UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2001

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                 .

 

Commission File No. 000-30617

 

GlobalSCAPE, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

74-2785449

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

6000 Northwest Parkway, Suite 100

 

 

San Antonio, Texas

 

78249

(Address of Principal Executive Office)

 

(Zip Code)

 

 

 

(210) 308-8267

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

(Title of Class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

       ý      Yes    o      No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K.      o

 

As of March 28, 2002, the aggregate market value of the registrant’s outstanding common stock held by non-affiliates was approximately $1,002,909.  On this date there were 13,143,190 shares of common stock outstanding, of which 3,343,029 were held by non-affiliates.  The closing sales price on March 28, 2002 was $0.30 on the NASD’s OTC Bulletin Board.

 

Documents Incorporated by Reference

 

Portions of the Registrant’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be held in June 2002, are incorporated by reference in Part III hereof.

 


 

TABLE OF CONTENTS

 

 

PART I

 

Item 1.

Business

 

 

Company Overview

 

 

History and Recent Developments

 

 

Industry Background

 

 

Strategy

 

 

Products

 

 

Marketing and Sales

 

 

Customers

 

 

Seasonality

 

 

Network and Equipment

 

 

Research and Development

 

 

Competition

 

 

Intellectual Property

 

 

Employees

 

 

Risk Factors

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Submission of Matters to a Vote of Security Holders

Item 4A.

Information Regarding Executive Officers

 

 

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity and Related Stockholder Matters

Item 6.

Selected Financial Data

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

 

 

PART III

 

 

Item 10.

Directors and Executive Officers of the Registrant

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management

Item 13.

Certain Relationships and Related Transactions

 

 

 

PART IV

 

 

Item 14.

Exhibits, Financial Statement Schedule, and Reports on Form 8-K

 
 
Signatures
 

 



 

Preliminary Notes

 

GlobalSCAPE®, CuteFTP Pro®, CuteFTP®, CuteZIP®, CuteHTML® and CuteMAP® are registered trademarks of GlobalSCAPE, Inc.  GlobalSCAPE Secure FTP Server, Vdrive, CuteSITE Builder and GlobalSCAPE Transfer Engine are trademarks of GlobalSCAPE, Inc.  Other trademarks and tradenames in this annual report are the property of their respective owners.

 

In May 2000, our board of directors approved a 7.6 for 1 stock split.  All information in this Annual Report has been adjusted to reflect the effects of this stock split.

 

Forward Looking Statements

 

This Annual Report on Form 10-K and the documents incorporated by reference herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.  “Forward looking statements” are those statements that describe management’s beliefs and expectations about the future.  We have identified forward-looking statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “may,” “expect,” and “intend.”  Although we believe these expectations are reasonable, our operations involve a number of risks and uncertainties, including those described in the “Risk Factors” section of this Annual Report and other documents filed with the Securities and Exchange Commission.  Therefore, GlobalSCAPE’s actual results could differ materially from those discussed in this Annual Report.

 

PART I

 

Item 1 . Business

 

Company Overview

 

Our primary business is the development and distribution of Internet related software used to create and publish Web site content.  Our current products are:

 

                  GlobalSCAPE Secure FTP Server, a secure file serving solution for technology professionals, complementing the CuteFTP Pro client application;

 

                  CuteFTP Pro, a business class secure file transfer protocol application for technology professionals;

 

                  CuteFTP, a leading file transfer protocol application that allows users to quickly and easily transfer files between computers;

 

                  CuteZIP, a compression utility that allows users to easily shrink and encrypt files for secure transfer and storage;

 

                  CuteSITE Builder, a WYSIWIG Web site building tool targeting the novice user;

 

                  CuteHTML and CuteMAP, Web site development tools for Webmasters; and

 

                  The GlobalSCAPE Transfer Engine, a software developers’ toolkit for incorporating the CuteFTP Pro transfer technology into developers’ own applications.

 

In 2002, we expect to release Vdrive, a browser based virtual storage solution.  Vdrive will enable enterprises and Web site operators to host their own Web based storage for their user community without requiring users to install a desktop application.

 

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Also in 2002, we expect to release an entry-level Web content management product targeting companies with small to medium size Web teams.  Content management solutions permit contributors from various disciplines within a company to directly control the company’s Web content, helping the company more efficiently manage its Web site.

 

Our software products are distributed primarily from our Web site, www.globalscape.com.  Prospective buyers may download an electronic copy of any product and run a free 30-day trial.  Copies of our products are also available from a variety of independent Internet software sites such as Tucow’s and CNet’s Download.com, and from numerous international resellers in Western Europe, Canada, Australia, Taiwan and Hong Kong.  We also distribute our software on CD Rom in CompUSA, Fry’s and Micro Center retail stores.  Copies that are not registered (purchased) at the end of the trial period are automatically disabled. Some previous versions of our products were only partially disabled after the trial but continued to display ad banners as a means of generating revenue.  During the trial period, all versions generate repeated registration reminders. From January 1, 2001 to December 31, 2001 there were more than 13 million download requests for our products made on our internal servers.  During this same period we sold 191,000 licenses, or 1.5% of these download requests.  Our current products range in price from $19.95 to $350.00.  We provide support for our users via a searchable knowledge base on our Web site and provide live assistance via e-mail, online chat and telephone for users who purchase our support and maintenance program.

 

In 1999 and 2000, we realized significant revenues from advertising.  In both years, advertising accounted for approximately 10% of all revenues.  However, by the fourth quarter of 2000, our advertising revenue had dropped dramatically.  Although we were displaying a large number of ads, the rates earned on advertising space had declined precipitously.  In 2001, we discontinued our advertising strategy in light of these market conditions and as a result advertising accounted for less than 1% of total revenues.  Sales of licenses to use our software products accounted for 99% of our revenues in 2001.

 

We derived approximately 90%, 90% and 99% of our revenues in 1999, 2000 and 2001 respectively, from sales of licenses for our software products.  A combination of the sale of licenses of CuteFTP and advertising from within CuteFTP accounted for 97% and 98% of our revenues in 1999 and 2000, respectively.  The combined sales of CuteFTP and CuteFTP Pro accounted for 92% of total revenues in 2001.

 

History and Recent Developments

 

GlobalSCAPE was organized as a Delaware corporation in April 1996 when we obtained the right to distribute CuteFTP from its original author.  Our parent, ATSI Communications, Inc., established our company as a wholly owned subsidiary dedicated to the development, marketing and support of Internet software products and the execution of other strategies unrelated to ATSI’s core telecommunications business.  In 1998 we purchased all rights to CuteFTP from its author and in 1999 began developing and selling complementary products under the “Cute” name such as CuteHTML and CuteMAP.  In September 2000, ATSI distributed approximately 27% of its GlobalSCAPE common stock to its shareholders.  As a result of this partial spin off, we became a reporting company under the Securities Exchange Act of 1934.

 

Significant recent developments are as follows:

 

                  March 2001:         We released CuteFTP Pro Version 1, a business class secure file transfer protocol application for technology professionals.

 

                  April 2001:           We signed a distribution agreement with Trellix Corporation to distribute a GlobalSCAPE branded version of their Trellix Web product under the tradename CuteSITE Builder.

 

                  June 2001:           We signed a distribution agreement with SoftChina Corporation, for the distribution of a Chinese language version of CuteFTP in their 6,000 store retail channels in Taiwan and Hong Kong.

 

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                  September 2001: We sold a worldwide enterprise license for CuteFTP Pro to Adobe Systems, Incorporated, a leader in Web and network publishing solutions.

 

                  October 2001:      We released our multi-lingual version of CuteFTP translated for the French, German, Spanish, Traditional Chinese, and Japanese markets.

 

                  November 2001:   We were selected as one of the top 500 companies based on annual revenues generated from Web operations by Interactive Week, a weekly Industry publication.

 

                  November 2001: We released CuteSite Builder, our Web site creation tool.

 

                  November 2001: We released CuteFTP Pro version 2.0.

 

                  December 2001: We signed a non-exclusive distribution agreement with SoftChina to represent the company’s products in Japan.

 

                  January 2002:  We released GlobalSCAPE Secure FTP Server.

 

                  February 2002:     Our stock began to be quoted on the NASD’s OTC Bulletin Board.

 

Industry Background

 

The Internet has become an integral part of operations for companies of all sizes, not only for e-commerce, but also as a means of managing information between central and remote locations and with employees, partners and suppliers.  We believe that the growth of the Internet will continue to create demand for our products.  IDC estimates that by the end of 2002 more than 600 million people will access the Internet worldwide, spending more than $1 trillion online.  By 2005, IDC predicts that the number of Internet users will reach almost one billion, roughly 15% of the world’s population.  IDC forecasts that spending on information technology to support Web initiatives will grow from $115 billion in 2001 to $441 billion in 2006, a compound annual growth rate of 31%.  We believe that a migration from Web site authoring to Web site maintenance programs will occur as corporate Web operations mature, shifting the responsibility of managing content for Web sites from technical to non-technical personnel.  This requires software solutions that empower them to change content without editing HTML code, control versions and expedite approval processes for improved workflow.  This shift in the market is fueling a 47% compound annual growth rate for sales of Web Content Management software, forecasted by IDC to reach $1.2 billion by 2005.

 

Strategy

 

Our goal is to be a leading provider of high quality, affordable, easy-to-use software for Web site development and publishing, content and file management, and secure data delivery, enabling individuals and organizations to create, move and manage content in a secure, collaborative environment.

 

We have successfully established a brand in the market for basic Internet software tools with our file transfer products, CuteFTP and CuteFTP Pro.  We believe the next phase of our growth will come through the provision of software solutions that help information technology professionals manage corporate Web sites and that enhance the ease and security of Internet file management.  We believe there is an opportunity in the entry-level Web content management market and that our strong brand will enable us to penetrate it successfully.  We intend to provide a comprehensive Web content management solution, while continuing to enhance our file transfer and management offerings.  We also plan to aggressively pursue the distribution of our products in rapidly growing foreign markets, and work to increase our penetration in the corporate market.  Key elements of this strategy are:

 

                  Introduction of an entry-level Web content management product.  “Content management” refers to software that supports team collaboration for technical and non-technical users that contribute to Web content, thereby reducing the cost of maintaining Web sites through workflow improvement processes.

 

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                  Continue to enhance security features of our products.  As corporate users increasingly rely on the Internet as a trusted communications transport they demand robust security models to protect their information.

 

                  Increase ease-of-use and accessibility to software by adding browser-based products.   We believe that the Internet browser will be used more frequently to initiate file transfer operations by consumers and enterprises.

 

                  Expand overseas distribution . We will continue to develop our worldwide distribution partners to position GlobalSCAPE as an international supplier.  In 2002 we plan to translate CuteFTP Pro and Secure FTP Server to German, French, Spanish, Japanese and Traditional Chinese to enhance our localized product offerings.

 

                  Outbound Telesales .   We have introduced an outbound telesales group to our marketing program.  This group will facilitate the customers’ trial evaluation process for our higher priced products with the intent of improving the percentage of trial users who purchase a license to use our products.

 

                  Pursue strategic product opportunities .   We intend to look for opportunities to acquire or add synergistic products to our portfolio.

 

Products

 

Our current products are Windows® or Java based applications.  During 2001 approximately 62% of our revenues were generated from customers within the United States, with the remaining 38% concentrated mostly in Western Europe, Canada and Australia.  We offer CuteFTP in German, French, Spanish, Japanese, and Traditional Chinese.  During 2001, approximately 99% of our revenues were derived from sales of software licenses, and the remainder from the sale of advertising banners within our software.   We no longer display advertising banners within our current software products or from our Web site.

 

GlobalSCAPE Secure FTP Server .   GlobalSCAPE Secure FTP Server enables businesses to secure mission critical file transfers with Secure Socket Layer (SSL) and advanced S/KEY password encryption.  When used in conjunction with CuteFTP Pro, Secure FTP Server offers a complete digital certificate management system, allowing System Administrators to create, sign, import, export and add digital certificates to a trusted list.  Additional powerful features include full remote management capability, the ability to operate multiple FTP sites with unique directory structures from one server, and manage user accounts with advanced restriction settings for maximum security and control.

