full of the Indebtedness, it will:
(a) Furnish to Lender as soon as available, but in any event within one hundred and twenty (120) days after the end of each fiscal year of ATII, a copy of the consolidated balance sheet of ATII as of the end of such year and the related statements of earnings and changes in financial position for such year, setting forth in each case in comparative form, the figures for the previous year audited by independent certified public accountants. The financial statements shall be complete and correct in all material respects, and be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or a responsible officer, as the case may be, and disclose therein).
(b) Furnish to Lender, concurrently with the delivery of the financial statements referred to in subsection (a) hereof, a certificate of a responsible officer of ATII and each other Borrower stating that, to the best of such officer's knowledge, ATII and each other Borrower during such period, has observed or performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement and in the Note to be observed, performed or satisfied by it and that such officer has obtained no knowledge of any Event of Default except as specified in such certificate.
(c) Promptly upon receipt thereof, furnish to Lender one copy of each written financial audit report submitted to ATII by independent accountants resulting from any annual, interim or special audits made by them of ATII's books.
(d) Furnish to Lender copies of all financial statements and material reports which ATII or any other Borrower may make to, or file with, the Securities and Exchange Commission or any successor.
(e) Pay promptly when due all taxes, assessments, governmental charges,
claims for labor, supplies, rent and other obligations, which, if unpaid,
might become a lien against the Perfected Collateral or any Borrower's
other assets, except liabilities (I) being contested in good faith and by
appropriate proceedings, which proceedings do not involved any danger of
the sale, forfeiture or loss of the Perfected Collateral or any interest
therein or a material part of ATII's or such Borrower's other assets, and
(ii) against which ATII has set up reserves satisfactory to the Lender.
(f) Comply, and cause each Subsidiary to comply, with all applicable laws, statutes, orders, rules, regulations and directions applicable to ATII and/or such Subsidiary and the Perfected Collateral or any part thereof or operation of ATII or any Subsidiary's business, except where the failure to comply will not have a material adverse effect on the value of the Perfected Collateral or the operations of ATII on a consolidated basis; provided that ATII or such Subsidiary may contest any such statutes,
orders, rules, regulations, and directions in any reasonable manner which will not, in Lender's option, adversely affect Lender's rights or ATII's or such Subsidiary's financial condition, business or operations taken as a whole or the priority of the lien or security interested in the Perfected Collateral.
(g) Maintain and preserve in full force and effect all rights, privileges, licenses, and franchises applicable to ATII and each Subsidiary necessary for the orderly and efficient conduct of ATII's and/or each Subsidiary's business as is now conducted including, without limitation, any licenses or authorizations required by the FCC or any other public utility commission or comparable regulatory agency (a "PUC") for the operation and maintenance of its present systems.
(h) Perform and comply in all material respects with all obligations under the contracts and all other agreements to which it is a party or by which it is bound relating to the Collateral except where the failure to do so would not materially and adversely affect the value of the Collateral taken as a whole.
(i) Advise Lender promptly, in reasonable detail (i) of any lien, security interest, encumbrance or claim made or asserted against any of the Collateral, (ii) of any material change in the composition of the Collateral, and (iii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral, the security interest created hereunder, or on ATII"s or any Subsidiary's financial condition, business, or operations.
(j) (1) Maintain books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of its assets and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with managements' general or specific authorization, (B) transactions are recorded as necessary (x) to permit preparation of financial statements in conformity with GAAP and (y) to maintain accountability for assets, (C) access to assets is permitted only in accordance with management's general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets are reasonable intervals and appropriate action is taken with respect to any differences, and (2) prepare all financial statements required hereunder in accordance with GAAP consistently applied and in compliance with the regulations of any governmental regulatory body having jurisdiction over ATII or any Subsidiary or ATII or any Subsidiary's business and keep such books and records pertaining to its financial affairs and to the Collateral at ATII's address set forth above.
(k) Permit Lender or its representatives, at all reasonable times, to inspect and copy (at Lender's expense except after the occurrence and during the continuance of an Event of Default or event or condition which with the passage of time or the giving of notice or both would constitute an Event of Default) each Borrower's books and records pertaining to its financial affairs and to the Collateral;
(l) Keep the Collateral at the original location set forth in the Collateral Schedule and such principal place of business at the address set forth above and not move
any of the Collateral from such locations, or change the location of ATII's or any other Borrower's principal place of business without giving Lender at least thirty (30) days advance written notice of such change or move, and in connection with any change in location of Collateral or of the principal place of business of ATII or any other Borrower, at its cost and expense, from time to time, at the written request of Lender, executed, deliver, file or record documents, agreements and instruments (in such manner and form as Lender may reasonably require) in order to create, preserve, perfect, validate or satisfy the first priority security interest in, lien on, or trust or comparable security ownership interest in the Collateral as a result of the move of the Collateral or of the change in ATII's or such other Borrower's principal place of business.
(m) Keep the Collateral in good repair and operating condition, ordinary wear and tear excepted, and maintain the Collateral owned or used by that Borrower in good working order in accordance with established maintenance procedures such that the Collateral performs to published specifications and shall maintain the equipment within two of the latest product computing loads of the Supplier, and permit Lender or its representatives at all times, upon reasonable notice, to enter into and upon any premises where any of the Collateral is located for the purpose of inspecting it, observing its use or otherwise protecting its interest therein.
(n) If any Collateral, in whole or in part, shall be lost, stolen or destroyed or damaged, or is taken in any condemnation or similar proceeding by a governmental authority (any such Collateral is referred to as the "Affected Collateral"), promptly and fully notify Lender and (I) immediately place the Affected Collateral in good condition and working order, or (ii) replace the Affected Collateral with one of like value which is in good repair, condition, and working order, and grant a first priority perfected security interest in, lien on, on trust or comparable security ownership interest in such substitution to the same extent that Lender had (or was required to have) in the Affected Collateral, or (iii) prepay Lender, without prepayment premium, loans in an amount equal to the value of such Affected Collateral.
(o) At its cost and expense, from time to time, at the written request of Lender, execute, deliver, file or record document agreements and instruments (in such manner and form as Lender may reasonably require) in compliance with or to accomplish the covenants and agreements of each Borrower in this Agreement; in order to create, preserve, perfect, validate or satisfy the security interest in, lien on, trust or comparable security ownership interest in the Collateral grant hereunder. Each Borrower also hereby authorizes Lender to file any sub-financing statement or amendment thereto, without the signature of the Borrower, or with a copy or telecopy of the Borrower's signature, to the extent permitted by applicable law, or after the occurrence and during the continuance of an Event of Default or event or condition which with the passage of time or the giving of notice or both would constitute an Event of Default hereunder to execute any financing statement or amendment thereof on behalf of each Borrower as each Borrower's attorney-in-fact Lender will promptly provide such Borrower with copies of any such financing statements.
(p) ATII shall take all actions necessary and commit adequate resources to assure that computer-based and other systems of ATII and its Subsidiaries are able to process dates effectively, including dates before, on and after January 1, 2000 without experiencing any Year 2000 Problem that could cause a material adverse effect to ATII. At the request of Lender, ATII will provide Lender with assurances and substantiations (including but not limited to the results of internal and external audit reports prepared in the ordinary course of business) reasonably acceptable to Lender as to the capability of ATII and it's Subsidiaries to conduct its and their businesses and operations before, on and after January 1, 2000, without experiencing a Year 2000 Problem causing a material, adverse effect.
(q) Cause each Domestic Subsidiary of ATII formed or acquired after the date hereof to become a Borrower hereunder in conformity with the terms and conditions of Section 1(b).
(r) Obtain Lender's prior written consent before using or generating any press release, advertisement, publicity materials or other publication in which the name or logo of Lender or any of its affiliates is used or may be reasonably inferred, and will not distribute any such materials in the absence of such prior written approval.
(s) (i) Comply with the financial covenants set forth on Exhibit C.
(ii) All accounting and financial terms herein shall be deemed to include references to consolidated and consolidating principles. Covenants, representations and agreements with respect to ATII and its properties and activities shall be deemed to refer to ATII and the other Borrowers collectively. The following words and terms shall have the following meanings unless the context otherwise clearly requires:
otherwise) to purchase or repurchase or otherwise acquire, (ii) in respect of which such person has agreed to supply or advance funds (whether by way of loan, purchase of securities or capital contribution, through a commitment to pay for property or services regardless of the nondelivery of such property or the nonfurnishing of such services or otherwise), or (iii) in respect of which such person has otherwise become directly or indirectly liable, and (d) all obligations of such person under any now or hereafter existing interest swap or hedge agreements (net of any amounts owed to that person under any such swap or hedge agreements).
(t) Furnish to Lender such additional information or documents, certificates, reports and agreements regarding ATII or any other Borrower, its financial condition or the Collateral, as Lender may reasonably request.
12. NEGATIVE COVENANTS: Until payment in full of the indebtedness, each Borrower covenants that it will not directly or indirectly;
(a) Sell, lease, assign, transfer, pledge, create, or permit a security interest in, or otherwise encumber any of its rights therein, or permit any levy, lien or encumbrance thereon in favor of anyone other than Lender.
(b) Use, or permit the Collateral to be used, for any unlawful purpose or in violation of any law, statute or ordinance.
(c) Permit the Collateral to become part of, or be affixed to, any real property without first assuring, to the reasonable satisfaction of Lender, that Lender's security interest will be prior and senior to any interest or lien then held, or thereafter acquired, by any mortgagee of such real property or the owner or purchaser of any interest therein
(d) Permit the Collateral to comprise a part of any borrower's inventory.
(e) Permit anything to be done that may impair the value of any of the Perfected Collateral or the security intended to be afforded by this Agreement.
(f) Dispose of any part of the Collateral without the express prior written consent of Lender.
(g) Change its name or change its corporate structure in any material way without giving Lender at least thirty (30) days advance written notice thereof, and ensuring that any steps that Lender may deem desirable to continue the perfection and priority of Lender's security interests in the Collateral shall have been taken.
(h) Engage, or permit any Subsidiary to engage, in any business activities or operations substantially different from or unrelated to the present business activities or operations substantially different from or unrelated to the present business activities and operations of ATII and its current Subsidiaries.
(i) Enter into, become the subject of or effect any transaction of merger, acquisition or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any substantial pert of any Borrower's business or assets, whether now owned or hereafter acquired.
(j) Change the fiscal year end of ATII from December 31 except with the prior written consent of Lender, which consent shall not be unreasonably withheld.
(k) Create otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make any other distributions on or in respect of its capital stock; (ii) make loans or advances or to pay any indebtedness or other obligation owned to a Borrower; or (iii) transfer any of its property or assets to a Borrower, except for encumbrances or restrictions existing under or by reason of: (1) applicable law; or (2) customary non-assignment provisions of any contract or any lease governing a leasehold interest or Subsidiary.
13. RISK OF LOSS AND INSURANCE: All risk of loss of, damage to, or destruction of the Collateral shall, at all times, be with each Borrower. Each Borrower shall procure and maintain with financially sound and reputable companies, insurance policies (i) insuring the Collateral against loss by fire, explosion, theft and such other casualties as are usually insured against by companies engaged in the same or similar business, and (ii) insuring such Borrower and the Lender against liability for personal injury and property damage relating to the Collateral. The policies shall be in such form and in such amounts and coverage as may be reasonably satisfactory to the Lender, with losses payable to such Borrower and the Lender as their respective interest may appear. Each Borrower shall, if requested by Lender, deliver to Lender evidence that such insurance coverage is in effect. All insurance shall (i) contain a breach of warranty clause in favor of the Lender, (ii) provide that no cancellation, reduction in amount or change in coverage thereof shall be effective until at least thirty (30) days after receipt by
the Lender of written notice thereof, and (iii) be reasonably satisfactory in all respects to the Lender. If any Borrower fails to furnish such insurance or fails to pay the premiums therefor, Lender may do so or may obtain insurance of its interest only and add the amount of any such premium thereof to the other amounts secured hereby. Lender is under no obligation nor duty, however, to pay such premiums or obtain such insurances.