 

Vdrive .   Vdrive is a browser based remote file storage solution which will enable an enterprise to host its own Web drive for a rapidly deployed, location-independent file transfer system.  Web drives give users access to their data through their browser from anywhere that they are Web connected.  Vdrive provides a robust transfer engine, a user-friendly status panel for monitoring queued and in-progress file operations, supports concurrent multi-file upload and download, bandwidth throttling and broken transfer recovery.  This product is substantially complete but has not yet been released in final form.

 

CuteFTP .   CuteFTP is a “file transfer protocol,” or FTP, client application, which means that it enables users to transfer information such as Web pages, graphics, and other digital files from their computer to and from FTP servers. CuteFTP simplifies file transfer protocol by hiding the technical processes behind a user-friendly, graphical interface, which allows users to “drag `n drop” files between computers.  CuteFTP has won several awards, and has been favorably reviewed in leading online and print trade journals such as PC Magazine online , WindowsNT, CNet’s Download.com, and Tucows, as being the most powerful, easy-to-use file transfer protocol program available.   Approximately 75% of our revenues for 2001 were generated by sales of licenses to use this product and from advertising from within the product. CuteFTP was first released as freeware in February 1995 by its original author, and was first distributed as a commercial product by GlobalSCAPE in April 1996.

 

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CuteFTP Pro .   CuteFTP Pro is a business-class secure FTP application designed for information technology professionals.  CuteFTP Pro provides major enhancements to the file transfer process by incorporating the latest security standards including Secure Socket Layer (SSL) via FTP and HTTP, SSH2 and advanced S/Key password encryption, in addition to powerful features including folder synchronization and sophisticated scripting capabilities.  CuteFTP Pro has been favorably reviewed by leading online publications including ZDNET and CNet’s Download.com.  CuteFTP Pro was released in March 2001 and accounted for approximately 17% of total revenues in 2001.

 

CuteZIP . CuteZIP is a file compression program that enables users to shrink and encrypt files for secure transfer and storage using powerful 128-bit encryption.  Users may compress files across multiple disks or within a directory for easy download or storage.  Users may also create encrypted self-extracting files, which are files that may be opened by a recipient without the use of a zip utility.   CuteZIP has been favorably reviewed in leading online publications including CNET and MP3.com.   CuteZIP was first released in September 1999.

 

CuteSITE Builder.   CuteSITE Builder is a WYSIWYG (what you see is what you get) Web site creation tool enabling anyone, regardless of skill level, to easily create, publish and manage a high quality Web site without having the learn HTML, FTP or graphic design.  Users choose the design and type of Web site they would like to create from professionally designed templates, add personalized content such as family photos, images and links, and can publish their Web site with just one click.

 

CuteHTML . CuteHTML is a text-based HTML (hypertext mark up language) editor used to create Web pages. It includes various features that make the product easy to use, such as color coded tags for easy code identification, tag tips for quick access to standard HTML tags, multiple document find and replace, spell check, code for individual browsers, tabbed interface, and the ability to edit files on remote servers when used in conjunction with CuteFTP.  CuteHTML has been favorably reviewed in leading online and print publications including ZDNET and Tucows.  CuteHTML was first released in January 1999.

 

CuteMAP . CuteMAP is an image mapping tool designed to help HTML users create clickable images on their Web site graphics for improved navigation.  Users select an area of an image that they want “hot,” and tell CuteMAP where the image should point.  CuteMAP automatically creates the image map code, which can be copied to an existing HTML document.  CuteMAP has been favorably reviewed in leading online and print publications including ZDNET, Tucows and LockerGnome. CuteMAP was first released in September 1999.

 

Content Management Solution .   We plan to introduce a Web content management system (WCM) for release in late 2002.  WCM systems permit a broad array of users within a company to directly control Web content, reducing a company’s reliance on technical personnel.  WCM systems typically have a centralized content storage system and support isolated staging environments for testing and review.  WCM systems are important as they reduce the time and cost of developing and maintaining a Web site.  They assist in overcoming communications difficulties between businesses and technical contributors, ensure quality and consistency through workflow approval processes, help manage resources and projects, and eliminate review and deployment bottlenecks.   Our product focus will be the small Web team from 2- 20 contributors where the price for traditional WCM solution has been cost prohibitive.

 

Marketing and Sales

 

Our target customers include Web development and information technology professionals and consumers who are actively involved in moving and managing Web site content, corporate and personal data.   GlobalSCAPE’s software is marketed primarily via the Internet through our Web site, international resellers and distributors, software review sites, and retailers.  Our products are some of the most frequently downloaded products on software review sites including Yahoo!, CNet’s Download.com, ZDNET, and Tucows.  As such, these sites include periodic reviews of the products and maintain timely information on new releases, providing us with substantial publicity.  Other marketing activities include outbound

 

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telesales, online and print advertising, public relations efforts, Internet promotions and trade show participation.

 

We are leveraging the success of our GlobalSCAPE brands to cross promote new products,  and we intend to expend significant resources on product development and marketing to promote our growth.

 

Customers

 

Our customers include a wide spectrum of users, from large enterprise accounts to individual consumers.  No single customer accounts for a substantial portion of our revenues. Customers use our product to publish new and revised Web site pages and other content to Web servers, and transfer corporate and personal information to and from remote locations via the Internet. In 2000 and 2001, respectively, approximately 33% and 38% of our revenues were generated from sales to customers who provided addresses in foreign countries.  These sales were concentrated mostly in Western Europe, Canada, and Australia.  In 1999, 2000 and 2001, the UK accounted for approximately 6%, 10%, and 11.5% of total revenues, respectively.    Only revenues derived from the sale of software licenses are attributed to foreign countries.  We assume all advertising revenue is generated in the United States.

 

The portion of our revenues derived from foreign countries has increased, and we expect it will continue to increase.  This may expose us to greater risks of volatility in our revenues due to greater economic volatility in some foreign countries.  All of our revenues are received in U.S. dollars so we have no exchange rate risk.  For more discussion on the risks associated with our foreign sales, you should read the information under “Risk Factors.”

 

Seasonality

 

We believe our sales are subject to seasonal variations and we experience significantly less sales volume during national holidays and weekends when compared to normal business days.  In 2000, we experienced a decline in software sales from the third to fourth quarter, primarily due to lower December sales.  Third and fourth quarter revenues in 2001 were comparable, however, we believe this was the result of unusually weak demand in September which skewed the comparison.  We expect that in future periods we will see weakness in the fourth quarter when compared to the third quarter due to the holiday season.

 

Network and Equipment

 

We have contracted with various network providers for Internet access.  Our arrangements provide for redundancy in the event of a failure, and also for rapid expansion of available bandwidth in the event that there is a dramatic increase in demand.  To protect critical customer data, GlobalSCAPE’s secure server utilizes Secure Sockets Layer encryption.  We have dedicated servers on and off site and expansion plans in place to allow rapid and cost effective scalability.

 

Research and Development

 

Our internal software developers are responsible for software design, managing the development process, testing and quality assurance. We utilize offshore developers for a large portion of the coding phase of software development.  All phases of development, including scope approval, functional and implementation design, object modeling and programming, are subject to internal quality assurance testing.  Our use of external developers allows us to tap into a highly skilled labor pool, maintain a 24-hour development schedule, decrease time to market, and minimize programming costs.

 

For the years 1999, 2000, and 2001, GlobalSCAPE spent $243,000, $1,017,000 and $1,177,000, respectively on research and development, of which approximately $103,000 and $56,000 was capitalized in 1999 and 2000, respectively.  No research and development costs were capitalized in 2001.

 

Competition

 

The Web development and FTP software market is intensely competitive, subject to rapid change and significantly affected by new product introductions and other activities of market participants.  Our primary competitors vary by product and are listed below.

 

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CuteFTP .   CuteFTP exists in a highly competitive environment with several hundred FTP software utilities available on the Internet. We believe our primary competitors are WS_FTP from Ipswitch and FTP Voyager by Rinosoft.  CuteFTP was the second Windows base FTP client to market and is consistently the most frequently downloaded FTP client on the Internet.

 

CuteFTP Pro.   CuteFTP Pro competes in the higher end of the same market as CuteFTP, targeting the security minded IT professional.  CuteFTP Pro is positioned as one of the only secure FTP clients that support a wide range of security standards related to the FTP protocol.  Competitors in the general FTP market offer products that support a smaller subset of these standards and address a narrow segment of the secure FTP market.  Competitors include Van Dyke, Inc., Ipswitch, Inc., and Rhino Software, Inc.

 

CuteHTML .   CuteHTML exists in a highly competitive environment with approximately one hundred text-based HTML editors. CuteHTML’s competition includes HomeSite from Allaire, Inc. CuteHTML is a light and powerful editing tool, which doesn’t add any code to Web pages, preferred by many professional Web masters.

 

CuteMAP .   CuteMAP competes against approximately 65 image-mapping utilities, which exist in a niche market. Primary competitors include CoffeeCup Image Mapper, Ulead Smart Saver and MapEdit. CuteMAP has the advantage of being able to leverage the success of CuteHTML through product integration and cross-marketing efforts to an existing customer base.

 

CuteZIP .   CuteZIP exists in the highly competitive file compression utility market, competing against several hundred file compression utilities. Its main competitors include WinZIP, the current market leader, and NetZIP.  CuteZIP is a relative newcomer to the market and its main advantage is that it is one of the only compression utilities offering 128-bit encryption to secure compressed files.  Additionally users can create self-extracting encrypted archives that recipients may open even if they don’t have a zip utility installed.

 

GlobalSCAPE Secure FTP Server .     GlobalSCAPE Secure FTP Server (GSFTPS) competes against a limited number of secure Windows based FTP servers.  We believe our primary competitors are WS_FTP Server and Serve-U.  GSFTPS has the advantage of leveraging the success of CuteFTP Pro through product integration offering proprietary extension to the FTP protocol, and cross-marketing efforts to an existing customer base.

 

CuteSITE Builder .   CuteSITE Builder competes against approximately one hundred WYSIWYG editors, including MS FrontPage, Macromedia’s Dreamweaver, HotMetal and HotDog, with MS FrontPage as the industry leader.  CuteSITE Builder offers most of the features available in FrontPage, however, the product was developed to further simplify the Web site creation process and is arguably easier to use, better serving the novice.  Additionally the product is priced well below FrontPage.

 

Vdrive .   Vdrive is a unique solution that enhances the limitations of the HTTP upload function.  Competitive solutions include tool kits and hosted storage service providers such as XDrive.

 

Content Management Software .   Competitive hosted solutions include vendors such as Atomz, Crownpeak, Accumedia and packaged software providers include vendors such as Userland, Infosquare, Ektron. Management believes there is no leader in the entry-level market segment.

 

We have limited information regarding our products’ market shares in their respective categories. For more discussion on the risks associated with our competition, you should read the information under “Risk Factors.”

 

Intellectual Property

 

Our trademarks, copyrights and technology are central to our business.  We protect our intellectual property rights through a combination of licenses, trademarks, service marks, copyrights, trade secret laws and restrictions on disclosure. We have also filed a patent application for our file searching, exchange and filtering processes employed in CuteMX.

 

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We currently have registered trademarks for GlobalSCAPE, CuteFTP, CuteFTP Pro, CuteHTML, CuteZIP, CuteMAP and CuteMX and have filed applications to register trademarks for CuteSITE Builder and Vdrive.

 

We have obtained United States copyright registrations for all but the most recently developed versions of our software applications, and have applied for registration for the most recently developed versions.

 

For more discussion on the risks associated with our Intellectual Property, you should read the information under “Risk Factors,” especially “Risks Related to Legal Uncertainty.”

 

Employees

 

As of March 8, 2002, we had 36 full-time and part-time employees organized within seven functional areas.  The employee distribution according to function is as follows:

 

Department

 

Number of Employees

Management and Administration

 

7

Research and Development

 

5

Quality Assurance

 

3

Marketing

 

4

Business Development

 

3

Information Services

 

2

Sales and Customer Support

 

12

 

None of our employees are covered by collective bargaining agreements and we believe our employee relations are good.

 

Risk Factors

 

We have described below risks that we are aware of that could have a material adverse effect on your stock ownership and our business.

 

Risks Related to Operations

 

GlobalSCAPE depends on two products for a substantial portion of its revenues .

 

GlobalSCAPE depends on a two products, CuteFTP and CuteFTP Pro, for about 92% of its revenues.  In addition, GlobalSCAPE’s ability to produce revenues related to existing products and new products depends substantially on exploiting the traffic to GlobalSCAPE’s Web sites generated by the demand for CuteFTP and CuteFTP Pro.  If GlobalSCAPE is not able to maintain its competitive position with these products, its revenues could decline dramatically and GlobalSCAPE’s plans to expand its business could be substantially impaired.  From 1996 to 2000, sales of licenses for CuteFTP increased significantly year to year.  In 2001, sales remained relatively flat.  This product may be reaching a mature stage or the end of its life cycle, which could result in flat or declining revenues in future periods.

 

GlobalSCAPE’s position in the Internet software market is continuously threatened because the market is intensely competitive and technology is constantly changing .

 

The software industry is characterized by rapid technological change.  GlobalSCAPE’s competitors are constantly releasing improved versions of their products. The needs and expectations of GlobalSCAPE’s customers are also evolving.  Therefore, GlobalSCAPE must continually enhance its products and develop new products to remain competitive.  When a new product is brought to market with functionality better suited to a particular use, the demand for currently available products may decrease.

 

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All of GlobalSCAPE’s products are subject to the threat of reduced market share resulting from the introduction of competitive products.  GlobalSCAPE may fail to develop new products and functionalities as quickly as is necessary in the future to avoid losing its position in the Internet software market.

 

In addition to stand-alone FTP clients, CuteFTP competes with browsers, open source file sharing communities and download utilities, which provide subsets of the file transfer protocol functionality.  These competing products may reduce demand for our products.

 

In addition, software development generally requires substantial lead-time, so GlobalSCAPE must accurately predict what changes will be needed.  GlobalSCAPE may fail to predict these changes far enough in advance, or it may not have sufficient technical personnel to make such changes.  If GlobalSCAPE cannot keep pace, its products will lose their position in the market.

 

GlobalSCAPE may fail to develop or license the intellectual property needed to launch new products.

 

Our strategy for future growth depends significantly on the addition of new products to our suite.  If we fail to timely license and/or develop new programs, or if our new programs are not functionally competitive with other programs in this market, our revenue growth could be substantially impaired.  For example, our current emphasis is on the development of a content management program suitable for the entry-level market.  We do not currently have such a content management program under development so we must either license such a program or develop it or some combination of the two.

 

GlobalSCAPE utilizes “open source” software in some of its products.

 

The open source software community develops software technology for free use by anyone.  We have relied on open source technology for the encryption features in our CuteFTP Pro and GlobalSCAPE Secure FTP Server products.  For these products to remain competitive we must continue to enhance their features, including the encryption features.  If the open source community does not continue to develop and enhance the encryption technologies we rely on, we would have to license this technology.  We may have to pay substantial fees for such a license, and it is possible that we would not be able to license this technology on any acceptable terms.

 

GlobalSCAPE’s planned new product introductions may fail to generate sufficient revenue.

 

Even if we successfully develop or license the technology needed for new products, we may fail to distribute or market them successfully.  If so, they may fail to result in revenue growth, or may even fail to generate sufficient revenues to support the cost of bringing them to market.  We may fail to successfully market and distribute new products if we are unable to retain persons with marketing expertise or do not have sufficient income to bear marketing expenses.

 

GlobalSCAPE’s revenues may decline if Internet usage does not grow as projected .

 

If the Internet fails to continue to grow as a commercial medium and the number of users transacting business on the Internet declines, our revenues may be substantially impaired.

 

Future government regulation may increase our cost of doing business and reduce demand for our products .

 

New laws may be adopted to address areas such as taxation, privacy, copyrights, and quality of services, and existing laws may be applied to the Internet in unexpected ways.  New laws and unexpected application of existing laws related to the Internet could create uncertainty in the Internet market place, which could increase our cost of doing business, reduce demand for our products, and have a material adverse effect on our business, financial condition and operations.

 

9



 

GlobalSCAPE may not be able to compete effectively with larger, better positioned companies, resulting in lower margins and loss of market share .

 

GlobalSCAPE’s major competitors are Ipswitch, Inc., which distributes WS_FTP, the top competitor to CuteFTP, and Microsoft Corporation, which incorporates competitive technology, including file transfer protocol functionality, in its other products.  Each of these companies has significantly greater revenues and financial resources than GlobalSCAPE as well as greater personnel and technical resources. This may enable them to develop new technologies more quickly than GlobalSCAPE, to offer a broader array of products, and to respond more quickly to new opportunities, industry standards or customer requirements.  They may also be able to adopt more aggressive pricing strategies.  For example, Ipswitch gives an older version of its file transfer protocol program away for free for non-commercial uses, and Microsoft includes file transfer protocol functionality in its Internet browser, which it distributes for free.  Increased competition may result in lower operating margins and loss of market share. GlobalSCAPE expects additional competitors to enter the market as the size and visibility of the market for Web based software increases.  These competitors may have significantly greater capabilities and resources than GlobalSCAPE.  You should read the information under “Business-Competition” for more information on our competitors.

 

It may be difficult for GlobalSCAPE to recruit software developers and other technical and management personnel because GlobalSCAPE is a relatively small company.

 

GlobalSCAPE competes intensely with other Internet software development and distribution companies internationally to recruit and hire from a limited pool of qualified personnel.  Some qualified candidates prefer to work for larger, better known companies.  Failure to attract and maintain qualified personnel would impede our development and maintenance of new and existing products.

 

If GlobalSCAPE loses key personnel it may not be able to execute its business plan.

 

GlobalSCAPE’s future success depends on the continued services of several key members of its management team, including Mr. Nicolaou, Ms. Poole-Christal, and GlobalSCAPE’s product development team. These individuals would be difficult to replace, both because of the intense competition for similarly skilled people and because the knowledge that each of these individuals has regarding GlobalSCAPE’s products and product development processes would be difficult to transfer to another individual.

 

GlobalSCAPE’s ability to develop its software will be seriously impaired if it is not able to use its foreign subcontractors.

 

GlobalSCAPE relies on foreign subcontractors to help it develop its software.  If these programmers decided to stop working for GlobalSCAPE, or if GlobalSCAPE were unable to continue using them because of political or economic instability, GlobalSCAPE would have difficulty finding comparably skilled developers.  In addition, GlobalSCAPE would likely have to pay considerably more for the same work, especially if it used U.S. personnel.  If GlobalSCAPE could not replace the programmers, it would take it significantly longer to develop its products.

 

GlobalSCAPE may incur losses as it expands its business .

 

GlobalSCAPE intends to expand its business and therefore expects to expend significant additional resources on research and development, marketing, product development and developing its network infrastructure.   As a result, GlobalSCAPE may need to significantly increase its revenues to achieve and maintain profitability.  If GlobalSCAPE fails to successfully develop and market new products, it may not be able to achieve the necessary revenue growth, and it may not be profitable.

 

The financial difficulties of ATSI could deprive GlobalSCAPE of funds, impair GlobalSCAPE’s access to financing, and exacerbate conflicts of interest .

 

ATSI has incurred losses since inception, has had negative cash flows for most of its history, and currently has only limited resources to support its operations.  Because of ATSI’s financial condition, and because of GlobalSCAPE’s joint and several liability on the $2 million loan described below, GlobalSCAPE’s auditors have stated in their report on our financial statements that they have substantial doubt over GlobalSCAPE’s ability to continue as a going concern.  The financial condition of ATSI and this “going concern” opinion may make it more difficult for GlobalSCAPE to obtain financing.  In addition,

 

10



 

ATSI has borrowed money from GlobalSCAPE in the past and currently has outstanding loans from GlobalSCAPE with an approximate balance of $410,000 (principal and interest), which it may not be able to repay.  If ATSI does not begin to generate sufficient positive cash flows or is not able to obtain financing to continue its operations, the GlobalSCAPE directors who are ATSI executives may be faced with conflicts of interest regarding the best use of GlobalSCAPE’s funds and may take steps to cause

GlobalSCAPE to loan further funds to ATSI.  This would deprive GlobalSCAPE of funds needed to fully execute its business plan.

 

GlobalSCAPE is a party to a $2 million loan to ATSI, and may have to repay this loan.

 

GlobalSCAPE is a signatory, and is jointly and severally liable with ATSI, on a $2 million dollar loan from NTFC Capital Corporation to ATSI made in August 1999 to enable ATSI to purchase equipment for its telecommunications business.   ATSI is currently in default of some of its financial covenants under the loan agreement, namely minimum revenue levels, gross margin levels, EBITDA and debt-to-equity ratios.   Because of its financial condition, ATSI will likely continue to be in default of financial covenants and may fail to meet its payment obligations.  NTFC could decide to seek repayment from GlobalSCAPE of the entire outstanding balance.  If GlobalSCAPE used its funds to repay this loan, its ability to execute its business plan would be seriously impaired.  The balance of the loan as of December 31, 2001 was approximately $1.5 million.

 

GlobalSCAPE’s operations are vulnerable to security breaches that could harm the quality of its products and services or disrupt its ability to deliver its products and services.

 

Third parties may breach GlobalSCAPE’s system security and damage its products and services or misappropriate confidential customer information.  This might cause GlobalSCAPE to lose customers, or even cause customers to make claims on GlobalSCAPE for damages to them. In addition, GlobalSCAPE may be required to expend significant resources to protect against security breaches and/or to address problems caused by such breaches.

 

GlobalSCAPE’s products may expose customers to invasion of privacy, causing customer dissatisfaction.

 

GlobalSCAPE’s Secure FTP Server is intended to provide outsiders access to a customer’s computer, making the customer vulnerable to security breaches, which could result in the loss of their privacy or property.  If customers suffer invasions of privacy or other harm, this may result in customer dissatisfaction and possible claims against us for any resulting damages.

 

GlobalSCAPE may have lower margins and increasing risk of revenue volatility as a larger portion of its revenue is derived from foreign countries .

 

The portion of GlobalSCAPE’s sales derived from foreign countries has increased and may continue to increase.  This might expose GlobalSCAPE to greater risks of volatility in its revenues due to greater economic volatility in those countries.  Local political developments, foreign laws or policies, as well as U.S. policies affecting trade, taxation and investment in other countries may also adversely affect our foreign operations.  In addition, we rely to some degree on international resellers and distributors for sales in foreign countries.  We do not realize as much revenue for units sold to resellers and distributors and as a result, our margins may decline if sales through these channels increase.

 

GlobalSCAPE’s products may contain defects that may be costly to correct, delay market acceptance of its products and damage its reputation.

 

Errors may be found in GlobalSCAPE’s products after distribution.  If errors are discovered, GlobalSCAPE may have to make significant expenditures of capital to eliminate them and may not be able to correct them in a timely manner or at all.  Errors and failures in GlobalSCAPE’s products could result in a loss of, or delay in, market acceptance of its products and could damage its reputation.

 

11



 

 

GlobalSCAPE’s products rely on the prevalence of Windows-based operating systems and if that technology fails to maintain or improve market share, GlobalSCAPE’s products would not be as marketable.

 

Most of GlobalSCAPE’s 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 GlobalSCAPE’s products.

 

Risks Related to Stock Ownership

 

Our stock is a penny stock, which makes it more difficult to sell.