14. DEFAULT: The occurrence of any one or more of the following will constitute an "Event of Default" under this Agreement:
(a) The failure of any Borrower to pay when due any Payment Amount or any other amounts payable under this Agreement or any Note within five (5) days of the date when due;
(b) A breach or failure in the observance or performance by any Borrower of any other material provision of this Agreement or any other Loan Document which is not remedied within thirty (30) days after receipt by any Borrower of notice of such breach or failure;
(c) Any material representation, warranty or covenant made herein, or in any certificate, document, financial or other statement delivered in connection with this Agreement, or hereafter made by any Borrower proves to have been incorrect in any material adverse respect when made or given;
(d) ATII or any Subsidiary, or any surety or guarantor of the Indebtedness
evidenced by this Agreement or the Note (i) files a petition or has a petition
filed against it under the bankruptcy code, or any proceeding for relief of
insolvent debtors; (ii) generally fails to pay its debts as such debts become
due; (iii) shall admit in writing its inability to pay its debts as they become
due; (iv) has a custodian, trustee or receiver appointed, voluntarily or
otherwise, for t or its assets; (v) benefits from, or is subject to, the entry
of an order for relief by any court of insolvency; (vi) makes an assignment for
the benefit of creditors; (vii) becomes insolvent (however otherwise evidenced);
(viii) liquidates, winds-up, dissolves or suspends business; or (ix) has
commenced against it any case, proceeding or other action seeking the issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets, which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof;
(e) ATII or any Subsidiary shall (i) default in any payment of any other instrument or agreement (other than with Lender) with an outstanding principal amount in excess of $10,000 beyond the period of grace, if any, provided in the applicable instrument or agreement, or (ii) default in the observance of any other provision of such other instrument or agreement as to cause, or permit the holder of such instrument or agreement to cause, the obligations thereunder to become due prior to its stated maturity;
(f) One or more judgment or decrees shall be entered against ATII or any Subsidiary involving in the aggregate a liability (not paid or fully covered by insurance)
of $10,000 or more, and any of such judgments or decrees shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days after the entry thereof; or
(g) Any guaranty or any subordination agreement required or delivered in connection with this Agreement is breached or becomes ineffective, or any guarantor, or subordinating creditor disavows its obligation sunder the guaranty or subordination agreement, as the case may be; or
(h) Any Borrower fails to perform any of its obligations under any other agreement or lease with Lender (subject to any cure rights or notice periods contained in such other agreement or lease); or
(i) At any time a Borrower other than ATII ceases to be a Subsidiary or ATII; or
(j) If any Change in Control should occur without Lender's prior written consent. A "Change in Control" of ATII shall be deemed to have occurred upon any change in the direct or indirect control of, or the ability or right to control, a majority of the voting shares of any class of securities or ownership rights in any ATII or any other Borrower or in the right and/or the power to control the election of the board of directors of ATII or any other Borrower; or
(k) The occurrence of a material adverse effect on, or material adverse
change in, (i) the business, operations or financial condition of ATII or any
other Borrower, (ii) the ability of ATII or any other Borrower to perform its
obligations under this Agreement, any Note, or the other Loan Documents, or
(iii) the Lender's ability to enforce the right sand remedies granted under this
Agreement or the other Loan Documents, in all cases whether attributable to a
single circumstance or event or an aggregation of circumstances or events.
15. RIGHTS AND REMEDIES ON DEFAULT: At Lender's option, upon the occurrence of any such Event of Default under Section 14, and at any time thereafter, at Lender's option, Lender's commitment to lend shall terminate and/or all unmatured Indebtedness evidenced by the Note will immediately become due and payable without presentation, demand, protest, or notice of any kind (except as expressly provided for herein), all of which are expressly waived. Lender may exercise, from time to time, any rights and remedies available to it under this Agreement, any Note, the Uniform Commercial Code and other applicable law. Each Borrower agrees that upon the occurrence that during the continuance of an Event of Default, to the extent permitted by applicable law (i) any amounts payable under this Agreement or under any Note shall thereafter bear interest at a rate per annum equal to the Interest Rate plus three percent (3%), or the maximum rate per annum allowed by law, whichever is less, compounded monthly and payable on demand (both before and after judgment), until the Indebtedness is paid in full or the Event of Default is cured, (ii) it will, at Lenders request assemble the Collateral and make it available to Lender at places which Lender shall reasonably select, and (iii) Lender, by itself or its agent may, without notice to any person and without
judicial process of any kind, enter into any premises or upon any land owned, leased or otherwise under the real or apparent control of any Borrower, or any agent of any Borrower, where the Collateral may be, or where Lender believes the Collateral may be, and disassemble, render unusable, and/or repossess all or any item of the Collateral, disconnecting and separating the Collateral from any other property. Each Borrower expressly waives all further rights to possession of the Collateral after the occurrence and during the continuance of an Event of Default and all claims for injuries suffered through, or loss caused by, such entering and/or repossession.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral (or contract to do so), whether in its then condition or after
further preparation or processing, either at public or private sale, in lots or
in bulk, for cash or for credit, with or without warranties or representations,
and upon such terms and conditions as Lender, in its sole discretion, may deem
advisable. Lender shall have the right to purchase at any such sale. Lender
will give the applicable Borrower reasonable notice of the time and place of any
public sale of the collateral or of the time after which any private sale or
other intended disposition of the Collateral is to be made. Unless otherwise
provided by law, the requirement of reasonable notice shall be met if such
notice is delivered to the address of such Borrower set forth above at least ten
(10) days before the time of the sale or disposition. Any proceeds of any
disposition by Lender of any of the Collateral may be first applied by Lender to
the payment of expenses, including reasonable attorneys' fees and legal
expenses, incurred in connection with the repossession, care, safekeeping, sale
or otherwise of any or all of the Collateral, or in any way relating to the
rights of Lender hereunder. Any balance of such proceeds may be applied by
Lender toward the payment of the Indebtedness in such order as Lender, in its
sole discretion, shall determine. The Borrowers shall be liable for, and shall
pay to Lender on demand, any deficiency which may remain after such sale, lease
or other disposition, and Lender agrees to remit to Borrowers any surplus
resulting therefrom.
If, for the purposes of obtaining judgment in respect of any claim under this Agreement or any other Loan Document in any court, it is necessary to convert a sum due hereunder or thereunder to the Lender in any currency (the "Original Currency") into another currency (the "Other Currency"), the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures Lender could purchase the Original Currency with the Other Currency on the Business Day preceding that on which final judgment is paid or satisfied.
The obligations of Borrowers in respect of any sum due in the Original Currency to the Lender under this Agreement or any other Loan Document shall, notwithstanding any judgment in any other Currency, be discharged only to the extent that on the business day following receipt by Lender of any sum adjudged to be so due in such Other Currency, Lender may in accordance with normal banking procedures purchase the Original Currency with such Other Currency. If the amount of the Original Currency so purchased is less than the sum originally due to the Lender in the Original Currency, Borrowers shall, as a separate obligation and notwithstanding any such judgment, jointly and severally, indemnify Lender against such loss, and if the amount of the Original
Currency so purchased exceeds the sum originally due to Lender in the Original Currency, Lender shall remit such excess to Borrowers.
16. GENERAL AUTHORITY: Upon the occurrence and during the continuance of an Event of Default hereunder, Lender shall have the full power to exercise at any time and from time to time all or any of the following powers with respect to all or any of the Collateral:
(a) To demand, sue for collection, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof;
(b) To receive, take, endorse, assign and deliver any and all checks, notes, drafts, documents and other property taken or received by Lender in connection therewith;
(c) To settle, compromise, compound, prosecute or defend any action or proceeding with respect thereof;
(d) To sell, transfer, assign or otherwise deal in or with the same or the proceeds thereof, as fully and effectually as if Lender were the absolute owner thereof; and
(e) In general, to do all things necessary to perform the terms of this Agreement, including, without limitation, to take any action or proceedings which Lender deems necessary or appropriate to protect and preserve the security interest of Lender in the Collateral. In the case of failure of ATII or any Borrower to comply with any provision of this Agreement, Lender shall have the right, but shall not be obligated, to so comply in whole or in part, and all moneys spent, and expenses and obligations incurred or assumed by Lender in connection with such performance or compliance, shall be payable on demand together with interest on such amounts equal to the Interest Rate plus three percent (3%) from the date and amount is expended or advanced by the Lender until paid. Such sums plus interest shall constitute indebtedness secured hereby. Lender's effecting such compliance shall not be a waiver of any Borrower's default. Lender shall be under no obligation or duty to exercise any of the powers hereby conferred upon it.
17. EXPENSES: Each Borrower agrees (a) to pay or reimburse Lender for all its reasonable costs, fees, charges and expenses incurred or arising in connection with the negotiation, review, preparation and execution of this Agreement, the Loan Documents, any commitment or proposal letter, or any amendment, supplement, waiver, modification to, or restructuring of this Agreement, the Indebtedness incurred hereunder, or the other Loan Documents, including, without limitation, reasonable outside counsel legal fees and disbursements, expenses, document charges and other charges and expenses of Lender, (b) to pay or reimburse Lender for all its reasonable costs, fees, charges and expenses incurred in connection with the administration of this Agreement and the other Loan Documents or the enforcement, protection or reservation of any rights under or in connection with this Agreement or by other Loan Documents, including, without limitation, reasonable outside counsel legal fees and disbursements, audit fees
18. NOTICES: Notices, demands and other communications required to be given hereunder to be effective shall be permitted in writing by telex, telecopy, or facsimile transmission and confirmed by a similar mailed writing, by hand delivery, by first class, registered or certified mail, return receipt requested, or an overnight courier service, addressed to Lender at 501 Corporate Centre Drive, Suite 600, Franklin, TN 37067 (Attention: Director Operations & Administration), with a copy to TFS Portfolio Management, 10 Riverview Drive, Danbury, CT 06810, or to the applicable as the case may be, at the address set forth above or at such other address as any party may hereinafter substitute by written notice. Notice shall be effective four (4) days after the date it as mailed or upon receipt, whichever is earlier.
19. INDEMNIFICATION: Each Borrower shall indemnify Lender against and hold Lender harmless from any and all claims, actions, suits, damages, allegations, liabilities, and liens and all costs and expenses, including, without limitation, reasonable attorneys' fees incurred by Lender, arising out of or in any way related to a Borrower's ownership or use of the Collateral, or in connection with the transactions contemplated by this Agreement, including without limitation, the granting and perfection of the security interest and liens described herein, except to the extent attributable solely to Lender's gross negligence or willful misconduct.
20. FCC AND PUC APPROVALS; NOTIFICATION: The exercise of any rights hereunder by the Lender that may require FCC or PUC approval shall be subject to obtaining such approval. Pending obtaining any such FCC or PUC approval, each Borrower will refrain from taking or permitting any action be taken which is contrary to the interest of the Lender. In accordance with the requirements of 46 C.F.R. Section 22.917 (1984), or any successor provision, the Lender agrees to notify the applicable
Borrower and the FCC (if required) in writing at least ten (10) days prior to the repossession, in accordance with this Agreement, of all or any part of the collateral which is subject to the regulation.
22. MISCELLANEOUS:
(a) No failure or delay by the Lender to exercise any right, power or privilege hereunder shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any right, power or privilege preclude any other or future exercise thereof. The Lender may waiver any default before or after the same has been declared and restore this Agreement to full force without impairing any rights hereunder, such right of waiver being a continuing one. The waiver of any provision hereunder will not be effective unless in writing signed by the Lender.
(b) If any provision of this Agreement or a Note shall be prohibited or unenforceable, such provision shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions.
(c) To the extent that the Indebtedness is now or hereafter secured by property other than the Collateral, or by the guaranty, endorsement or property of any other person, corporation or entity, then Lender shall have the right, in its sole discretion, to determine which rights, security, liens, security interest or remedies it shall, at any time, pursue, relinquish, subordinate, modify, or take any other action with respect thereto without, in any way, modifying or affecting any of them or any of its rights hereunder.