 

A “penny stock” is any stock which is not traded on a national exchange or quoted on NASDAQ and which falls below a selling price of $5.00 per share in the public market. Our common stock is quoted on the NASD’s OTC Bulletin Board and not on an exchange or the NASDAQ, and it has traded from $.15 to $1.05 since it began active trading in February 2002.  The SEC’s penny stock rules require brokers and dealers to take certain steps before trading in a penny stock, making it more difficult to sell a penny stock than other stock.  A sale of penny stock does not usually take place as quickly as a sale of other stock.  You may decide to sell your stock when the market price is desirable to you, but by the time the sale is complete, the price of the stock may have fallen to the point that the sale is no longer desirable.  The price of penny stocks is typically more volatile than other stocks, exacerbating this problem.  Also, some brokers are unwilling to trade in shares of penny stocks.

 

Our stock price is/may be volatile.

 

The trading price of our common stock has been and could continue to be subject to wide fluctuations in response to certain factors, including:

 

                  Quarter-to-quarter variations in results of operations;

 

                  Our announcements of new products;

 

                  Our competitors’ announcements of new products;

 

                  Our product development or release schedule;

 

                  General conditions in the software industry;

 

                  Investor perceptions and expectations regarding our products, plans and strategic position and those of our competitors and customers.

 

In addition, the public stock markets experience extreme price and trading volume volatility, particularly in high-technology sectors of the market.  This volatility has significantly affected the market prices of securities of many technology companies for reasons often unrelated to the operating performance of the specific companies.  The broad market fluctuations may adversely affect the market price of our common stock.

 

We do not pay dividends on our common stock.

 

We have not paid a dividend on our common stock and have no plan to do so in the near future.

 

ATSI and its directors and executive officers are able to exert significant influence over us.

 

ATSI owns approximately 73% of our outstanding common stock.  Therefore, ATSI is 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 delay or prevent a change in control of GlobalSCAPE or discourage a potential acquirer from attempting to obtain control of GlobalSCAPE, either of which could have an adverse effect on the value of our common stock.

 

12



 

Arthur L. Smith, the Chairman and Chief Executive Officer of ATSI and H. Douglas Saathoff, the Chief Financial Officer of ATSI, are two of the three members of GlobalSCAPE’s Board of Directors. Therefore, these ATSI officers exert significant influence over GlobalSCAPE and conflicts of interest may arise.

 

ATSI might be motivated by financial stress to sell its GlobalSCAPE stock, which could depress the value of the stock .

 

ATSI owns approximately 73% of our outstanding common stock.  ATSI has incurred losses since inception, had negative cash flows for most of its history, and currently has only limited resources to support its operations.  If ATSI is not able to obtain financing to support its operations or achieve positive cash flow, ATSI might be motivated by financial stress to sell its GlobalSCAPE stock.  ATSI could sell its GlobalSCAPE stock either by requiring GlobalSCAPE to file a registration statement pursuant to the Securities Act of 1933 (the “Securities Act”), or it could sell pursuant to an exemption from registration, such as the SEC’s Rule 144, which permits it to sell without registration provided that certain volume and other restrictions are met.  If ATSI sells its GlobalSCAPE stock in the public market, it will tend to depress the value of the stock in general, and impair our ability to raise capital through the sale of equity securities.

 

Anti-takeover provisions in GlobalSCAPE’s charter and Delaware law could inhibit others from acquiring GlobalSCAPE.

 

Some of the provisions of GlobalSCAPE’s 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 GlobalSCAPE’s common stock.

 

In particular, GlobalSCAPE’s certificate of incorporation and bylaws provide for, among other things, limitations on the individuals that may call meetings of the stockholders and do not allow for cumulative voting.  GlobalSCAPE is 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.

 

Stockholders’ ownership of GlobalSCAPE stock may be significantly diluted, affecting the value of the stock.

 

GlobalSCAPE may determine at some time in the future to issue additional shares in a public or private offering resulting in considerable dilution, which would tend to depress the value of the stock.

 

In addition, there are options for 3,557,480 shares currently outstanding under GlobalSCAPE’s employee stock option plans, with 3,057,980 of those options held by affiliates of GlobalSCAPE.  Of those options, 1,805,980 are vested, and an additional 230,000 will become vested in April 2002.   We have filed a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) covering stock issued upon the exercise of options by non-affiliates, and we may file a registration statement covering options held by affiliates as well.  If we do not file a registration statement covering affiliates, affiliates who exercise their options may choose to sell the stock under an exemption from registration, such as Rule 144 under the Securities Act.  The exercise of these options and sale of the resulting stock could depress the value of our stock.

 

13



 

Risks Related to Legal Uncertainty

 

GlobalSCAPE is vulnerable to claims that GlobalSCAPE’s products infringe third-party intellectual property rights particularly because GlobalSCAPE’s products are partially developed by independent parties.

 

GlobalSCAPE may be exposed to future litigation based on claims that GlobalSCAPE’s products infringe the intellectual property rights of others. This risk is exacerbated by the fact that some of the code in GlobalSCAPE’s products is developed by independent parties or licensed from third parties over whom GlobalSCAPE has less control than it exercises over internal developers.  In addition, we expect that infringement claims against software developers will become more prevalent as the number of products and developers grows and the functionality of software programs in the market increasingly overlaps.  Claims of infringement could require  GlobalSCAPE to re-engineer its products or seek to obtain licenses from third parties in order to continue offering its products.  In addition, an adverse legal decision affecting GlobalSCAPE’s intellectual property, or the use of significant resources to defend against this type of claim could place a significant strain on GlobalSCAPE’s financial resources and harm its reputation.

 

GlobalSCAPE may not be able to protect its intellectual property rights .

 

GlobalSCAPE’s software code, and trade and service marks are some of GlobalSCAPE’s most valuable assets.  Given the global nature of the Internet and GlobalSCAPE’s business, GlobalSCAPE is vulnerable to the misappropriation of this intellectual property, particularly in foreign countries, such as China and Eastern Europe, where laws or law enforcement practices are less developed.  The global nature of the Internet makes it difficult to control the ultimate destination or security of GlobalSCAPE’s software making it more likely that unauthorized third parties will copy certain portions of GlobalSCAPE’s proprietary information or reverse engineer the proprietary information used in its programs.  If GlobalSCAPE’s proprietary rights were infringed by a third-party, and GlobalSCAPE did not have adequate legal recourse, GlobalSCAPE’s ability to earn profits, which are highly dependant on those rights, would be severely diminished.

 

Other companies may own, obtain or claim trademarks that could prevent, limit or interfere with GlobalSCAPE’s use of its trademarks.  The globalscape.com Web site address, or domain name, and GlobalSCAPE’s various trademarks are important to its business.  If GlobalSCAPE were to lose the use of its site address or trademarks, its business would be harmed and GlobalSCAPE would have to devote substantial resources towards developing an independent brand identity.  Defending or enforcing GlobalSCAPE’s trademark rights at a local and international level could result in the expenditure of significant financial and managerial resources.

 

Item 2 Properties

 

Our corporate office is located in a technical park in northwest San Antonio called University Park Tech Center II. Our lease for the 14,700 square foot facility expires in September 2008. Our annual rent is approximately $191,000. We believe these facilities will be suitable for our current business needs and that suitable additional space will be available on acceptable terms when neededsuitable for our current business needs and that suitable additional space will be available on acceptable terms when needed.

 

Item 3.   Legal Proceedings

 

We are not currently involved in any material pending legal proceedings, but may become subject to legal proceedings in the ordinary course of our business.  Such claims may result in the expenditure of significant financial and managerial resources.

 

 

14



Item 4.   Submission of Matters to a Vote of Security Holders

 

No matters were submitted to a vote of security holders during the fourth quarter of 2001.

 

Item 4A .   Information Regarding Executive Officers

 

Tim Nicolaou .  Mr. Nicolaou has served as our Chief Executive Officer and as a director since October 16, 2000.  Prior to joining GlobalSCAPE Mr. Nicolaou was Vice President, Product Management of the Web Services Division at Comdisco, Inc.  Mr. Nicolaou has twenty five years of industry experience with more than a decade of senior management experience including serving as Executive Vice President of Sales & Marketing for Computer Concepts Corp. and management consultant for Perot Systems Corporation. In addition, his early career was in product management and software engineering.  He holds a MBA in Marketing from Southern Methodist University and a BA in Computer Science from the University of Texas in Austin.  Mr. Nicolaou was elected a director of GlobalSCAPE effective October 16, 2000 by the unanimous vote of the Board.

 

Sandra Poole-Christal .  Ms. Poole-Christal launched GlobalSCAPE in April 1996 at age 29 as a subsidiary of ATSI Communications, Inc. where she had served as Director of Sales and Marketing. She holds a BA in Communications from Baylor University.  Ms. Poole-Christal is responsible for implementation of the Company’s strategic plan, managing daily operations and achieving profitability goals as set by the Board of Directors. She oversees sales, marketing, quality assurance and information systems.

 

Part II

 

Item 5.   Market for Registrant’s Common Equity and Related Stockholder Matters

 

Our common stock is listed on the NASD’s OTC Bulletin Board under the symbol GSCP. As of March 27, 2002, there were 2,886 holders of record of our common stock representing approximately 14,500 beneficial owners.  GlobalSCAPE stock began trading in February 2002 and the closing bid price of our stock has ranged between $0.15 and $1.05.  The closing price on March 28, 2002 was $0.30.  Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

 

We have never paid a cash dividend, and do not expect to do so in the foreseeable future.  We expect to reinvest all of our earnings in the further growth of the business.

 

15



 

Item 6.   Selected Financial Data

 

 

 

Years ended December 31,

 

 

 

1997

 

1998

 

1999

 

2000

 

2001

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Software product revenues

 

$

870,539

 

$

2,073,687

 

$

2,922,141

 

$

5,165,668

 

$

5,259,148

 

Advertising revenues

 

 

 

328,895

 

570,008

 

38,540

 

Total revenues

 

870,539

 

2,073,687

 

3,251,036

 

5,735,676

 

5,297,688

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation and amortization shown separately below)

 

219,623

 

396,570

 

105,026

 

200,118

 

323,309

 

Selling, general and administrative

 

448,457

 

1,228,644

 

1,625,004

 

3,463,044

 

3,551,498

 

Research and development

 

 

42,164

 

139,953

 

961,002

 

1,176,714

 

Depreciation and amortization

 

4,876

 

91,262

 

253,896

 

430,221

 

546,017

 

Total operating expenses

 

672,956

 

1,758,640

 

2,123,879

 

5,054,385

 

5,597,538

 

Income (loss) from operations

 

197,583

 

315,047

 

1,127,157

 

681,291

 

(299,850

)

Interest expense, net

 

 

(2,345

)

(56,847

)

(42,839

)

4,420

 

Gain (loss) on sale of assets

 

 

 

 

(13,687

)

 

Income (loss) before provision for income taxes

 

197,583

 

312,702

 

1,070,310

 

624,765

 

(295,430

)

Income tax provision (benefit):

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

Federal income taxes

 

65,242

 

108,377

 

372,532

 

329,215

 

30,952

 

State income taxes

 

9,042

 

15,020

 

51,629

 

22,532

 

(166

)

Deferred

 

 

 

 

 

 

 

 

 

 

 

Federal income taxes

 

(1,004

)

(6,463

)

(24,353

)

(38,246

)

(75,861

)

State income taxes

 

(139

)

(896

)

(3,375

)

(3,375

)

6,780

 

Total income tax provision (benefit)

 

73,141

 

116,038

 

396,433

 

310,126

 

(38,295

)

Net income (loss)

 

$

124,442

 

$

196,664

 

$

673,877

 

$

314,639

 

$

(257,135

)

Net income (loss) per common share—basic

 

$

0.01

 

$

0.02

 

$

0.05

 

$

0.02

 

$

(0.02

)

Net income (loss) per common share—assuming dilution

 

$

0.01

 

$

0.01

 

$

0.05

 

$

0.02

 

$

(0.02

)

 

 

 

December 31,

 

 

 

1997

 

1998

 

1999

 

2000

 

2001

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

192,064

 

$

65,480

 

$

16,361

 

$

113,591

 

$

134,537

 

Working capital (deficit)

 

167,300

 

(798,833

)

(160,171

)

161,939

 

498,134

 

Total assets

 

280,180

 

1,163,648

 

1,471,299

 

2,122,094

 

2,009,806

 

Long term debt including capital lease obligations, less current portion

 

 

73,412

 

56,924

 

149,074

 

77,080

 

Cash dividends per common share

 

$

 

$

 

$

 

$

 

$

 

 

16



 

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

Significant Accounting Policies

 

Revenue Recognition

 

Revenues from the sale of software products are recognized and completely earned upon shipment of the product. The installation process is simple and requires little or no support.  An installation wizard guides the user through the process.  The Company began selling technical support and maintenance services for some of its software products in 2001 and has deferred recognition of approximately $11,000 in revenue.  Total sales of technical support and maintenance agreements did not comprise a significant portion of the Company’s revenues in 2001.  These services, however, may become a greater portion of overall revenues in future periods, resulting in the deferral of a significant amount of revenue.

 

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 in accordance with Accounting Principles Board opinion No. 25, Accounting for Stock Issued to Employees and related interpretations under which compensation expense is recorded to the extent that the current market price of the underlying stock exceeds the exercise price.  In 2000 and 2001 we recognized approximately $214,000 and $434,000, respectively in non-cash charges related to options granted below intrinsic value.  (For more information you should read Note 8. Stock Options and Stock Based Compensation in the Notes to Financial Statements .)

 

Research and Developmen t

 

Research and development expenses include all direct costs, primarily salaries for 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. For the years 1999, 2000, and 2001, we spent approximately $243,000, $1,017,000 and $1,177,000, respectively on research and development of which approximately $103,000 and $56,000 was capitalized in 1999 and 2000, respectively.  No research and development expenses were capitalized in 2001.

 

Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000

 

Sales.   We derive our revenues primarily from software sales. Sales are comprised of the gross selling price of software, including shipping charges and the net proceeds received from advertisers.  Total revenues declined 8% from $5,735,676 in 2000 to $5,297,688 in 2001.  However, software sales increased 2% from $5,165,668 in 2000 to $5,259,148 in 2001 due to a slight increase in overall unit volume from 188,000 in 2000 to 191,000 in 2001.    The overall drop in revenue is due to the loss of advertising revenue, which declined to less than 1% of total revenues in 2001 from 10% in 2000 and is no longer a meaningful part of our strategy.

 

We introduced two new products in 2001, CuteFTP Pro and CuteSITE Builder, bringing our portfolio of products to six.  In 2001, approximately 92% of our revenues were generated from sales of CuteFTP and CuteFTP Pro.  Our reliance on these products may negatively impact future results from operations if we are unable to maintain or grow revenues from these products or diversify our product offerings.  (For more information, you should read the section titled Risks Related to Operations. )

 

Cost of Revenues.   Cost of revenues consists primarily of production, packaging and shipping costs for boxed copies of software products as well as a portion of our bandwidth costs, certain licensing expenses and royalties.  Cost of revenues increased 62% between periods from $200,118 in 2000 to $323,309 in 2001 due to an increase in royalty expenses related to our distribution agreement with Trellix Corporation announced in June 2001.  We expect cost of revenues to increase both as a percentage of sales and in gross terms in future periods.

 

17



 

Selling, General and Administrative.   Selling, general and administrative expenses consist primarily of personnel and related expenses, marketing, customer support, professional fees, rent, bad debt and credit card transaction fees. Selling, general and administrative expenses increased slightly year over year from $3,463,044 in 2000 to $3,551,498 in 2001 due to higher salary expense and compensation charges, partially offset by lower professional fees.  Although the number of persons employed by GlobalSCAPE fell from 38 at the end of 2000 to 33 at the end of 2001, we averaged approximately 3 more employees per quarter because of the employee growth that took place in late 2000.  We incurred non-cash compensation charges of $214,174 in 2000 and $434,499 in 2001.  However, fees for professional services were less in 2001 due to the expenses incurred in connection with the distribution of our common stock to our shareholders.

 

Certain unexercised stock options for which we recognized non-cash charges in 2000 and 2001 are subject to variable accounting.  The charges that we recognized related to the grant and re-pricing of these options will fluctuate with our stock price.  If our stock price closes above $0.464 at the end of a quarter, we will recognize additional compensation expense equal to the amount of the difference between the closing price and $0.464 multiplied by the number of options subject to variable accounting.  Currently, the number of options subject to variable accounting is 205,429.

 

Research and Development.   Research and development expenses increased approximately 22% from $961,002 in 2000 to $1,176,714 in 2001 due to the continued expansion of our internal research and development staff. We reduced expenditures with external developers by about $100,000 between years.  Research and development will continue to be a material use of funds and may grow as a percentage of revenues as we develop new products.

 

Depreciation and Amortization.   Depreciation and amortization expense consists of depreciation expense related to our fixed assets and the amortization of goodwill and the trademark associated with our purchase of CuteFTP in 1998.  Depreciation and amortization expense increased 27% from $430,221 in 2000 to $546,017 in 2001 due to capital expenditures for software, office furniture, computers and leasehold improvements.

 

Interest Expense, net.   We had net interest expense of $42,839 in 2000, mostly for capital lease and working capital borrowings.  In 2001, we had net interest income of $4,420.  Most of the interest expense recognized during the current year, about $15,600, was for capital leases.  In addition, we recognized interest income of approximately $20,000 related to loans made to our parent, ATSI.

 

Income Taxes.   The provision for federal income taxes was ($44,909) and $290,969 for 2001 and 2000, respectively.  The provision for state income taxes was $6,614 and $19,157 over the same periods.  GlobalSCAPE’s effective income tax rate was 13% and 50% for 2001 and 2000, respectively. The increase in the effective income tax rate in both years is due primarily to the financial accounting recognition of compensation expense related to stock option grants.

 

Net Income.   Net income decreased from $314,639 in 2000 to a net loss of $257,135 in 2001 due to the decline in advertising revenues, increased cost of revenues due to royalty expenses, greater R&D expense and increased depreciation and amortization. These increased expenses combined to reduce our income before taxes.  In addition, the compensation charge related to stock options did not reduce our tax liability, as it is not deductible for federal income tax purposes.

 

Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999

 

Sales.   For the year ended December 31, 2000, total revenues increased 76% from $3,251,036 in 1999 to $5,735,676 in 2000.  Sales of software licenses increased from $2,922,141 to $5,165,668, a 77% increase. Unit sales of these software licenses increased 55% from 121,649 in 1999 to 188,407 in 2000. The average selling price per unit increased period over period due to decreased sales of multi-seat licenses as a percentage of total licenses sold.  Advertising revenue in 2000 was $570,008, a 73% increase over 1999’s advertising revenue of $328,895.  Advertising revenue accounted for 10% of total revenues in both 1999

 

18



 

and 2000.  We began displaying ad banners in our products for the first time in the second quarter of 1999 and earned an average of $2.30 per thousand banners displayed (CPM).  For all of 1999, we earned an average CPM of $2.21.  In 2000, the market for internet advertising collapsed.  We earned an average CPM of only $0.69.  This decline in CPM was offset by very strong growth in the number of ads displayed, accounting for the 73% increase in advertising revenues over the comparable period a year ago.  We displayed almost 800 million ad banners in 2000 as compared to just over 138 million in 1999.  We believed much of the decline in advertising rates was a combination of increases in supply and questions about the effectiveness of banner ads, which we believed would keep prices depressed in the immediate future.  As a result of our analysis of the market for internet advertising, we discontinued installing the advertising modules within new releases of our software products.

 

Cost of Revenues.   Cost of revenues consists primarily of production, packaging and shipping costs for boxed copies of software products as well as a portion of our bandwidth costs.  Cost of revenues increased 91% between periods from $105,026 to $200,118 primarily due to increased sales volume and increased bandwidth capacity.  As a percentage of revenues, cost of revenues increased slightly from 3.2% to 3.5%.

 

Selling, General and Administrative.   Selling, general and administrative expenses consist primarily of personnel and related expenses, marketing, customer support, professional fees, rent, bad debt and credit card transaction fees. Selling, general and administrative expenses increased from $1,625,004 in 1999 to $3,463,044 in 2000, a 113% increase.  These expenses increased primarily as a result of increased personnel costs including salaries, payroll taxes and insurance as well as increased rents associated with our move to a larger facility.  The number of persons employed by GlobalSCAPE increased from approximately 23 at the end of 1999 to 38 at December 31, 2000.  We incurred a compensation charge in the fourth quarter of $214,174 for the re-issuance of stock options.  These options were issued below fair market value and the difference between the fair market value and the exercise price of the option was recognized as compensation expense for all vested options.  In addition, we incurred a number of one-time legal and printing fees related to ATSI’s partial spin-off of our common stock in 2000.

 

Research and Development.   Research and development expenses increased 587% from 1999 to 2000, from $139,953 to $961,002.  The increase was due to the rapid expansion of our internal research and development staff used for new product development and the maintenance of existing products as well as increased expenditures on external development resources.

 

Depreciation and Amortization.   Depreciation and amortization expense consists of depreciation expense related to our 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 CuteFTP in 1998.  Depreciation and amortization expense increased 69% from $253,896 in 1999 to $430,221 in 2000.  This increase was due primarily to the addition of office furniture, leasehold improvements, phone systems, computers and computer related equipment related to our move to a larger facility and increases in personnel.

 

Interest Expense, net.   Interest expense decreased from 1999 to 2000 from $56,847 to $42,839.  The majority of interest expense incurred during 1999 was related to the purchase of CuteFTP.  The Company’s debt related to this purchase was paid in full in January 2000.  Interest expense recognized during 2000 is related primarily to capital leases for office furniture and working capital borrowings.

 

Income Taxes.   In periods prior to September 12, 2000, ATSI has filed a consolidated federal income tax return to include the tax information for it and for its affiliates, including GlobalSCAPE.  Effective September 12, 2000, ATSI distributed approximately 27% of its ownership in GlobalSCAPE, resulting in a deconsolidation from the ATSI tax return filing group for federal income tax purposes.  From that date forward, GlobalSCAPE will file a separate return for income taxes.  For financial accounting purposes and in accordance with the tax sharing agreement which was in effect by and between ATSI and GlobalSCAPE for the periods prior to deconsolidation our financial statements have and will continue to reflect the costs of income taxes as if GlobalSCAPE was filing separate income tax returns.  The provision for federal income taxes was $290,969 and $348,179 for 2000 and 1999, respectively.  The provision for

 

19



 

state income taxes was $19,157 and $48,254 over the same periods.  GlobalSCAPE’s effective income tax rate for 2000 was 50% compared to the 37% effective rate for 1999.  The increase in the effective income tax rate in 2000 is due primarily to the financial accounting recognition of compensation expense related to stock option grants.

 

Net Income.   Net income decreased from $673,877 in 1999 to $314,639 in 2000, primarily as a result of the impact of the non-cash stock option related compensation charges as well expenses related to the partial spin-off of our common stock and increased personnel costs.  These expenses combined to reduce our income before taxes.  In addition, the compensation charge related to stock options did not reduce our tax liability, as it is not deductible for federal income tax purposes.

 

Liquidity and Capital Resources

 

We rely heavily on cash flows from operations and these cash flows are directly linked to CuteFTP and CuteFTP Pro, which accounted for 92% of our revenues in 2001.  Anything that has a negative impact on these products will negatively impact our cash flow from operations and our ability to meet our commitments.  In addition, we had outstanding loans to ATSI of $340,000 at December 31, 2001 and loaned an additional $50,000 on February 15, 2002. The total balance due from ATSI at December 31, 2001 was $461,124.  GlobalSCAPE is also a co-lessee on a capital lease obligation of ATSI with a December 31, 2001 balance of $1.5 million of which ATSI is in default of certain covenants.  Our financial statements do not include any adjustments to reflect the possible future effects of the recoverability and classification of these assets or the amounts and classification of liabilities that may result from the outcome of ATSI’s liquidity problems.  The financial condition of our parent company may impede or eliminate our ability to obtain financing if needed.  ATSI might be motivated by financial stress to sell its stock of GlobalSCAPE for less than what it might sell for under other circumstances, which may depress the value of the stock in general.