(d) Lender's duty of care (as imposed by law) with respect to the Collateral in its possession shall be deemed fulfilled if Lender exercises reasonable care in physically safekeeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and Lender need not otherwise preserve, protect, insure, or care for any Collateral.
(e) No right or remedy is exclusive of any other provided under this Agreement or permitted by law or equity. All such rights and remedies shall be cumulative and may be exercised singularly or concurrently at Lender's option. The
exercise or enforcement of any one such right or remedy shall neither be a condition to, nor bar the exercise or enforcement of any other.
(f) All representations and warranties made herein or in any document, certificate or statement delivered pursuant thereto, or in connection therewith, shall survive the execution and delivery of this Agreement and the Note.
(g) ATII and each Borrower waive presentment, demand, protest and (except to the extent expressly provided for herein) notice to the extent permitted by applicable law.
(h) Time is of the essence with regard to each and every provision of this Agreement and the Note.
(i) This Agreement may be executed in more than one counterpart, all of which taken together, shall constitute one agreement.
(j) Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), consistently applied, and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. At such time that ATII has any Subsidiaries, all accounting and financial terms herein shall be deemed to include references to consolidated and consolidating principles, and covenants, representations and agreements with respect to ATII and its properties and activities shall be deemed to refer to ATII and its consolidated Subsidiaries collectively.
(a) This Agreement and the Note shall be construed in accordance with and governed by the laws of the State of Tennessee, except to the extent the internal laws of another jurisdiction are required to be applied in connection with the exercise of rights pertaining to Collateral in that jurisdiction.
(b) EACH BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS LOCATED IN WILLIAMSON COUNTY, TENNESSEE AND DAVIDSON COUNTY, TENNESSEE, INCLUDING WITHOUT LIMITATION FEDERAL COURTS SITTING IN THE MIDDLE DISTRICT OF TENNESSEE, THE CHANCERY COURT FOR WILLIAMSON COUNTY, TENNESSEE, AND THE CHANCERY COURT FOR DAVIDSON COUNTY, TENNESSEE, FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE NOTE, THE OTHER LOAN DOCUMENTS, OR THE OBLIGATION, AND AGREES NOT TO CONTEST VENUE OR JURISDICTION IN ANY SUCH COURTS. The choice of forum set forth herein
shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce the same in any appropriate jurisdiction.
25. WAIVERS AND LIMITATIONS OF LIABILITY: (a) EACH BORROWER AND LENDER HEREBY KNOWINGLY DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS AGREEMENT, THE NOTE, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS, OR ANY RELATIONSHIP BETWEEN LENDER AND BORROWER. EACH BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(b) LENDER SHALL HAVE NO LIABILITY UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR ANY SORT IN ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE NOTE, THE OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS AND, EXCEPT TO THE EXTENT PROHIBITED BY LAW, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES.
(c) To the fullest extent permitted by law, except as otherwise expressly provided herein, each Borrower hereby waives (i) presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which any Borrower may in any way be liable and hereby ratifies and confirms whatever Lender may do in this regard; (ii) notice prior to taking possession or control of the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of Lender's remedies, including the issuance of an immediate writ of possession, except as expressly required in any of the Loan Documents; (iii) any marshalling of assets, or any right to compel Lender to resort first to any Collateral or other persons before pursuing any Borrower for payment of the Indebtedness and any defenses based on suretyship or impairment of Collateral; (iv) the benefit of all valuation, appraisement and exemption laws; (v) any right to require Lender to terminate its security interest in the Collateral or in any other property of any Borrower until termination of this Agreement and the execution by each Borrower and by any person whose loans to a Borrower are used in whole or in part to satisfy the Obligations, of an agreement indemnifying Lender from any loss or damage Lender may incur as the result of dishonored or unsatisfied items of any account debtor applied to the Indebtedness; and (vi) notice of acceptance hereof. Each Borrower acknowledges that the foregoing
waivers are a material inducement to Lender's entering into this Agreement and that Lender is relying upon the foregoing waivers in its future dealings with each Borrower.
IN WITNESS WHEREOF, the parties have executed this Loan and Security Agreement by their duly authorized representatives:
AMERICAN TELESOURCE INTERNATIONAL, INC. (Delaware)
BY: /s/ Arthur L. Smith
------------------------------------------------
Arthur L. Smith, Chief Executive Officer
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AMERICAN TELESOURCE INTERNATIONAL, INC. (Texas)
BY: /s/ Arthur L. Smith
------------------------------------------------
Arthur L. Smith, President
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TELESPAN, INC.
BY: /s/ Charles R. Poole
------------------------------------------------
Arthur L. Smith, President
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GLOBALSCAPE, INC.
BY: /s/ Arthur L. Smith
------------------------------------------------
Arthur L. Smith, Chairman
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NTFC CAPITAL CORPORATION
BY:_________________________________________________
TITLE:______________________________________________
By executing this Annex to Loan and Security Agreement attached to and forming a part of the Loan and Security Agreement dated as of _________, 1999, (the "Loan Agreement"), between and among AMERICAN TELESOURCE INTERNATIONAL, INC., a ________ corporation ("ATII"), NTFC Capital Corporation (the "Lender"), Domestic Subsidiaries of ATII which are signatories to the Loan Agreement, and such additional Domestic Subsidiaries of ATII which may become a party to the Loan Agreement pursuant to Section 1(b) thereof, ________ represents and warrants that Domestic Subsidiary of ATII, joins as a party to the Loan Agreement, assumes the obligations of a Borrower under the Loan Agreement, and confirms it is bound by the terms and conditions of the Loan Agreement, including but not limited to the grant to Lender of a security interest in all its right, title, interest in and to the Collateral as provided in the Loan Agreement. _____ acknowledges and agrees that one or more other Subsidiary ATII may become additional Borrowers under the Loan Agreement without the consent of any other Borrower by execution of a form of the Annex to the Agreement by ATII, the Subsidiary and the Lender. ________ acknowledges and agrees that (i) other Subsidiaries of ATII may become additional Borrowers under the Loan Agreement without the consent of any other Borrower by execution of a form of the Annex to the Loan Agreement by ATII Subsidiary and Lender; (ii) the Lender is willing to extend certain credit to the Borrowers, subject to the terms and conditions set forth in the Agreement, including the condition that all Borrowers will be jointly and severally liable for all amounts owed by any Borrower under the Loan Agreement, Lender(iii) without this joint and several liability for all Indebtedness owed by any Borrower to Lender under the Loan Agreement, Lender would _____ willing to extend credit to any Borrower, and (iv) ____________ the existing Borrowers and other Subsidiaries of ATII which may be additional Borrowers under the Loan Agreement are related entities, and ________ expects to increase its business, and to benefit directly or indirectly, through the use of the equipment to be acquired by it and the other Borrowers with the proceeds of the loans to be made pursuant to the Agreement.
____________ authorizes the Lender to attach this Annex to the Loan and Security Agreement, which shall be deemed a part of, and incorporated by reference in, the Loan Agreement. This Annex to the Loan and Security shall be construed in accordance with and governed by the laws of the State of Tennessee, except to the extent the internal laws of another jurisdiction are required to be applied in connection with the exercise of rights pertaining to Collateral in that jurisdiction. Capitalized terms used in this Annex to the Loan Agreement without definition shall have the meanings set forth in the Loan Agreement to which this Annex is attached and form a part.
This Annex may be executed in any number of counterparts (by facsimile transmission or otherwise) and by the different parties hereto as separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same document.
IN WITNESS WHEREOF, the parties have executed this Annex to Loan and Security Agreement by their duly authorized representatives:
AMERICAN TELESOURCE
INTERNATIONAL, INC.
BY:_________________________________________________
TITLE:______________________________________________
BY:_________________________________________________
TITLE:______________________________________________
BY:_________________________________________________
TITLE:______________________________________________
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COVENANTS (FYE 7/31)
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1 2 3 4 5
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Senior Debt/ Adjusted Minimum Minimum Minimum
EBITDA/
Period:
Book Debt Service/ Revenue Gross Margin EBITDA
Capitalization Capx
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
FY2000
Quarter 1 50.00% 1.1X $ 8,699,800 2,817,800 ($92,900)
Quarter 2 50.00% 1.1X $11,177,200 4,172,200 $ 720,900
Quarter 3 50.00% 1.1X $15,981,500 5,911,900 $2,295,800
Quarter 4 50.00% 1.1X $19,559,200 7,434,600 $3,705,200
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----------------------------------------------------------------------------------------------------------------
FY2001
Quarter 1 50.00% 1.2X $27,855,000 10,592,000 $5,089,500
Quarter 2 50.00% 1.2X $27,855,000 10,592,000 $5,089,500
Quarter 3 50.00% 1.2X $27,855,000 10,592,000 $5,089,500
Quarter 4 50.00% 1.2X $27,855,000 10,592,000 $5,089,500
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
FY2002
Quarter 1 50.00% 1.4X N/A N/A $6,491,900
Quarter 2 50.00% 1.4X N/A N/A $6,491,900
Quarter 3 50.00% 1.4X N/A N/A $6,491,900
Quarter 4 50.00% 1.4X N/A N/A $6,491,900
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----------------------------------------------------------------------------------------------------------------
FY2003
Quarter 1 50.00% 2.0X N/A N/A $7,840,500
Quarter 2 50.00% 2.0X N/A N/A $7,840,500
Quarter 3 50.00% 2.0X N/A N/A $7,840,500
Quarter 4 50.00% 2.0X N/A N/A $7,840,500
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----------------------------------------------------------------------------------------------------------------
FY2004
Quarter 1 50.00% 2.0X N/A N/A $7,840,500
Quarter 2 50.00% 2.0X N/A N/A $7,840,500
Quarter 3 50.00% 2.0X N/A N/A $7,840,500
Quarter 4 50.00% 2.0X N/A N/A $7,840,500
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EXHIBIT 10.5
PROMISSORY NOTE
$2,000,000 as of August 26 1999
(plus Capitalized Interest)
All Advances hereunder shall bear interest from the date of such Advance until such amount is due and payable (whether on any Payment Date, at maturity, by acceleration, or otherwise) at a fixed rata per annum of interest equal to the five year bank swap rate as reported on the First Borrowing Date on the Dow Jones & Company Telerate screen, plus four hundred ninety-five (495) basis points. If Dow Jones & Company should cease service or cease publishing such rate, the Lender shall designate a comparable reference rate for use in determining the Interest Rate hereunder.
Following the end of the Capitalized Interest Period, interest shall accrue at the Interest Rate on all, principal amounts outstanding hereunder (including Capitalized Interest) and shall, be payable in arrears, commencing on the first day of the first calendar quarter following the Conversion Date (the "Initial Payment Date"), and on the first day of each consecutive calendar quarter thereafter (together with the Initial Payment Date, a "Payment Date") until the twentieth Payment Date (the "Maturity Date").
All principal amounts borrowed and outstanding hereunder shall be amortized and repaid quarterly, in arrears, in 20 equal payments of interest and principal sufficient to pay this Note in full, commencing on the Initial Payment Date, and on each Payment Date thereafter through and including the Maturity Date, provided, however, in any event the final payment shall be in an amount equal to all outstanding principal hereunder, plus all accrued and unpaid interest and all other unpaid charges hereunder.
The principal payment amounts shall be recalculated by Lender if any Advances are made hereunder after the Conversion Date, based on the aggregate amount of all Advances (including Capitalized Interest) made at any time. It is intended that the above amortization schedule will fully amortize the principal amounts advanced under
this Note. If any principal interest, or other charge or expense remains outstanding on the Maturity Date, such amount shall be added to the payment due on the Maturity Date.
Notwithstanding any provision of this Note or the Loan Agreement to the contrary, it is the intent of the Lender and the Makers that the Lender or any subsequent holder of this Note shall never be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum rate of interest permitted to be charged by applicable Law, as amended or enacted, from time to time. In the event Lender, or any subsequent holder of this Note, ever receives, collects, reserves or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated as such (except that no prepayment premium will be payable thereon), or, if the principal indebtedness and all other amounts due are paid in full, any remaining excess funds shall immediately be paid to the Makers. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the highest lawful rate, the Makers and the Lender shall, to the maximum extent permitted under applicable law, (a) exclude voluntary prepayments and the effects thereof as it may relate to any fees charged by the Lender, and (b) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire term of the indebtedness; provided that if the indebtedness is paid and performed in full prior to the end of the full Contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the maximum lawful rate, the Lender or any subsequent holder of the Note shall refund to the Makers the amount of such excess or credit the amount of such excess against the principal portion of the indebtedness, as of the date it was received, and, in such event, the Lender shall not be subject to any penalties provided by any laws for contracting for, charging, reserving or receiving interest in excess of the maximum lawful rate.
All amounts received for payment under this Note shall at the option of Lender be applied first to any unpaid expenses due Lender under this Note or under any other documents evidencing or securing the obligations of any Maker to Lender, then to any unpaid late charges, then to any unpaid interest accrued at the Default Rate, then to all other accrued but unpaid interest due under this Note and finally to the reduction of outstanding principal due under this Note.
Each Maker hereby expressly waives demand, presentment, notice and protest. Each Maker and any and all endorsers, guarantors and other parties liable on this Note, and any and all general partners of any Maker or of any endorsers, guarantors or other parties liable on this Note (collectively, the "Obligors") jointly and severally waive presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and all other claims and defenses based on suretyship principles, and hereby expressly consent to (i) any and all delays, extensions, renewals or other modifications of this Note or any waivers of any term hereof (ii) any release or discharge by Lender of any of the Obligors, (iii) any release, substitution or exchange of any security for the payment hereof (iv) any failure to act on the part of Lender, and (vi) any indulgence shown by Lender from time to time (without notice or further assent from any of the Obligors) and hereby agree that
no such action, failure to act or failure to exercise any right or remedy by Lender shall in any way affect or impair the obligations of any of the Obligors.
EACH MAKER HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE COURTS LOCATED IN DAVIDSON COUNTY, TENNESSEE, AND WILLIAMSON COUNTY, TENNESSEE, INCLUDING WITHOUT LIMITATION FEDERAL COURTS SITTING IN THE MIDDLE DISTRICT OF TENNESSEE AND THE CHANCERY COURT FOR DAVIDSON COUNTY, TENNESSEE, AND THE CHANCERY COURT FOR WILLIAMSON COUNTY, TENNESSEE, FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS NOTE, ANY DOCUMENTS EXECUTED OR DELIVERED IN CONNECTION HEREWITH, INCLUDING WITHOUT LIMITATION THE LOAN AGREEMENT, OR ANY RELATIONSHIP BETWEEN LENDER AND ANY MAKER, AND AGREES NOT TO CONTEST OR CHALLENGE VENUE IN ANY SUCH COURTS.
Each Maker irrevocably consents to the service of process of any such courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail postage prepaid, return receipt requested, to such Maker at the address set forth in the Loan Agreement or to such other address as such Maker may have furnished to Lender in writing, and agrees that such service shall become effective thirty (30) days after such mailing. However, nothing herein shall affect the right of Lender or any Maker to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Lender or any Maker in any other jurisdiction.
EACH MAKER HEREBY KNOWINGLY, WILLINGLY AND IRREVOCABLY WAIVES ITS RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS NOTE, ANY DOCUMENTS EXECUTED OR DELIVERED IN CONNECTION HEREWITH INCLUDING WITHOUT LIMITATION THE LOAN AGREEMENT OR ANY RELATIONSHIP BETWEEN SUCH MAKER AND LENDER. EACH MAKER AGREES THAT LENDER MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF SUCH MAKER'S EXPRESS WAIVER OF ITS RIGHT TO TRIAL BY JURY.
IN ANY ACTION TO ENFORCE THIS NOTE, EACH MAKER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES OTHER THAN ACTUAL DIRECT DAMAGES.
In the event this Note is placed in the hands of one or more attorneys for collection or enforcement or protection of the holder's rights described herein or in the Loan Agreement or the other Loan Documents, the [each] Maker agrees to pay, jointly and severally, all reasonable attorneys' fees and all court and other out-of-pocket costs incurred by the holder hereof (as of which shall be due on demand and shall bear interest at the rate then payable hereunder from five (5) days after such demand is made until paid).
This Note is governed by and shall be construed in accordance with the internal laws of the State of Tennessee. If any Provision of this Note should for any reason be invalid or unenforceable, the remaining provisions hereof shall remain in full force and effect.
This Note may not be changed, extended or terminated except in writing. No waiver of any term or provision hereof shall be had unless in writing signed by Lender.
Executed as of the date first written above.
AMERICAN TELESOURCE
INTERNATIONAL, INC.
(Delaware)
BY:__________________________________
Arthur L. Smith
Chief Executive Officer
AMERICAN TELESOURCE
INTERNATIONAL, INC.
(Texas)
BY:__________________________________
Arthur L. Smith
President
TELESPAN, INC.
BY:__________________________________
Charles R. Poole
President
GLOBALSCAPE, INC.
BY:__________________________________
Arthur L. Smith
Chairman
Initial Payment Date:
Maturity Date:
Amount Advanced Date of Advance Payment Amount Payment Date
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Balance
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Principal Interest Date Balance
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EXHIBIT 10.6
PROMISSORY NOTE
Principal Amount: $180,000.00 Date of Note: January 28, 1999
PROMISE TO PAY. GLOBALSCAPE, INC. ("Borrower") promises to pay to THE FROST NATIONAL BANK ("Lender"), or order, in lawful money of the United States of American, the principal amount of One Hundred Eighty Thousand & 00/100 Dollars ($180,000.00), together with Interest or the unpaid principal balance form January 28, 1999, until maturity.
PAYMENT. Subject to any payment changes resulting from changes in the Index, Borrower will pay this loan in accordance with the following payment schedule:
23 consecutive monthly interest payments, beginning February 28, 1999, with interest calculated on the unpaid principal balances at an interest rate of 1.000 percentage points over the index described below; 12 consecutive monthly principal payments of $5,000.00 each, beginning February 28, 1999, with interest calculated on the unpaid principal balances at an interest rate of 1.000 percentage points over the index described below; 11 consecutive monthly principal payments of $10,000.00 each, beginning February 29, 2000, with interest calculated on the unpaid principal balances at an interest rate of 1.000 percentage points over the index described below; and 1 principal and interest payment in the initial amount of $10,075.35 on January 31, 2001, with interest calculated on the unpaid principal balances at an interest rate of 1.000 percentage points over the index described below. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled and that the index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note.
The annual interest rate for this Note is computed on a 365/360 bases; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding, unless such calculation would result in a usurious rate, in which case interest shall be calculated on a per diem basis of a year of 365 or 366 days, as the case may be. Borrower will pay lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an index which is Lender's Prime
Rate (the "Index"). This is the rate Lender charges, or would charge on a 90
day unsecured loans to the most creditworthy corporate customer. This rate may
or may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. The index
currently is a 7.750% per annum. The interest rate or rates to be applied to
the unpaid principal balance of this note will be the rate or rates set forth in
the "Payment" section. NOTICE: Under no circumstances will the interest rate on
this Note be more than the maximum rate allowed by applicable law. For purposes
of the Note, the "maximum rate allowed by applicable law" means the greater of
(a) the maximum rate of interest permitted under federal or other law applicable
to the indebtedness evidenced by the Note, or (b) the "Weekly Rate" as referred
to in Section 303.201 of the Texas Finance Code and Articles 1D.002 and 1D.003
of the Texas Credit Title. Whenever increases occur in the interest rate,
Lender, at its option, may be one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off by its original final
maturity date, (b) increase Borrower's payments to cover accruing interest, (c)
increase the number of Borrower's payments, and (d) continue Borrower's payment
at the same amount and increase Borrower's final payment.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate allowed by applicable law. Borrower will pay interest on all sums due after final maturity, whether by acceleration or otherwise, at that rate, with the exception of any amounts added to the principal balance of this Note based on Lender's payment of insurance premiums, which will continue to accrue interest at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligations, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrower's financial condition, Lender believes the prospect of payment or performance of the indebtedness is impaired. (i) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness, including the unpaid principal balance on this Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower will pay that amount. Lender may hire an attorney to help collect this Note if Borrower does not pay, and Borrower will pay lender's reasonable attorneys' fees. Borrower also will pay Lender all other amounts actually incurred by Lender as court costs, lawful fees for filing, recording, or releasing to any public office any instrument securing this loan; the reasonable cost actually expensed for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for this loan, or premiums or identifiable charges receive din connection with the sale of authorized insurance. This Note has been delivered to Lender and accepted by Lender in the Stat [sic] of Texas. If there is a lawsuit, and if the transaction evidenced by this Note occurred in Bexar County, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Bexar County, the State of Texas. This Note shall be governed by and construed in accordance with the laws of the State of Texas and applicable Federal laws.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation at accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorized Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts.
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment on this loan is returned unpaid, Lender may charge a fee for the purpose of delaying the expense
incident to handling such returned check, and Borrower agrees to pay such fee. The fee shall not exceed the maximum amount permitted under applicable law.
OTHER CREDITS AFFECTING AVAILABILITY. Any other credits made available to Borrower by Lender, such as other loans or letters or credit, may be advanced to Borrower and/or issued under this line of credit commitment, and any such advances or issuances shall, in addition to the outstanding advances on this Note, reduce the outstanding availability on the line of credit.
FACSIMILE DOCUMENTS AND SIGNATURES. For purposes of negotiating and finalizing this document, if this document is transmitted by facsimile machine ("fax"), it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a fax machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. At the request of any party, and faxed document shall be re-executed by each signatory party in an original form.
WAIVER OF RIGHT TO TRIAL BY JURY. THE PARTIES TO THIS AGREEMENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER TO ENFORCE THIS AGREEMENT, TO COLLECT DAMAGES FOR THE BREACH OF THIS AGREEMENT, OR WHICH IN ANY OTHER WAY ARISE OUT OF, ARE CONNECTED TO OR ARE RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER OF THIS AGREEMENT. ANY SUCH ACTION SHALL BE TRIED BY THE JUDGE WITHOUT A JURY.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. Advances under this Note may be requested orally by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instruction, or directions by telephone of otherwise to Lender are to be directed to Lender's office shown above. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by lender; or (e) lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower.
LATE CHARGE. If a payment is made 10 days or more late, Borrower will be charged, in addition to interest, a delinquency charge of (i) 5% of the unpaid portion of the regularly scheduled payment, or (ii) $250.00 whichever is less. Additionally, upon maturity of this Note, if the outstanding principal balance (plus all accrued but unpaid interest) is not paid within 10 days of the maturity date, Borrower will be charged a delinquency charge of (i) 5% of the sum of the outstanding principal balance (plus all accrued but unpaid interest), or (ii) $250.00, whichever is less. Borrower agrees with Lender that the charges set forth herein are reasonable compensation to Lender for the handling of such late payments.
FINANCIAL INFORMATION. Borrower agrees to promptly furnish such financial information and statements, including financial statements in a format acceptable to lender, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender
may request from time to time. This provision shall not alter the obligation of Borrower to deliver to Lender any other financial statements or reports pursuant to the terms of any other loan documents executed in connection with this Note.