 

Net cash provided by operating activities was $808,142, $973,067 and $676,970 in 1999, 2000 and 2001, respectively.  Net cash provided by operating activities in 1999 was primarily the result of net income and adjustments related to depreciation and amortization as well as increasing amounts due to ATSI, offset by increases in accounts receivable.  Operating cash flows in 2000 were primarily the result of net income and adjustments related to depreciation and amortization and non-cash compensation as well as increases in accounts payable and accrued liabilities.  These cash flows were offset by reductions in the amount due to ATSI.  In 2001, operating cash flow resulted from adjustments related to depreciation and amortization as well as non-cash compensation charges, offset by a loss from operations, increased deferred tax assets and decreased accounts payable.

 

Net cash used in investing activities for 1999, 2000 and 2001 was $185,997, $620,539 and $545,801, respectively.  Net cash used in investing activities in 1999 and 2000 was related to the purchase of office furniture, software, computer and other equipment and leasehold improvements.  In 2001, we capitalized $205,801 related to the purchase of software, computer equipment, furniture and leasehold improvements and loaned $340,000 to our parent, ATSI Communications, Inc.

 

Net cash used in financing activities during 1999, 2000 and 2001 was $671,264, $255,298 and $110,223, respectively.  Net cash used in financing activities for 1999 consisted of $230,000 in bank borrowings, $888,566 in principal payments on notes payable and $12,698 in principal payments on capital lease obligations.  The majority of principal payments on notes payable were related to the purchase of CuteFTP.  Net cash used in financing activities for 2000 consisted primarily of $70,000 in bank borrowings offset by $263,269 in principal payments on notes payable and $63,648 in principal payments on capital lease obligations.  In 2001 we made principal payments of $47,108 on notes payable and $71,715 on capital lease obligations.  We did not enter any new capital leases in 2001.

 

As of December 31, 2000, we had approximately $134,537 in cash and cash equivalents, current assets of $808,506 and current liabilities of $310,372, resulting in working capital of $498,134.  Our principal commitments consisted of obligations outstanding under capital and operating leases and royalty

 

20



 

agreements with third parties.  In February 2001 we paid off all balances owed related to bank borrowings.  We anticipate a rate of capital expenditures consistent with our anticipated growth in operations, infrastructure and personnel.  The facility that we currently occupy is expected to be sufficient for our growth through December 31, 2002.  Consequently, we do not expect significant expenditures for leasehold improvements or furniture in 2002.  We plan to expend significant resources on product development in 2002 and may also use cash to acquire or license technology, products or businesses related to our current business.  In addition, we anticipate that operating expenses will be a material use of our cash resources.

 

It is our intention to continue to expend resources on personnel, sales and marketing, research and development and, to a lesser degree, infrastructure.  We have no formal commitments to incur such expenses other than those disclosed in this Annual Report and in documents previously filed with the SEC and therefore do not have an identified need for external financing for the next 12 months. We will manage to the current and immediately foreseeable cash flows generated from operations until such time as some external source of capital is identified.

 

In February 2000, we borrowed $70,000 from The Frost National Bank.  The note was paid in full February 2, 2001.

 

In March 2001, we established a line of credit with The Frost National Bank in the amount of $200,000.  We did not use any of the available credit under this facility and it expired unused in February 2002.

 

GlobalSCAPE is a co-lessee and jointly and severally liable for a capital lease obligation of ATSI with NTFC Capital Corporation (“NTFC”) entered into August 26, 1999 in the amount of $2,000,000.  In connection with this obligation GlobalSCAPE signed a Note and a Loan and Security Agreement whereby it has granted a security interest to NTFC in the equipment purchased with the loan proceeds.  GlobalSCAPE does not use any of that equipment in its business and none of its stock or assets is collateral securing the obligation.   As of December 31, 2001, the outstanding balance including capitalized interest was approximately $1.5 million.

 

The NTFC lease facility requires that ATSI meet certain financial covenants on a quarterly basis beginning October 31, 1999, including minimum revenue levels, gross margin levels, earnings before interest, taxes and depreciation and amortization (EBITDA) results and debt to equity ratios.  ATSI was in default of financial covenants of the lease as of July 31, 2001 and has classified the entire capital lease as a current liability.

 

On April 16, 2001, GlobalSCAPE loaned $200,000 to ATSI pursuant to a Note having a final maturity of April 30, 2001.  The Note provided for interest at 12% per annum and was secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  This Note was paid in full on April 23, 2001.

 

On April 27, 2001, GlobalSCAPE loaned $200,000 to ATSI pursuant to a Note having a final maturity of May 31, 2001.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

On May 4, 2001, GlobalSCAPE loaned $50,000 to ATSI pursuant to a Note having a final maturity of May 31, 2001.  The Note provided for interest at 12% per annum and was secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  This Note was paid in full on May 7, 2001.

 

On October 18, 2001, GlobalSCAPE loaned $100,000 to ATSI.  This Note was paid in full on October 26, 2001.

 

21



 

On November 15, 2001, GlobalSCAPE loaned $100,000 to ATSI pursuant to a Note having a final maturity of January 31, 2002.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

On December 12, 2001, GlobalSCAPE loaned $40,000 to ATSI pursuant to a Note having a final maturity of January 31, 2002.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

On February 15, 2002, GlobalSCAPE loaned $50,000 to ATSI pursuant to a Note having a final maturity of April 30, 2002.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

On a consolidated basis as of July 31, 2001, 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.  ATSI may be unable to repay the loans from GlobalSCAPE and the NTFC obligation.  If ATSI were unable to pay these loans, GlobalSCAPE could foreclose on the receivable securing the loans.  GlobalSCAPE believes the value of the receivable securing these loans is sufficient to pay them in full.  If ATSI were unable to pay the NTFC obligation, NTFC would likely exercise its rights under the Loan and Security Agreement to sell the equipment and apply the proceeds to its loan balance.  If ATSI were unable to pay any loan balance remaining after the sale of the equipment, NTFC would have recourse against GlobalSCAPE for repayment.  As a result, assets which otherwise would be used to execute GlobalSCAPE’s business strategy may have to be used to satisfy this debt.

 

Tax Matters

 

As of the date of ATSI’s distribution of the GlobalSCAPE’s stock, September 12, 2000, the stock ownership requirements necessary for GlobalSCAPE to be eligible to join in the filing of an ATSI consolidated tax return are not met.  In filing a separate return, GlobalSCAPE’s income and deductions will be taxable on a single-entity basis.

 

Inflation

 

Increases in inflation generally result in higher interest rates and operating costs.  Our largest cost exposure is the cost of salaries and general and administrative expenses. To date we believe that inflation has not had a significant impact on our operations.

 

Item 7A Quantitative and Qualitative Disclosures About 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 may 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.

 

In 2001, approximately 38% of our revenues came from customers outside the United States. However, all revenues are received in U.S. dollars so we have no exchange rate risk.

 

22



 

Item 8 Financial Statements and Supplementary Data

 

GlobalSCAPE, Inc.

 

Index to Financial Statements

 

Years ending December 31, 199 9, 2000 and 2001

 

Contents

 

Report of Independent Auditors

Financial Statements

Balance Sheets

Statements of Operations

Statements of Stockholders’ Equity

Statements of Cash Flows

Notes to Financial Statements

 

23



 

Report of Independent Auditors

 

To the Board of Directors

GlobalSCAPE, Inc.

 

We have audited the accompanying balance sheets of GlobalSCAPE, Inc., a majority owned subsidiary of ATSI Communications, Inc. (“ATSI”), as of December 31, 2000 and 2001 and the related statements of operations, stockholders’ equity and cash flows for the three years in the period ended December 31, 2001. 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. as of December 31, 2000 and 2001 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 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 the Note 1, the Company is a majority owned subsidiary of ATSI Communications, Inc.  On a consolidated basis as of July 31, 2001, ATSI had a working capital deficit, had suffered recurring losses 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 that GlobalSCAPE is a co-borrower for a capital lease obligation of ATSI of which ATSI was in default of certain financial covenants, ATSI’s actions could have 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, Inc. 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.

 

 

 

Ernst & Young LLP

 

San Antonio, Texas

February 15, 2002

 

24



 

GlobalSCAPE, Inc.

 

Balance Sheets

 

 

 

December 31,

 

 

 

2000

 

2001

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

113,591

 

$

134,537

 

Accounts receivable (net of allowance for doubtful accounts of $80,719 and $25,104 in 2000 and 2001, respectively)

 

241,322

 

183,796

 

Due from parent

 

265,685

 

461,124

 

Deferred tax assets

 

51,726

 

9,288

 

Prepaid expenses

 

12,165

 

19,761

 

Total current assets

 

684,489

 

808,506

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

Furniture and equipment

 

287,017

 

332,920

 

Software

 

78,822

 

195,117

 

Equipment

 

504,464

 

540,027

 

Leasehold improvements

 

145,536

 

153,576

 

Software development costs

 

158,285

 

158,285

 

 

 

1,174,124

 

1,379,925

 

Accumulated depreciation and amortization

 

297,015

 

642,884

 

Net property and equipment

 

877,109

 

737,041

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Core software technology (net of accumulated amortization of  $406,679 and $584,209 for 2000 and 2001, respectively

 

492,264

 

314,734

 

Goodwill (net of accumulated amortization of $26,506 in 2000)

 

22,618

 

 

Deferred tax assets

 

26,125

 

137,644

 

Other

 

19,489

 

11,881

 

Total other assets

 

560,496

 

464,259

 

Total assets

 

$

2,122,094

 

$

2,009,806

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

242,621

 

$

63,714

 

Accrued expenses

 

162,248

 

175,806

 

Current maturities of long-term debt

 

47,108

 

 

Current portion of capital lease obligation

 

70,573

 

70,852

 

Total current liabilities

 

522,550

 

310,372

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Capital lease obligations, less current portion

 

149,074

 

77,080

 

Other long-term liabilities

 

75,764

 

61,684

 

Total long-term liabilities

 

224,838

 

138,764

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $0.001 per share, 10,000,000 authorized, no shares issued or outstanding

 

 

 

Common stock, par value $0.001 per share, 40,000,000 shares authorized, 12,936,190 and 13,022,190 shares issued and outstanding at December 31, 2000 and 2001, respectively

 

12,936

 

13,022

 

Additional paid-in capital

 

264,889

 

707,902

 

Retained earnings

 

1,096,881

 

839,746

 

Total stockholders’ equity

 

1,374,706

 

1,560,670

 

Total liabilities and stockholders’ equity

 

$

2,122,094

 

$

2,009,806

 

 

See accompanying notes.

 

25



 

GlobalSCAPE, Inc.