ARBITRATION. Lender and Borrower agree that all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from the Note or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Commercial Arbitration Rules of the American Arbitration Association, upon written request of either party. The party that requests arbitration has the burden to initiate the arbitration proceedings pursuant to and by complying with the Commercial Arbitration Rules of the American Arbitration Association and shall pay all associated administrative and filing fees. The arbitration shall be conducted in the City of San Antonio, Bexar County, Texas, and administered by the American Arbitration Association. All arbitration hearings will be commenced within sixty (60) days of the written request for arbitration, and if the arbitration hearing is not commenced within the sixty (60) days, the party that requested arbitration shall have waived its election to arbitrate. No act to take or dispose of any collateral securing the Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any order of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including take or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing the Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing the Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in the Note shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of any action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. In particular, this section means (among other things) that Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Texas (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. The right of accelerate maturity of sums due under this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan evidenced by this Note until payment in full so that the rate or amount of interest on account of the loan evidenced hereby does not exceed the applicable usury ceiling. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest, notice of dishonor, notice of intent to accelerate the maturity of this Note, and notice of acceleration of the maturity of this Note. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral without the consent of or notice to anyone. All such parities also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
GLOBALSCAPE, INC.
/s/ Douglas Saathoff
_____________________________________________________
H. DOUGLAS SAATHOFF, Secretary/Treasurer
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EXHIBIT 10.7
COMMERCIAL SECURITY AGREEMENT
Borrower: GLOBALSCAPE, INC. (TIN: 74-2785449) Lender: THE FROST NATIONAL BANK
800 ISOM ROAD, SUITE 400 P. O. BOX 1600
SAN ANTONIO, TX 78216 SAN ANTONIO, TX 78296
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Principal Amount: $180,000.00 Date of Note: January 28, 1999
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THIS COMMERCIAL SECURITY AGREEMENT is entered into between GLOBALSCAPE, INC. (referred to below as "Grantor"); and THE FROST NATIONAL BANK (referred to below as "lender"). For valuable consideration, Grantor grants to Lender a security interest in the collateral to secure the indebtedness and agrees that lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement all have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America.
Agreement. The word "Agreement"" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement form time to time.
Collateral. The work "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
All accounts and equipment
In addition, the word "Collateral" includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above.
(b) All products and produce of any of the property described in this Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section.
(e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.
Event of default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default."
Grantor. The word "Grantor" means GLOBALSCAPE, INC., its successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal and earned interest, together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" includes all other obligations, debts and liabilities, plus interest thereon, of Grantor, or any one or more of them, to Lender, as well as all claims by Lender against Grantor, or any one or more of them, whether existing now or later; whether they are voluntary or involuntary, due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated; whether Grantor may be liable individually or jointly with others; whether Grantor may be obligated as guarantor, surety, accommodation party or otherwise.
Lender. The word "Lender" means THE FROST NATIONAL BANK, its successors and assigns.
Note. The word "Note" means the note or credit agreement dated January 28, 1999, in the principal amount of $180,000.00 from GLOBALSCAPE, INC. to lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in and hereby assigns, conveys, delivers, pledges, and transfers all Grantor's right, title and interest in and to Grantor's accounts with Lender (whether checking, savings, or some other account), including all accounts held jointly with someone else and all accounts Grantor may open in the future, excluding, however, all IRA and Keogh accounts, and all accounts for which the grant of a security interest would be prohibited by law. Grantor authorized Lender, to the extent permitted by applicable law, to charge or setoff all indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing statement and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection of Lender's security interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the assumed business names of Grantor. This is a continuing Security Agreement and will continue in effect even though all or any part of the indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.
No Violations. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At any time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bon[a] fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or therefore shipped or delivered pursuant to a contract of sale, or for services therefore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locations as are acceptable to Lender. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral form its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Texas, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately delivery any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights to the Collateral against the claims and demands of all other persons.
Collateral Schedules and Locations. As often as Lender shall require, and insofar as the Collateral consists of accounts, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts. Insofar as the Collateral consists of equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the Collateral whenever located. Grantor shall immediately notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any Collateral; of any request for credit or adjustment or of any other dispute arising with respect to the Collateral; and generally of all happenings and events affecting the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.
Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, nor or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9801, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conversation and Recovery Act, 41 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis OWNED OR CONTROLLED BY GRANTOR OR THROUGH EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF TEXAS. If Grantor fails to provide any required insurance or fails to continue such insurance in force, Lender may, but shall not be required to, do so at Grantor's expense, and the cost of the insurance will be added to the indebtedness. If any insecurity, Lender, in good faith, seems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Texas Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire indebtedness immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates to title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender shall also have full power to enter, provided Lender does so without a breach of the peace or a trespass, upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of the repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at publication or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time for the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate form date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into it sown name or that of its nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the indebtedness or apply it to payment of the indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, chooses inaction, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the indebtedness due to Lender after application of all amounts received from the exercise of the rights provided involuntary termination his Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement
Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of Texas. If there is a lawsuit, and if the transaction evidenced by this Agreement occurred in Bexar County, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Bexar County, the State of Texas. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and applicable Federal laws.
Attorneys' Fees and Other Costs. Lender may hire an attorney to help collect the Note if Grantor does not pay, and Grantor will pay Lender's reasonable attorneys' fees. Grantor also will pay Lender all other amounts actually incurred by Lender as court costs, lawful fees for filing, recording, or releasing to any public office any instrument securing the Note; the reasonable cost actually for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for the Note, or premiums or identifiable charges received in connection with the sale of authorized insurance.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law) and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor, notice to any Grantor will constitute notice to all Grantors. For notice purposes, Grantor will keep Lender informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: a) to demand, collect, received, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender or a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
FACSIMILE DOCUMENTS AND SIGNATURES. For purposes of negotiating and finalizing this documents, if this document is transmitted by facsimile machine ("fax"), it shall be treated for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. At the request of any party, any faxed document shall be re- executed by each signatory party in an original form.
TANGIBLE NET WORTH. Borrower shall maintain throughout the term of this Loan a minimum Tangible Net Worth of not less than $325,000.00. "Tangible Net Worth" is defined as net Worth (defined in accordance with the generally accepted accounting principles (GAAP)) less all intangibles and company receivables.
FINANCIAL STATEMENTS. Borrower covenants and agrees with Lender that, while this Loan is in effect, Borrower will furnish Lender with, as soon available, but in no event later than forty five (45) days after the end of each fiscal quarter, Borrower's balance sheet and profit and loss statement for the period ended, prepared and certified as correct to the best knowledge and belief by Borrower's chief financial officer or other officer or person acceptable to Lender. All financial reports required to be provided under this Loan shall be prepared in accordance with GAAP, applied on a consistent bases, and certified by Borrower as being true and correct.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 28, 1999.
GRANTOR:
GLOBALSCAPE, INC.
/s/ H. Douglas Saathoff ----------------------- H. DOUGLAS SAATHOFF, Secretary/Treasurer |
EXHIBIT 10.8
PROMISSORY NOTE
Principal Amount: $70,000.00 Initial Rate: 9.500% Date of Note: February 1, 2000 |
PROMISE TO PAY. GLOBALSCAPE, INC. ("Borrower") promises to pay to THE FROST NATIONAL BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of Seventy Thousand & 00/100 Dollars ($70,000.00), together with interest on the unpaid principal balance from February 1, 2000, until maturity.
PAYMENT. Subject to any payment changes resulting from changes in the index, Borrower will pay this loan in 12 payments of $6,141.50 each payment. Borrower's first payment is due March 1, 2000, and all subsequent payments are due on the same day of each month after that. Borrower's final payment will be due on February 1, 2001, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding, unless such calculation would result in a usurious rate, in which case interest shall be calculated on a per diem basis of a year of 365 or 366 days, as the case may be. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs and any late charges, then to any accrued unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is Lender's Prime Rate (the "Index"). This is the rate Lender charges, or would charge, on 90-day unsecured loans to the most creditworthy corporate customers. This rate may or may not be the lowest rate available from Lender at any given time. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The Interest rate change will not occur more often than each day. The Index currently is 8.500% per annum. The interest rate to be applied prior to maturity to the unpaid principal balance of this Note will be at a rate of 1.00 percentage point over the index, resulting in an initial rate of 9.500% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. For purposes of this Note, the "maximum rate allowed by applicable law" means the greater of (a) the maximum rate of interest permitted under federal or other law applicable to the indebtedness evidenced by this Note, or (b) the "Weekly Ceiling" as referred to in Section 303.002 and 303.003 of the Texas Finance Code. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (a) Increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (b) increase Borrower's payments to cover accruing interest, (c) increase the number of Borrower's payments, and (d) continue Borrower's payments at the same amount and increase Borrower's final payment.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate allowed by applicable law. Borrower will pay interest on al sums due after final maturity, whether by acceleration or otherwise, at that rate, with the exception of any amounts added to the principal balance of this Note based on Lender's payment of insurance premiums, which will continue to accrue interest at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare in the entire indebtedness, including the unpaid principal balance on the Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, immediately due, without notice, and then Borrower will pay that amount. Lender may hire an attorney to help collect this Note if Borrower does not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower also will pay Lender all other amounts actually incurred by Lender as court costs, lawful fees for filing, recording, or releasing to any public office any instrument securing this loan; the reasonable cost actually expended for reprocessing, storing, prepare for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for this loan, or premiums or indefinable charges received in connection with the sale of authorized insurance. This Note has been delivered to Lender and accepted by Lender in the State of Texas. If there is a lawsuit, and if the transaction evidenced by the Note occurred in Bexar County, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Bexar County, the State of Texas. This note shall be governed by and construed in accordance with the laws of the State of Texas and applicable, Federal law.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts.
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment on this loan is returned unpaid, lender may charge a fee for the purpose of defraying the expense incident to handling such returned check, and borrower agrees to PAY such fee. the fee shall not exceed the maximum amount permitted under applicable law.
OTHER CREDITS AFFECTING AVAILABILITY. Any other credits made available to Borrower by Lender, such as other loans or letters or credit, may be advanced to Borrower and/or issued under this line of credit commitment, and any such advances or issuances shall, in addition to the outstanding advances on this Note, reduce the outstanding availability on the line of credit.
FACSIMILE DOCUMENTS AND SIGNATURES. For purposes of negotiating and finalizing this document, if this document is transmitted by facsimile machine ("fax"), it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a fax machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. At the request of any party, any faxed document shall be re- executed by each signatory party in an original form.
WAIVER OF RIGHT TO TRIAL BY JURY. THE PARTIES TO THIS AGREEMENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER TO ENFORCE THIS AGREEMENT, TO COLLECT DAMAGES FOR THE BREACH OF THIS AGREEMENT, OR
WHICH IN ANY OTHER WAY ARISE OUT OF, ARE CONNECTED TO OR ARE RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER OF THIS AGREEMENT. ANY SUCH ACTION SHALL BE TRIED BY THE JUDGE WITHOUT A JURY.
LINE OF CREDIT. This note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. Advances under this Note may be requested orally by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsement on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower.
LATE CHARGE. If a payment is made 10 days or more late, Borrower will be charged, in addition to interest, a delinquency charge of (i) 5% of the unpaid portion of the regularly scheduled payment, or (ii) $250.00, whichever is less. Additionally, upon maturing of this Note, if the outstanding principal balance (plus all accrued but unpaid interest) is not paid within 10 days of the maturity date, Borrower will be charged a delinquency charge of (i) 5% of the sum of the outstanding principal balance (plus all accrued but unpaid interest), or (ii) $250.00, whichever is less. Borrower agrees with Lender that the charges set forth herein are reasonable compensation to Lender for the handling of such late payments.
FINANCIAL INFORMATION. Borrower agrees to promptly furnish such financial information and statements, including financial statements in a format acceptable to Lender, lists of assets and liabilities, agings or receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. This provision shall not alter the obligation of Borrower to deliver to Lender any other financial statements or reports pursuant to the terms of any other loan documents executed in connection with this Note.