 

Statements of Operations

 

 

 

For the Years ended December 31,

 

 

 

1999

 

2000

 

2001

 

Operating revenues:

 

 

 

 

 

 

 

Software product revenues

 

$

2,922,141

 

$

5,165,668

 

$

5,259,148

 

Advertising revenues

 

328,895

 

570,008

 

38,540

 

Total revenues

 

3,251,036

 

5,735,676

 

5,297,688

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation and amortization shown separately below)

 

105,026

 

200,118

 

323,309

 

Selling, general and administrative expenses

 

1,625,004

 

3,463,044

 

3,551,498

 

Research and development expenses

 

139,953

 

961,002

 

1,176,714

 

Depreciation and amortization

 

253,896

 

430,221

 

546,017

 

Total operating expense

 

2,123,879

 

5,054,385

 

5,597,538

 

Income (loss) from operations

 

1,127,157

 

681,291

 

(299,850

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense

 

(56,847

)

(42,839

)

(15,640

)

Interest income

 

 

 

20,060

 

(Loss) on sale of assets

 

 

(13,687

)

 

Total other income (expense)

 

(56,847

)

(56,526

)

4,420

 

Income (loss) before income taxes

 

1,070,310

 

624,765

 

(295,430

)

 

 

 

 

 

 

 

 

Income tax provision (benefit):

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

Federal

 

372,532

 

329,215

 

30,952

 

State

 

51,629

 

22,532

 

(166

)

Deferred:

 

 

 

 

 

 

 

Federal

 

(24,353

)

(38,246

)

(75,861

)

State

 

(3,375

)

(3,375

)

6,780

 

Total income tax provision (benefit)

 

396,433

 

310,126

 

(38,295

)

 

 

 

 

 

 

 

 

Net income (loss)

 

$

673,877

 

$

314,639

 

$

(257,135

)

 

 

 

 

 

 

 

 

Net income (loss) per common share—basic

 

$

0.05

 

$

0.02

 

$

(0.02

)

Net income (loss) per common share—assuming dilution

 

$

0.05

 

$

0.02

 

$

(0.02

)

 

See accompanying notes.

 

26



 

GlobalSCAPE, Inc.

 

Statements of Stockholders’ Equity

 

 

 

Common Stock

 

Additional paid in
Capital

 

 

 

 

 

 

 

Shares

 

Amount

 

 

Retained Earnings

 

Total

 

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

 

Net income

 

 

 

 

 

 

 

314,639

 

314,639

 

Exercise of options

 

16,190

 

16

 

1,603

 

 

 

1,619

 

Value of stock options granted

 

 

 

214,174

 

 

214,174

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2000

 

12,936,190

 

12,936

 

264,889

 

1,096,881

 

1,374,706

 

Net loss

 

 

 

 

 

 

 

(257,135

(257,135

)

Exercise of options

 

86,000

 

86

 

8,514

 

 

8,600

 

Value of stock options granted

 

 

 

434,499

 

 

434,499

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2001

 

13,022,190

 

$

13,022

 

$

707,902

 

$

839,746

 

$

1,560,670

 

 

See accompanying notes.

 

27



 

GlobalSCAPE, Inc.

 

Statements of Cash Flows

 

 

 

For the Years ended December 31,

 

 

 

1999

 

2000

 

2001

 

Operating Activities:

 

 

 

 

 

 

 

Net Income (loss)

 

$

673,877

 

$

314,639

 

$

(257,135

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Bad debt expense

 

53,614

 

100,858

 

99,114

 

Depreciation and amortization

 

253,896

 

430,221

 

546,017

 

Non-cash compensation

 

 

214,174

 

434,499

 

Loss on disposition of assets

 

 

13,687

 

 

Deferred taxes

 

(27,728

)

(41,621

)

(69,081

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(368,191

)

26,173

 

(41,588

)

Prepaid expenses

 

(23,466

)

13,051

 

(7,596

)

Other long term assets

 

(9,895

)

17,156

 

7,608

 

Accounts payable

 

(15,611

)

242,419

 

(178,907

)

Accrued liabilities

 

31,813

 

173,248

 

(522

)

Due to (from) parent

 

239,833

 

(530,938

)

144,561

 

Net cash provided by operating activities

 

808,142

 

973,067

 

676,970

 

Investing Activities:

 

 

 

 

 

 

 

Loans to parent

 

 

 

(340,000

)

Purchase of property and equipment

 

(185,997

)

(620,539

)

(205,801

)

Net cash used in investing activities

 

(185,997

)

(620,539

)

(545,801

)

Financing Activities:

 

 

 

 

 

 

 

Issuance of common stock

 

 

1,619

 

8,600

 

Borrowings under notes payable

 

230,000

 

70,000

 

 

Principal payments on notes payable

 

(888,566

)

(263,269

)

(47,108

)

Principal payments on capital lease obligations

 

(12,698

)

(63,648

)

(71,715

)

Net cash used in financing activities

 

(671,264

)

(255,298

)

(110,223

)

Net increase (decrease) in cash and cash equivalents

 

(49,119

)

97,230

 

20,946

 

Cash at beginning of period

 

65,480

 

16,361

 

113,591

 

Cash at end of period

 

$

16,361

 

$

113,591

 

$

134,537

 

Supplemental disclosure of cash flows information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest

 

$

57,000

 

$

37,420

 

$

15,640

 

Income taxes paid to parent

 

$

144,500

 

794,487

 

 

Income taxes paid

 

 

66,667

 

28,366

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Office equipment acquired through issuance of capital lease obligations

 

$

49,005

 

$

226,866

 

$

 

 

See accompanying notes.

 

 

28



 

GlobalSCAPE, Inc.

Notes to Financial Statements

December 31, 2000 and 2001

 

1.              Significant Accounting Policies

 

Nature of Business

 

GlobalSCAPE, Inc. (the Company or GlobalSCAPE) develops and distributes Internet related software. The Company was incorporated in April 1996 and is a 73% owned subsidiary of ATSI Communications, Inc., a Delaware corporation, whose shares are currently traded on the American Stock Exchange.  GlobalSCAPE’s shares are quoted on the NASD’s OTC Bulletin Board.  The Company is best known for its popular file transfer program, CuteFTP.  The Company derived approximately 90%, 90%, and 99% of its revenues in 1999, 2000, and 2001, respectively, from sales of licenses to use its software products.  A combination of the sale of licenses of CuteFTP and advertising from within CuteFTP accounted for 97% and 98% of its revenues in 1999 and 2000, respectively.  Sales of CuteFTP and CuteFTP Pro accounted for 92% of total revenues in 2001.  The Company is organized and operates as one operating segment, the provision of Internet-based software, and markets its products primarily over the Internet.

 

Basis of Presentation

 

As described above, the Company is a majority owned subsidiary of ATSI. On a consolidated basis as of July 31, 2001, 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, as noted by ATSI’s auditors in their report dated October 18, 2001, raise substantial doubt about ATSI’s ability to continue as a going concern.  Because of ATSI’s financial condition and the fact that GlobalSCAPE is a co-borrower for a capital lease obligation of ATSI of which ATSI was in default of certain financial covenants (see Note 5), ATSI’s actions could have 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, 2000, management of ATSI had arranged for additional funding it believed was sufficient to allow the Company to operate independently of ATSI.  In addition, it was anticipated that there would be no cash requirements of the parent to be funded by the Company for at least one year subsequent to December 31, 2000.  However, ATSI did borrow funds from GlobalSCAPE in 2001 and some of these loans remain outstanding as of the date of this report (see Note 5).  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.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the Unites States 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.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on operating income as previously reported.

 

Cash

 

Cash includes all cash and highly liquid investments with original maturities of three months or less.

 

29



 

 

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 $4,000, $50,000 and $53,000 in 1999, 2000 and 2001, respectively.  These software development costs are amortized using the straight-line method over a three-year period and are only those costs incurred in the development of products that are sold to external customers and not used for internal purposes. These software development costs are not related to those costs incurred for the acquisition of software products or titles reflected in Other Assets as Core Software Technology.

 

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

 

GlobalSCAPE accelerated the amortization of goodwill in 2001 related to a 1998 asset acquisition. Goodwill in prior periods was amortized on a straight-line basis over a five-year period from the date of the acquisition.  Goodwill is shown net of amortization of $26,506 for the year ended December 31, 2000 and was fully amortized at December 31, 2001.  GlobalSCAPE recognized amortization expense related to Goodwill of approximately $10,000, $8,000 and $23,000 in 1999, 2000 and 2001, respectively.

 

Other Long-Term Assets

 

Costs incurred for acquiring core software technology are capitalized and amortized over the technology’s estimated useful life of five years using the straight-line method.  The Core Software Technology on the balance sheet represents the purchase of the source code and related trademark for CuteFTP and the related amortization of these costs.  GlobalSCAPE recognized amortization expense related to this core software technology of approximately $180,000, $182,000 and $178,000 in 1999, 2000 and 2001, respectively.  Other assets include deposits for facilities, which will be refunded to the Company upon termination of the lease.

 

Other Long-Term Liabilities

 

Other long-term liabilities relate to deferred payments of rent expense.

 

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 2% of net revenues in 1999, 2000 and 2001.

 

30



 

Other Concentrations

 

Sales in Foreign Markets.  In 1999, 2000 and 2001, respectively, approximately 24%, 33% and 38% of our revenues were generated from sales to customers who provided addresses in foreign countries.  However, all revenues are received in U.S. dollars so there is no exchange rate risk.  These sales were concentrated mostly in Western Europe, Canada, and Australia.  In 1999, 2000 and 2001, the UK accounted for approximately 6%, 10%, and 11.5% of total revenues, respectively.

 

Labor.  GlobalSCAPE utilizes offshore developers for a large portion of the coding phase of software development.  If GlobalSCAPE were unable to continue using these developers because of political or economic instability, GlobalSCAPE may have difficulty finding comparably skilled developers or may have to pay considerably more for the same work, which would have a material adverse impact on results of operations.

 

Revenue Recognition

 

Revenues from the sale of software products are recognized and completely earned upon shipment of the product. The installation process is simple and requires little or no support.  An installation wizard guides the user through the process.  The Company began selling technical support and maintenance services for some of its software products in 2001 and has deferred recognition of approximately $11,000 in revenue.  Total sales of technical support and maintenance agreements did not comprise a significant portion of the Company’s revenues in 2001.

 

The outbound shipping charges charged to the customer are included in software product revenues and amounted to $33,000, $35,000 and $25,000 in 1999, 2000, and 2001, respectively.  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.  Advertising is earned in the period in which the advertisements are displayed.  The Company’s current product line does not include products containing the modules necessary to generate advertising space and does not feel that advertising will be a material source of revenue in future periods.

 

Royalty Costs

 

Royalties that the Company pays on software products licensed from third parties, which it resells, are expensed as a cost of sales when the software product is sold.  On June 6, 2001 GlobalSCAPE announced an agreement with Trellix Corp. whereby GlobalSCAPE has distribution rights to Trellix Web, a desktop Web site creation and management tool for users of all skill levels. 

GlobalSCAPE has integrated the existing Trellix Web code into its new product offering, CuteSITE Builder and will develop all future enhancements to the software.

 

Advertising Costs

 

The Company expenses advertising costs as incurred.  Advertising expenses charged to operations for the years ended December 31, 1999, 2000 and 2001 amounted to approximately $58,000, $113,000 and $138,000 respectively, and are included in selling, general and administrative expenses.

 

Capitalized interest

 

No interest was capitalized during 1999, 2000 or 2001.  GlobalSCAPE incurred and charged to expense $57,000, $43,000 and $16,000 in 1999, 2000 and 2001, respectively.

 

Income Taxes

 

The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standards 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

 

31



 

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 through April 3, 2000 and the ATSI Communications, Inc. (a Delaware corporation) consolidated federal income tax return from April 4, 2000 through September 12, 2000.  On September 12, 2000, ATSI distributed approximately 27% of its ownership in GlobalSCAPE, resulting in a deconsolidation from the ATSI tax return filing group for federal income tax purposes.  In general, the Company’s income tax provision reflects income taxes as if the Company filed returns on a separate company 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.  For the years 1999, 2000, and 2001, GlobalSCAPE spent $243,000, $1,017,000 and $1,177,000, respectively on research and development of which approximately $103,000 and $56,000 was capitalized in 1999 and 2000, respectively.

 

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 in accordance with Accounting Principles Board opinion No. 25, Accounting for Stock Issued to Employees and related interpretations under which compensation expense is recorded to the extent that the current market price of the underlying stock exceeds the exercise price.