ARBITRATION. Lender and Borrower agree that all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from the Note or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Commercial Arbitration Rules of the American Arbitration Association, upon written request of either party. The party that requests arbitration has the burden to initiate the arbitration proceedings pursuant to and by complying the Commercial Arbitration Rules of the American Arbitration Association and shall pay all associated administrative and filing fees. The arbitration shall be conducted in the City of San Antonio, Bexar County, Texas, and administered by the American Arbitration Association. All arbitration hearings will be commenced within sixty (60) days of the written request for arbitration, and if the arbitration hearing is not commenced within the sixty (60) days, the party that requested arbitration shall have waived its election to arbitrate. No act to take or dispose of any collateral securing the Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing the Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing the Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Judgment upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in the note shall preclude any party from seeking equitable relief form a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. In particular, this section means (among other things) that Borrower doses not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more of this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Texas (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. The right to accelerate maturity of sums due under this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan evidenced by this Note until payment in full so that the rate of amount of interest on account of the loan evidenced hereby does not exceed the applicable usury ceiling. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest, notice of dishonor, notice of intent to accelerate the maturity of this Note, and notice of acceleration of the maturity of this Note. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
GLOBALSCAPE, INC.
EXHIBIT 10.9
COMMERCIAL SECURITY AGREEMENT
Borrower: GLOBALSCAPE, INC. (TIN: 74-2785449) Lender: THE FROST NATIONAL BANK
800 ISOM ROAD, SUITE 400 P. O. BOX 1600
SAN ANTONIO, TX 78216 SAN ANTONIO, TX 78296
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Principal Amount: $70,000.00 Date of Note: February 1, 1999
THIS COMMERCIAL SECURITY AGREEMENT is entered into between GLOBALSCAPE, INC. (referred to below as "Grantor"); and THE FROST NATIONAL BANK (referred to below as "Lender"). For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
All accounts and equipment
In addition, the word "Collateral" includes all of the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above.
(b) All products and produce of any of the property described in this Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section.
(e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.
Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default."
Grantor. The word "Grantor" means GLOBALSCAPE, INC., its successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the indebtedness.
Indebtedness. The word "indebtedness" means the indebtedness evidenced by the Note, including all principal and earned interest, together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" includes all other obligations, debts and liabilities, plus interest thereon, of Grantor, or any one or more of them, to Lender, as well as all claims by Lender against Grantor, or any one or more of them, whether existing now or later; whether they are voluntary or involuntary, due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated; whether Grantor may be liable individually or jointly with others; whether Grantor may be obligated as guarantor, surety, accommodation party or otherwise.
Lender. The word "Lender" means THE FROST NATIONAL BANK, its successors and assigns.
Note. The word "Note" means the note or credit agreement dated February 1, 2000, in the principal amount of $70,000.00 from GLOBALSCAPE, INC. to Lender, together with all renewals of, extensions of, modifications of, refinancing of, consolidations of and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's right, title and interest in and to Grantor's accounts with Lender (whether checking, savings, or some other account), including all accounts held jointly with someone else and all accounts Grantor may open in the future, excluding, however, all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization. Grantor is a corporation which is duly organized, validly existing, and in good standing under the laws of the state of Grantor's Incorporation. Grantor has its chief executive office at 800 ISOM ROAD, SUITE 400, SAN ANTONIO, TX 78216. Grantor will notify Lender of any change in the location of Grantor's chief executive office.
Authorization. The execution, delivery, and performance of this Agreement by Grantor have been duly authorized by all necessary action by Grantor and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Grantor or (b) any law, governmental regulation, court decree, or order applicable to Grantor.
Perfection of Security Interest. Grantor agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's Interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at
any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the assumed business names of Grantor. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of Incorporation and bylaws do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or theretofore shipped or delivered pursuant to a contract of sale, or for services theretofore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locations as are acceptable to Lender. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Texas, without the prior written consent of Lender.
TRANSACTIONS Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.
Collateral Schedules and Locations. As often as Lender shall require, and insofar as the Collateral consists of accounts, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and
addresses of account debtors and agings of accounts. Insofar as the Collateral consists of equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located. Grantor shall immediately notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any Collateral; of any request for credit or adjustment or of any other dispute arising with respect to the Collateral; and generally of all happenings and events affecting the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the indebtedness, or upon any of the other Related Documents. Guarantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly with all laws ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this pr9vision of this Agreement. This obligation to indemnify shall survive the payment of the indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender. GRANTOR MAY FURNISH THE REQUIRED INSURANCE WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY GRANTOR OR THROUGH EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF TEXAS. If Grantor fails to provide any required insurance or fails to continue such insurance in force, Lender may, but shall not be required to, do so at Grantor's expense, and the cost of the Insurance will be added to the Indebtedness. If any such insurance is procured by Lender at a rate or charge not fixed or approved by the State Board of Insurance, Grantor will be so notified, and Grantor will have the option for five (5) days of furnishing equivalent insurance through any insurer authorized to transact business in Texas. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be canceled or diminished without at least ten (10) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if it so chooses "single interest insurance", which will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and with Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not he agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of the premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports in each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the property insured; [(e)] the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (f) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At an time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request, or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure t.[he] indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) [sic] discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insurance, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the Note rate from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses shall become a
part of the indebtedness and, at Lender's option will (a) be payable on demand,
(b) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either [(i)] the term of any
applicable insurance policy or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable at the Note's
maturity. This Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement.
Default on Indebtedness. Failure of Grantor to make any payment when due on the indebtedness.
Default in Favor of Third Parties. Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or in any other agreement between Lender and Grantor.
False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or a the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help repossession or any other method, by any creditor of Grantor or by any governmental agency against the Collateral or any other collateral securing the indebtedness. This includes a garnishment of any of Grantor's deposition accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or such Guarantor dies or becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Texas Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire indebtedness immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender []at a place to be designated by Lender. Lender also shall have full power to enter, provided Lender does so without a breach of the peace or a trespass, upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods no covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from the date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues, from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security of the indebtedness or apply it to payment of the indebtedness in such order of preference as Lender my determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel, paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor, change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment or storage of any Collateral. [To] facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing, shall be cumulative and may be exercised singularity or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are apart [sic] of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of Texas. If there is a lawsuit, and if the transaction evidenced by this Agreement occurred in Bexar County, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Bexar County, the State of Texas. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and applicable federal laws.
Attorneys' Fees and Other Costs. Lender may hire an attorney to help collect the Note if Grantor does not pay, and Grantor will pay Lender's reasonable attorneys' fees. Grantor also will pay Lender all other amounts actually incurred by Lender as court costs, lawful fees for filing, recording, or releasing to any public office any instrument securing the Note; the reasonable cost actually expended for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for the Note, or premiums or identifiable charges received in connection with the sale of authorized insurance.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not be used to interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under this Agreement shall be joint and several, and all references to Grantor shall mean each and eery Grantor. This means that each of the persons signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given a the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor, notice to any Grantor will constitute notice for all Grantors. For notice purposes, Grantor will keep Lender informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter come due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement of the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the indebtedness, and the authority hereby conferred and shall be irrevocable and shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not under that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successor and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
FACSIMILE DOCUMENTS AND SIGNATURES. For purposes of negotiating and finalizing this document, if this document is transmitted by facsimile machine ("fax"), it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a fax machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding effect as an original document. At the request of any party, any faxed document shall be re-executed by each signatory party in an original form.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED FEBRUARY 1, 2000.
GRANTOR:
GLOBALSCAPE, INC.
EXHIBIT 10.10
PROMISSORY NOTE
Borrower: GLOBALSCAPE, INC. (TIN: 74-2785449) Lender: THE FROST NATIONAL BANK
800 ISOM ROAD, SUITE 400 P. O. BOX 1600
SAN ANTONIO, TX 78216 SAN ANTONIO, TX 78296
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Principal Amount: $50,000.00 Date of Note: October 6, 1999
PROMISE TO PAY. GLOBALSCAPE, INC. ("Borrower") promises to pay to THE FROST NATIONAL BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of Fifty Thousand & 00/100 Dollars ($50,000.00), together with interest on the unpaid principal balance from October 6, 1999, until maturity.
PAYMENT. Subject to any payment changes resulting from changes in the Index, Borrower will pay this loan in accordance with the following payment schedule:
18 consecutive monthly interest payments, beginning November 6, 1999, with interest calculated on the unpaid principal balances at an interest rate of 1.000 percentage points over the index described below; 6 consecutive monthly principal payments of $1,000.00 each, beginning November 6, 1999, with interest calculated on the unpaid principal balances at an interest rate of 1.000 percentage points over the index described below; and 12 consecutive monthly principal payments of $3,666.67 each, beginning May 6, 2000, with interest calculated on the unpaid principal balances at an interest rate of 1.000 percentage points over the index described below. Borrower's final payment of $3,666.87 will be due on April 6, 2001. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled and that the index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note.
The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding, unless such calculation would result in a usurious rate, in which case interest shall be calculated on a per diem basis of a year of 365 or 366 days, as the case may be. Borrower will Lender at Lender's address shown above or as such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs and any late charges, then to any accrued unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is Lender's Prime Rate (the "index"). This is the rate Lender charges, or would charge, on 90-day unsecured loans to the most creditworthy corporate customers. This rage [sic] may or may not be the lowest rate available from Lender at any given time. Lender will tell Borrower the current index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. The index currently is 8.250% per annum. The interest rate or rates to be applied to the unpaid principal balance on this Note will be the rate or rates set forth above in the "Payment" section. NOTICE: Under no circumstances will the interest rate on this loan be more than the maximum rate allowed by applicable law. For purposes of this Note, the "maximum rate allowed by applicable law" means the greater of (a) the maximum rate of interest permitted under federal or other law applicable to the indebtedness evidenced by this Note, or (b) the "Weekly Ceiling" as referred to in Section 303.002 and 303.003 of the Texas Finance Code. Whenever increases occur in the Interest rate, Lender, at its option, may do one or more of the following: (a) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (b) increase Borrower's payments to cover accruing interest, (c) increase the number of Borrower's payments, and (d) continue Borrower's payments at the same amount and increase Borrower's final payment.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate allowed by applicable law. Borrower will pay Interest on all sums due after final maturity, whether by acceleration or otherwise, at the rate, with the exception of any amounts added to the principal balance of this Note based on Lender's payment of Insurance premiums, which will continue to accrue interest at the pre-maturity ratel [sic]
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any othe4r creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this or any of the related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in y material respect either now or at
the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors or any proceeding is commenced either by Borrow3r or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is impaired.
(i) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness, including the unpaid principal balance on this Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, immediately due, without notice, and then Borrower will pay that amount. Lender may hire an attorney to help collect this Note if Borrower does not pay, and Borrower will pay Lender's reasonable attorney's fees. Borrower also will pay Lender all other amounts actually incurred by Lender as court costs, lawful fees for filing, recording, or releasing to any public office any instrument securing this loan; the reasonable cost actually expended for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as a security for this loan, or premiums or identifiable charges received in connection with the sale of authorized Insurance. This Note has been delivered to Lender and accepted by Lender in the State of Texas. If there is a lawsuit, and if the transaction evidenced by this Note occurred in Bexar County, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Bexar County, the State of Texas. This Note shall be governed by and construed in accordance with the laws of the State of Texas and applicable Federal laws.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts.
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment on this loan is returned unpaid, Lender may charge a fee for the purpose of defraying the expense incident to handling such returned check, and Borrower agrees to pay such fee. The fee shall not exceed the maximum amount permitted under applicable law.
OTHER CREDITS AFFECTING AVAILABILITY. Any other credits made available to Borrower by Lender, such as other loans or letters of credit, may be advanced to Borrower and/or issued under this line of credit commitment, and any such advances or issuances shall, in addition to the outstanding advances on this Note, reduce the outstanding availability on the line of credit.
FACSIMILE DOCUMENTS AND SIGNATURE. For purposes of negotiating and finalizing this document, if this document is transmitted by facsimile machine ("fax"), it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a fax machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. At the request of any party, any faxed document shall be re- executed by each signatory party in an original form.
WAIVER OF RIGHT TO TRIAL BY JURY. THE PARTIES TO THIS AGREEMENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER TO ENFORCE THIS AGREEMENT, TO COLLECT DAMAGES FOR THE BREACH OF THIS AGREEMENT, OR WHICH IN ANY OTHER WAY ARISE OUT OF, ARE CONNECTED TO OR ARE RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER OF THIS AGREEMENT. ANY SUCH ACTION SHALL BE TRIED BY THE JUDGE WITHOUT A JURY.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower' [sic] is not entitled to further loan advances. Advances under this Note may be requested orally by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Borrower agrees to be liable for all sums either (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's Internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower.
LATE CHARGE. If a payment is made 10 days or more late, Borrower will be charged, in addition to interest, a delinquency charge of (i) 5% of the unpaid portion of the regularly scheduled payment, or (ii) $250.00 whichever is less. Additionally, upon maturity of this Note, if the outstanding principal balance (plus all accrued but unpaid interest) is not paid within 10 day[s] of the maturity date, Borrower will [be] charged a delinquency charge of (i) 5% of the sum of the outstanding principal balance (plus all accrued but unpaid interest), or (ii) $250.00, whichever is less. Borrower agrees with Lender that the charges set forth herein are reasonable compensation to Lender for the handling of such late payments.
FINANCIAL INFORMATION. Borrower agrees to promptly furnish such financial information and statements, including financial statement in a format acceptable to Lender, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. This provision shall not alter the obligation of Borrower to deliver to Lender any other financial statements or reports pursuant to the terms of any other loan documents executed in connection with this Note.
ARBITRATION. Lender and Borrower agree that all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from the Note or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Commercial Arbitration Rules of the American Arbitration Association, upon written request of either party. The party that requests arbitration has the burden to initiate the arbitration proceedings pursuant to and by complying with the Commercial Arbitration Rules of the American Arbitration Association and shall pay all associated administrative and filing fees. The arbitration shall be conducted in the City of San Antonio, Bexar County, Texas, and administered by the American Arbitration Association. All arbitration hearings will be commenced within sixty (60) days of the written request for arbitration, and if the arbitration hearing is not commenced within the sixty (60) days, the party that requested arbitration shall have waived its election to arbitrate. No act to take or dispose of any collateral securing the Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing the Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing the Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Judgment upon any award rendered by an arbitrator may be entered in any court having jurisdiction. Nothing in the Note shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. In particular, this section means (among other things) that Borrower does not agree to intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referr4ed [sic] to herein as "charge or collect'), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Texas (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. The right to accelerate maturity of sums due under this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan evidenced by this Note until payment in full so that the rate or amount of interest on account of the loan evidenced hereby does not exceed the applicable usury ceiling. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by Law, waive presentment, demand for payment, protest, notice of dishonor, notice of intent to accelerate the maturity of this Note, and notice of acceleration of the maturity of this Note. Upon any changes in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral without the consent of or notic4 to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS O F [sic] THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
GLOBALSCAPE, INC.
By: /s/ Sandra Poole Christal By: /s/ H. Douglas Saathoff
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Sandra Poole, President H. Douglas Saathoff, Secretary/Treasurer
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EXHIBIT 10.11
COMMERCIAL SECURITY AGREEMENT
-------------------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $50,000.00 10--5-1999 04-06-2001 9002 500 6073 2919728 752 -------------------------------------------------------------------------------------------------------- |
Borrower: GLOBALSCAPE, INC. (TIN: 74-2786449) Lender: THE FROST NATIONAL BANK
800 ISOM ROAD, SUITE 400 P. O. BOX 1600
SAN ANTONIO, TX 78216 SAN ANTONIO, TX 78296
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THIS COMMERCIAL SECURITY AGREEMENT is entered into between GLOBALSCAPE, INC. (referred to below as "Grantor"); and THE FROST NATIONAL BANK (referred to below as "Lender"). For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollars amounts shall mean amounts in lawful money of the United States of America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
All accounts and equipment.
In addition, the word "Collateral" includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above.
(b) All products and produce of any of the property described in the Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section.
(e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.
Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default."
Grantor. The word "Grantor" means GLOBALSCAPE, INC., its successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal and earned interest, together with all other Indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" includes all other obligations, debts and liabilities, plus interest thereon, of Grantor, or any one or more of them, to Lender, as well as all claims by Lender against Grantor, or any one or more of them, whether existing now or later; whether they are voluntary or involuntary, due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated; whether Grantor may be liable individually or jointly with others; whether Grantor may be obligated as guarantor, surety, accommodation party or otherwise.
Lender. The word "Lender" means THE FROST NATIONAL BANK, its successors and assigns.
Note. The word "Note" means the note or credit agreement dated October 8, 1999, in the principal amount of $50,000.00 from GLOBALSCAPE, INC. to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's right, title and interest in and to Grantor's accounts with Lender (whether checking, savings, or some other account), including all accounts held jointly with someone else and all accounts Grantor may open in the future, excluding, however, all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the assumed business names of Grantor. This is a continuing Security Agreement and will continue in effect even though all or any part of the indebtedness is pain in full and even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or theretofore shipped or delivered pursuant to a contract of sale, or for services theretofore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locations as are acceptable to Lender. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Texas, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.
Collateral Schedules and Locations. As often as Lender shall require, and insofar as the Collateral consists of accounts, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts. Insofar as the Collateral consists of equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located. Grantor shall immediately notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any Collateral; of any request for credit or adjustment or of any other dispute arising with respect to the Collateral; and generally of all happenings and events affecting the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.
Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 98-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to Indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other Insurance as Lender may require with respect to the Collateral. In form, amounts, coverages and basis reasonably acceptable to Lender. GRANTOR MAY FURNISH THE REQUIRED INSURANCE WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY GRANTOR OR THROUGH EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF TEXAS. If Grantor fails to provide any required insurance or fails to continue such Insurance in force, Lender may, but shall not be required to, do so at Grantor's expense, and the cost of the insurance will be added to the Indebtedness. If any such insurance is procured by lender at a rate or charge not fixed or approved by the State Board of Insurance, Grantor will be so notified; and Grantor will have the option for five (5) days of furnishing equivalent Insurance through any Insurer authorized to transact business in Texas. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender and not including any disclaimer of the Insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but still not be obligated to) obtain such Insurance as Lender deems appropriate, including if it so chooses "single interest insurance," which will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the property insured; (e) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (e) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists. Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the Note rate from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses shall become a
part of the indebtedness and, at Lender's option, will (a) be payable on demand,
(b) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable at the Note's
maturity. This Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Default on Indebtedness. Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or in any other agreement between Lender and Grantor.
Other Defaults. Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or in any other agreement between Lender and Grantor.
Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against the Collateral or any other collateral securing the indebtedness. This includes a garnishment of any of Grantor's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or such Guarantor dies or becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Texas Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire indebtedness immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter, provided Lender does so without a breach of the peace or a trespass, upon the property of Grantor to take possession of an remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may
take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver; (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the indebtedness or apply it to payment of the indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, causes in action, or similar properly, Lender may demand, collect, receipt for, sell, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the right sand remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other right sand remedies it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's right sand remedies, whether evidenced by this Agreement ore the Related Documents or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement.
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This agreement has been delivered to Lender and accepted by Lender in the State of Texas. If there is a lawsuit, and if the transaction evidenced by this Agreement occurred in Bexar County, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Bexar County, the State of Texas. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and applicable Federal laws.
Attorneys' Fees and Other Costs. Lender may hire an attorney to help collect the Note if Grantor does not pay, and Grantor will pay Lender's reasonable attorneys' fees. Grantor also will pay Lender all other amounts actually incurred by Lender as court costs, lawful fees for filing, recording, or releasing to any public office any instrument securing the Note; the reasonable cost actually expended for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for the Note, or premiums or identifiable charges received in connection with the sale of authorized insurance.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under this Agreement shall be joint and several, and all reference to Grantor shall mean each and every Grantor. This means that each of the persons signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a national recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor, notice to any Grantor will constitute notice to all Grantors. For notice purposes, Grantor will keep Lender informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign and endorse any and al claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which ** discretion of Lender may seem to be necessary or advisable. This power is given as security for the indebtedness, and the authority herein conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable.
Successor interests. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute a continuing convent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
FACSIMILE DOCUMENTS AND SIGNATURES. For purposes of negotiating and finalizing this document, if this document is transmitted by facsimile machine ("fax"). It shall be treated for all purposes as an original document. At the request of any party, this document shall be re-executed by each signatory party in an original form.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER 5, 1998
GRANTOR:
GLOBALSCAPE, INC.
By: /s/ Sandra Poole Christal
__________________________
Sandra Poole, President
By: /s/ H. Douglas Saathoff
________________________
H. Douglas Saathoff, Secretary/Treasurer
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EXHIBIT 10.12
GLOBALSCAPE, INC. CONSULTING AGREEMENT
Read this agreement carefully. If you sign this, you are agreeing that GlobalSCAPE owns any work you do while you are a consultant for GlobalSCAPE and that you will not compete with or work for GlobalSCAPE's competitors after the termination of this agreement. You also agree to keep GlobalSCAPE's business information confidential.
GlobalSCAPE wants you to sign this Consulting Agreement for two reasons:
. to clearly state the terms of our agreement;
. to protect GlobalSCAPE's business information --
GlobalSCAPE's business depends on confidential information that it has developed through hard work over many years. You will have access to this information and will help develop it while you work for GlobalSCAPE. Our competitors would like to have this information without having to invest the same time, money and effort that we did. If you ever work for a GlobalSCAPE competitor, or become a competitor, it is almost inevitable that you will take this knowledge with you and use it. Even though you may not intentionally disclose our confidential business information, you or your employer will benefit from this information. Therefore, we do no want you to leave here and immediately go to work for one of our competitors or compete with us.
1. Services. GlobalSCAPE will ask you to perform services that are consistent with your experience and abilities. You agree to perform these services in a professional manner, and to devote no less than 40 hours per week to the performance of these services.
2. Terms.
Effective Date: [first day of a pay period]
Weekly Fee: $1250 to be paid in two week increments corresponding to
our payroll schedule
Term: initial term of 26 calendar weeks, automatically renewing
at end of initial term for successive 12 week terms until
either party gives notice of termination prior to end of a
term
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You are an independent contractor of GlobalSCAPE and not an employee. We will not supervise the time and manner of your performance of the services. GlobalSCAPE will pay payroll taxes and withhold taxes from your Weekly Fee as if you were an employee in order to avoid any risk of non-compliance with tax laws. You are not eligible to participate in any employee benefit program GlobalSCAPE offers to its employees.
3. Confidentiality. You agree that during the term of this agreement and following its termination you will never disclose our confidential information to any person. Our confidential information is information which we keep confidential and includes:
. software code and any other copyrightable works
. product concepts
. development plans
. marketing and advertising strategies
. research and development strategies
. techniques and systems for developing and supporting products
. approaches to evaluating projects and potential projects
. identities of our customers and distributors
. identities of our suppliers, independent contractors, and outside
developers
. identities of our employees to a person who will likely use that
information to solicit them to work somewhere else
. any business information which gives us an advantage over our
competitors
. any non-public financial information
You agree that you will not retain [or] take any confidential information upon the termination of this agreement, and you will return any confidential information in your possession that you have taken from GlobalSCAPE's premises.
4. We own your work. You agree that GlobalSCAPE will own all of the rights to the following, whether you prepare these alone or with others:
. your original works of authorship, including software code, user instructions, marketing materials and any other tangible work product, including the copyright in these works (even if they were prepared prior to signing this agreement);
. inventions or discoveries that are useful to GlobalSCAPE in its current or contemplated business that you make during the term of this Agreement or within six months after termination of this agreement, including any patent that you acquire or have the right to acquire (even if these inventions or discoveries were made prior to signing this agreement such as your work and inventions in connection with the software known as CuteMX); and
. your contribution to GlobalSCAPE's confidential information described above (even if this contribution was made prior to signing this agreement).
You agree that you will cooperate with GlobalSCAPE in completing documents, providing information, and doing other things needed to transfer these rights to GlobalSCAPE and to patent any invention or discovery. If you are required to help GlobalSCAPE transfer these rights after termination of this agreement, we will pay you reasonable compensation for the time you spend helping us. GlobalSCAPE will pay you
an additional $500 upon the filing of any patent application for any invention of yours owned by GlobalSCAPE under the terms of this agreement. You will be listed as the inventor on any patent application filed by GlobalSCAPE for any invention of yours. You acknowledge that this is valuable to you to be listed as an "inventor" on a patent and you might not otherwise have the funds needed to pay the legal and other expenses needed to file a patent application or obtain a patent.
5. You Will Not Work for Our Competitors or Compete With Us. During the term of this agreement and for six months following termination of this agreement, you agree that you will not work for our competitors or be a competitor yourself. A"competitor" is any person or company anywhere in the world who sells or develops any of the following software: FTP, HTML, image mapper, compression, media file sharing, chat, multimedia player, or any other product that is developed or sold by GlobalSCAPE, or is planned or proposed to be developed or sold by GlobalSCAPE, while you work for GlobalSCAPE. However, you may work for a competitor if you do not work on competing products, do not work in the same physical location as the employees of the competitor who work on competing products, and do not communicate with those employees about those products. You also agree that during the term of this agreement and for six months following termination of this agreement, you will not solicit any of our employees, suppliers, outside developers, distributors, or other contractors to provide goods or services to any other person or company (including yourself), and you will not solicit our customers to purchase any goods or services from any other person or company (including yourself). You agree that you will never encourage any of these people to stop doing business with GlobalSCAPE, and that you will inform us if you are having conversations with any of these people about doing business with them.
6. Confidential Information of Others. You must try not to use any other person's confidential business information in your work for GlobalSCAPE against that person's wishes. We acknowledge that in our business it is sometimes difficult to decide if it is right to use certain information. If you are unsure, you should ask us. It is not necessarily right to use information just because it is available publicly. If you are under a non-competition agreement with another person or company, you must tell us. If GlobalSCAPE is sued because of you knowingly use another person's confidential information against their wishes or in violation of an agreement you have with them, you will pay us back any money we have to pay because of the suit, including our legal bill.
7. Supplies and Expenses. GlobalSCAPE will provide an allowance for supplies and equipment of $100 per two weeks. You may elect to receive the allowance in cash, or in lieu of the cash payment to perform the services on GlobalSCAPE's premises using its equipment and supplies. GlobalSCAPE will reimburse you for travel related expenses for travel outside of the San Antonio metropolitan area, but will not reimburse you for any other travel expenses.
8. Insurance. You agree to carry worker's compensation insurance in the amount required by law for any of your employees, and to maintain business use automobile
liability insurance. You will provide us with proof of automobile liability and worker's compensation insurance as requested.
9. Remedies. If you have been granted stock options and you violate the terms of this agreement, your stock options will be void. The harm that GlobalSCAPE will suffer if you violate this agreement may be difficult or impossible to calculate in terms of money; therefore you agree that if you violate this agreement an injunction or other court order requiring you to comply with this agreement is appropriate. The law gives us some ownership in your work and forbids you from doing some of the things you promise not to do in this agreement, even if you had not signed this agreement. By signing this agreement, we do not give up any remedy we have against you by law.
10. Texas Law Applies to This Agreement. You may live in places other than Texas while you work for GlobalSCAPE. We want to be sure that this agreement will be applied consistently wherever you work, so you agree that this agreement will be governed by the laws of the State of Texas.
11. Arbitration. You and GlobalSCAPE agree that any dispute arising in connection with your employment or this Agreement shall be settled by arbitration before the American Arbitration Association in San Antonio, Texas. Our agreement to arbitrate does not prevent GlobalSCAPE from seeking an injunction as described in paragraph 6.
12. This Agreement is the Only Agreement/No Oral Modification. This agreement takes the place of any other agreement you have with GlobalSCAPE, either verbal or written. This agreement may not be amended except in writing.
By signing below, you agree to all of these terms.
GlobalSCAPE, Inc.
/s/ David Christal /s/ Sandra Poole-Christal
------------------ -------------------------
David Christal Sandra Poole-Christal, President
Date: 2-22-00 Date: 2-22-00
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Exhibit 10.13
CORRECTED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
WHEREAS, GlobalSCAPE, Inc. ("GlobalSCAPE") and Sandra Poole-Christal ("Executive") entered into an Executive Employment Agreement dated effective January 1, 1998 (the "Original Agreement"); and
WHEREAS the Original Agreement contained various errors;
NOW THEREFORE, the parties have executed this Corrected and Restated Executive Employment Agreement (the "Agreement") effective as of the date of the Original Agreement:
The parties hereto agree as follows:
The Company agrees to employ Executive and Executive accepts such employment for the period beginning January 1, 1998 (the "Start Date") and ending upon termination pursuant to paragraph 1(D) hereof (the "Employment Period").
(1) such bonus as the Board in its sole discretion may from time to time authorize, but in no event shall bonuses paid during a year exceed 50% of Executive's base salary for such year;
(2) such health insurance and other benefits as are available from time to time to the Company's salaried employees generally;
(3) in accordance with the Company's vacation and absence paid as in effect from time to time, sick leave, personal time provided that Executive shall have no less than three weeks vacation each year, with salary;
(4) reimbursement, upon submission of documentation in accordance with the Company's regular expense policies, for reasonable business expenses incurred on the Company's behalf by Executive;
(5) participation in any savings plan, 401(k) plan, profit sharing plan or pension plan as is available from time to time to the Company's salaried employees generally; and
(6) opportunity to participate in any and all employee benefit plans from time to time in effect for executives or salaried employees of the Company generally (subject to any contribution therefore generally required by such employees and except to the extent such plans are in a category of benefit otherwise provided to Executive).
(a) The Company may terminate Executive's employment hereunder, upon notice to Executive, in the event that Executive becomes disabled during her employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of her duties and responsibilities hereunder for 90 days during any period of 365 consecutive calendar days. In the event of such termination, until the earliest of (i) the conclusion of the then-current term of this Agreement and (ii) the conclusion of a period of 6 months following the date of termination, the Company shall continue to pay Executive the base salary at the rate in effect on the date of termination and shall continue to contribute to the cost of Executive's participation in the Company's group medical and dental insurance plan, if any, provided that Executive is entitled to continue such participation under applicable law and plan terms. The Company will also pay Executive, in the case of such termination, any incentive compensation that is earned but unpaid, based on the operations of the Company for the whole year, prorated through the date of such termination;
(b) While receiving disability income payments under the Company's disability income plan, if any, Executive shall be entitled to receive the excess, if any, of base salary under paragraph 1 (B) hereof over such disability income payments, and shall be entitled to receive such bonus and other benefits as are described in paragraph l(C), until the termination of her employment and except to the extent a longer period is specified in paragraph 1 (D)(2)(a).
unpaid, based on operations of the Company for the whole year, prorated through the date of her termination.
(a) the willful breach of any provision of paragraphs 1 (A), 2, 3, 4 or 5 (including, but not limited to, a refusal to follow reasonable and lawful directives of the Board; provided, however, that to the extent that such breach is curable, the Board will give Executive written notice of such breach and Executive will have 30 days from the receipt of such notice to cure such breach;
(b) any act of fraud, embezzlement or other material dishonesty with respect to any aspect of the Company's business;
(c) continued use of illegal drugs;
(d) substantial failure of performance, repeated or continued after written notice of such failure and explanation of such failure of performance, which is reasonably determined by the Board of Directors to be materially injurious to the business or interests of the Company; or
(e) conviction of a felony or of a crime involving moral turpitude.
If the Company terminates Executive's employment for any of the reasons set forth above in this paragraph l(D)4, the Company shall have no other obligations hereunder (including the obligation to continue to make payments of base salary as provided in paragraph 1 (D)3 from and after the effective date of termination and shall have all other rights and remedies available under this or any other agreement and at law or in equity.
(a) the material failure of the Company to provide Executive the base salary and incentive compensation and benefits in accordance with the terms of paragraph 1 and paragraph 6 hereof;
(b) the material diminution in the nature or scope of Executive's responsibilities, duties or authority; or
(c) the occurrence of a Change in Control (as defined herein).
In the event of termination in accordance with this paragraph 1 (D)(5), the Company shall continue to pay Executive the base salary at the rate in effect on the effective date of such termination until the third anniversary of the Start Date or, in the event this Agreement has been automatically extended thereafter in accordance with paragraph 1(D) hereof, until next anniversary of the Start Date. Additionally, during such period following termination as the Company shall have the continuing obligation to make payments of base salary, the Company shall continue to contribute to the cost of Executive's participation in the Company's group medical and insurance plans, if any, provided that Executive is entitled to continue such participation under applicable law and plan. The Company will also pay Executive, in the event of such termination, any incentive compensation that is earned but unpaid, based on operations of the Company for the whole year, prorated through the date of her termination.
A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of outstanding securities of the Company representing 75% or more of the combined voting power of the outstanding securities of the Company, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the shareholders of the Company was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareholders of the Company approve (A) a merger or consolidation of the Company with any other entity (other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 26% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation), (B) a plan of complete liquidation of the Company or (C) an agreement or agreements for the sale or disposition, in a single transaction or series of related transactions, by the Company of all or substantially all of the property and assets of the Company. Notwithstanding the foregoing, events otherwise constituting a Change in Control in accordance with the foregoing shall not constitute a Change in Control if such events are solicited by the Company and are, if Executive is then a member of the Board, approved, recommended or supported by Executive in her capacity as a member of the Board of the Company in actions taken prior to, and with respect to, such events.
(A) During the term she performs services for the Company and during the Post-Employment Period (as defined below), Executive will not interfere with the relationship between the Company or any affiliate and any employee, agent or representative of the Company or any such affiliate.
(B) During the term she performs services for the Company and during the Post-Employment Period, Executive will not directly or indirectly divert or attempt to divert from the Company or any affiliate any business which provides related services in which the Company has been actively engaged during the term Executive performed services for the Company, nor interfere with the relationships of the Company with customers, dealers, distributors, franchisees or sources of supply.
(C) During the term she performs services for the Company and during the Post-Employment Period, Executive will not directly or indirectly own, manage, operate control, be employed by, participate in, or be connected in any manner with the ownership, management, operation or control of, any business or enterprise which provides software development or related services in which the Company has been actively engaged during the then Executive performed services for the Company.
(D) For purposes hereof, the "Post-Employment Period" shall mean: (i)
in the event Executive's employment with the Company is terminated for
Cause pursuant to paragraph l(D)(4), the 12- month period following
Executive's termination of employment with the Company, or (ii) in the
event Executive's employment with the Company is terminated for any other
reason, the period during which the Company continues to make payments of
base salary.
Upon termination of Executive's employment pursuant to Paragraph l(D)(4) (Termination by the Company for Cause) or paragraph l(D)(6) (Voluntary Termination by Executive), the Option shall remain exercisable for the four month period following such termination, but only to the extent such option was exercisable at termination. Upon termination of Executive's employment pursuant to paragraph l(D)(1) (Death) or paragraph l(D)(2) (Disability), the Option, to the extent then exercisable, shall remain exercisable for the one-year period following such termination. Upon termination of Executive's employment pursuant to paragraph (D)(3) (Termination by the Company without Cause) or paragraph l(D)(5) (By the Executive for Good Reason), Executive's right to exercise the Option shall become fully vested and the Option shall remain exercisable for the four-month period following such termination.
To the Company: Attn.: Arthur L. Smith
Chairman, GLOBALSCAPE Board of Directors
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
To Executive: Attn.: Sandra Poole-Christal
Executive's last known address
on records of Company
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or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or sent or if mailed, five days after so mailed.
any prior understandings, agreements or representations by or between the parties, written or oral, which may have been related to the subject matter hereof in any way.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered on the day and year first above written.
"Company" GLOBALSCAPE, Inc.
By: /s/ Arthur L. Smith
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Name: Arthur L. Smith
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Title: Chairman
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"Executive"
By: /s/ Sandra Poole-Christal
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Name: Sandra Poole-Christal, President
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EXHIBIT 21.1
None