 

Earnings Per Common Share

 

Basic and diluted net income per common share is 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 (loss) available to common stockholders by the weighted average shares outstanding during the period.  Diluted earnings per share is calculated by dividing net income (loss) 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 basic and diluted earnings per share for each of the following years:

 

 

 

Year ended December 31,

 

 

 

1999

 

2000 (1)

 

2001 (2)

 

Numerators

 

 

 

 

 

 

 

Numerator for basic and diluted earnings per share:

 

 

 

 

 

 

 

Net income (loss)

 

$

673,877

 

$

314,639

 

$

(257,135

)

Numerator for basic and diluted earnings per share

 

673,877

 

314,639

 

(257,135

)

 

 

 

 

 

 

 

 

Denominators

 

 

 

 

 

 

 

Denominators for basic earnings per share:

 

 

 

 

 

 

 

Weighed average shares outstanding—Basic

 

12,920,000

 

12,924,866

 

12,938,782

 

 

 

 

 

 

 

 

 

Dilutive potential common shares :

 

 

 

 

 

 

 

Stock Options

 

372,673

 

542,116

 

 

Denominator for dilutive earnings per share

 

13,292,673

 

13,466,982

 

12,938,782

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

Net income (loss)

 

$

0.05

 

$

0.02

 

$

(0.02

)

Net income (loss) per common share—assuming dilution

 

 

 

 

 

 

 

Net income (loss)

 

$

0.05

 

$

0.02

 

$

(0.02

)

 


(1)                           For the year ended December 31, 2000, 950,000 options have not been included in dilutive shares as the effect would be anti-dilutive.

 

(2)                           For the year ended December 31, 2001, 3,557,480 options have not been included in dilutive shares as the effect would be anti-dilutive.

 

32



 

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, 1999, 2000 and 2001 is presented in the following table:

 

Balance at

 

Charged to
Income or
Expense

 

Deductions (1)

 

Balance at
End of
Period

 

Year Ended
December 31

 

Beginning
of Period

 

 

 

 

1999

 

$

25,000

 

$

53,614

 

$

(8,614

)

$

70,000

 

2000

 

70,000

 

100,858

 

(90,139

)

80,719

 

2001

 

$

80,719

 

$

99,114

 

$

(154,729

)

$

25,104

 

 


(1)                           Represents amounts written off as uncollectible accounts receivable.

 

3.              Debt

 

At December 31, 2000 and 2001, the Company had no long-term debt outstanding.  On March 20, 2001 GlobalSCAPE established a line of credit with a bank in the amount of $200,000.  The interest rate was subject to change and was indexed to the bank’s prime rate.  The initial rate was 9.5%.  In connection with the line of credit, GlobalSCAPE entered into a Commercial Security Agreement with the bank whereby GlobalSCAPE granted a security interest in all its accounts and equipment.  In the event of default under the Security Agreement, the bank could sell the collateral in which they held a security interest. 

 

33



 

GlobalSCAPE did not use any of the available credit under the facility and it expired unused in February 2002 and was not renewed.

 

4.              Commitments and Contingencies

 

Capital Leases

 

The Company has financed the acquisition of certain fixed assets through capital lease obligations.  These obligations are classified as capital leases due to the bargain purchase option contained therein.  The present value of the future minimum lease payments for these leases at December 31, 2001 is as follows:

 

Year ended December 31:

 

 

2002

 

$

80,290

2003

 

64,445

2004

 

15,632

Total minimum lease payments

 

160,367

Less amount representing interest

 

12,435

Present value of minimum lease payments

 

147,932

Less current portion

 

70,852

Capital lease obligation, less current portion

 

$

77,080

 

Furniture and equipment at December 31, 2000 and 2001 includes $295,000 and $276,000, respectively, for assets held under capital leases, less associated accumulated depreciation of $51,000 and $130,000, respectively.  Depreciation is included in depreciation and amortization expense.

 

The Company did not enter any new capital lease agreements in 2001.

 

Operating Leases

 

Minimum future lease payments on non-cancelable operating leases for office facilities are as follows for the years ending December 31:

 

2002

 

$

190,659

2003

 

190,659

2004

 

190,659

2005

 

190,659

2006

 

190,659

Thereafter

 

285,988

 

 

$

1,239,283

 

This lease provides the Company with two successive 5-year renewal options.  Operating lease expense amounted to approximately $90,000, $139,000 and $180,000 in 1999, 2000 and 2001, respectively.

 

Resolution of Contingencies

 

In GlobalSCAPE’s 2000 Annual Report on Form 10-K, GlobalSCAPE described potential additional compensation charges, for which it had not made provisions, related to potential future stock option grants to GlobalSCAPE’s President, Ms. Poole-Christal.  In April 2001, GlobalSCAPE and Ms. Poole-Christal resolved her claim that her option should be adjusted as a result of the 7.6:1 forward split performed in May 2000.   As part of the resolution of this claim, Ms. Poole-Christal was granted 808,571 fully vested

options at $0.0132 per share, 575,000 options at $0.464 per share and will be paid a bonus of $0.0868 per share, grossed up for taxes, for each share issued related to the original 291,429 options issued on January 15, 1998.  GlobalSCAPE recognized a non-cash compensation charge for these grants of

 

34



 

approximately $405,000 for the estimated intrinsic value of the fully vested options and reflected this charge as an increase in operating expenses and a corresponding increase in additional paid-in capital.

 

5.              Related Party Transactions

 

ATSI incurs various expenses for the joint benefit of ATSI and GlobalSCAPE, such as the premiums for group health and general business insurance.  ATSI allocates a portion of these expenses to GlobalSCAPE based on GlobalSCAPE’s proportionate use of the services.  The amounts allocated to GlobalSCAPE are not necessarily indicative of the amounts that would have been incurred if GlobalSCAPE had acquired these services on its own, nor of the amounts that might be charged in the future.  However, management believes the method of allocation is reasonable.  Expenses for these services in the amount of $105,000, $386,000 and $190,000 were charged to GlobalSCAPE by ATSI during the years ending December 31, 1999, 2000 and 2001, respectively, and are reflected in the statement of operations.  The balance due from ATSI to GlobalSCAPE at December 31, 2001 was $461,000, a $195,000 increase over the prior year due primarily to loans to ATSI during the year.

 

GlobalSCAPE is a co-lessee for a capital lease obligation of ATSI with NTFC Capital Corporation (“NTFC”) entered into August 26, 1999 in the amount of $2,000,000.  In connection with this obligation GlobalSCAPE signed a Note and a Loan and Security Agreement whereby it has granted a security interest to NTFC in the equipment purchased with the loan proceeds.  GlobalSCAPE does not use any of that equipment in its business and none of its stock or assets is collateral securing the obligation.   As of December 31, 2001, the outstanding balance including capitalized interest was approximately $1.5 million.

 

The NTFC lease facility requires that ATSI meet certain financial covenants on a quarterly basis beginning October 31, 1999, including minimum revenue levels, gross margin levels, earnings before interest, taxes and depreciation and amortization (EBITDA) results and debt to equity ratios.  ATSI was in default of financial covenants of the lease as of July 31, 2001 and has classified the entire capital lease as a current liability.

 

On April 16, 2001, GlobalSCAPE loaned $200,000 to ATSI pursuant to a Note having a final maturity of April 30, 2001.  The Note provided for interest at 12% per annum and was secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  This Note was paid in full on April 23, 2001.

 

On April 27, 2001, GlobalSCAPE loaned $200,000 to ATSI pursuant to a Note having a final maturity of May 31, 2001.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

On May 4, 2001, GlobalSCAPE loaned $50,000 to ATSI pursuant to a Note having a final maturity of May 31, 2001.  The Note provided for interest at 12% per annum and was secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  This Note was paid in full on May 7, 2001.

 

On October 18, 2001, GlobalSCAPE loaned $100,000 to ATSI.  This loan was paid in full on October 26, 2001.

 

On November 15, 2001, GlobalSCAPE loaned $100,000 to ATSI pursuant to a Note having a final maturity of January 31, 2002.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

On December 12, 2001, GlobalSCAPE loaned $40,000 to ATSI pursuant to a Note having a final maturity of January 31, 2002.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

35



 

On February 15, 2002, GlobalSCAPE loaned $50,000 to ATSI pursuant to a Note having a final maturity of April 30, 2002.  The Note provides for interest at 12% per annum and is secured by a receivable from a third party owing to ATSI’s subsidiary, TeleSpan, Inc.  The entire amount of this Note is outstanding as of the date of this report.

 

GlobalSCAPE, Inc. recognized interest income of $20,000 in the year ended December 31, 2001 related to the Notes described above.  Interest earned on the loans has not been paid and is reflected in the due from parent account.

 

On a consolidated basis as of July 31, 2001, 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.  ATSI may be unable to repay the loans from GlobalSCAPE and the NTFC obligation.  If ATSI were unable to pay these loans, GlobalSCAPE could foreclose on the receivable securing the loans.  GlobalSCAPE believes the value of the receivable securing these loans is sufficient to pay them in full.  If ATSI were unable to pay the NTFC obligation, NTFC would likely exercise its rights under the Loan and Security Agreement to sell the equipment and apply the proceeds to its loan balance.  If ATSI were unable to pay any loan balance remaining after the sale of the equipment, NTFC would have recourse against GlobalSCAPE for repayment.  As a result, assets which otherwise would be used to execute GlobalSCAPE’s business strategy may have to be used to satisfy this debt.

 

The financial condition of ATSI may impede or eliminate our ability to obtain financing if needed.  In addition, ATSI might be motivated by financial stress to sell its stock of GlobalSCAPE for less than what it might sell for under other circumstances, which may depress the value of the stock in general.

 

6.   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:

 

 

 

2000

 

2001

 

Deferred tax assets:

 

 

 

 

 

Depreciation and amortization

 

$

5,155

 

$

(32,830

)

Accrued expenses

 

18,542

 

45,692

 

Allowance for doubtful accounts

 

51,726

 

9,288

 

Net operating loss carryforwards

 

 

124,782

 

 

 

$

75,423

 

$

146,932

 

 

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:

 

 

 

1999

 

2000

 

2001

 

Taxes computed at federal statutory rate

 

$

363,905

 

$

212,419

 

$

(100,446

)

Increases (decreases) in taxes resulting from:

 

 

 

 

 

 

 

State taxes, net of federal benefit

 

31,848

 

19,158

 

4,366

 

Non-deductible incentive stock option compensation charges

 

 

72,818

 

147,730

 

Other non-deductible expenses

 

680

 

5,731

 

2,684

 

Change in valuation allowance

 

 

 

(92,629

)

Total

 

$

396,433

 

$

310,126

 

$

(38,295

)

 

36



 

7.              Employee Benefit Plan

 

The Company has a 401(k) plan that 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 contributions, the amount of which are to be determined annually by the Board of Directors.  The Company made contributions to the plan of $3,271 for 1999 and $4,377 for 2000.  The contribution related to the 2001 plan year is indeterminate at the time of this report.

 

8.              Stock Options and Stock Based Compensation

 

In January 1998, the Company approved the 1998 Stock Option Plan (the “1998 Plan”) for officers, other employees, directors, and consultants of the Company.  Under the terms of the 1998 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.  The Company awarded 384,499 options under the 1998 Plan, all of which were subsequently cancelled and re-issued as more fully described below and in Note 4.  As of July 31, 2001, no additional grants could be issued under the 1998 Plan.

 

In February 2000, the Company canceled options to purchase 44,500 shares of common stock under the 1998 Stock Option Plan and substantially modified the terms under which all other option holders could exercise their options.  In consideration for canceling these options, the Company paid $5,000 in cash consideration to the optionholders.  In addition, the Company and

Ms. Poole-Christal agreed to the substantial modification of her option to purchase 291,429 shares.  The Company agreed to issue 38,500 shares to the optionholders whose options were cancelled when and if a public offering of the Company was completed.

 

In May 2000, the Board of Directors amended the certificate of incorporation to increase the number of authorized shares of capital stock which the Company 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 $0.001 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.  In May 2000, the Board of Directors approved the 2000 stock option plan (the “2000 Plan”) for key employees, non-employee directors, and advisors of the Company.  Under the terms of the 2000 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 2000 Plan may not exceed 2,000,000.  The 2000 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.

 

In GlobalSCAPE’s 2000 Annual Report on Form 10-K, GlobalSCAPE described potential additional compensation charges, for which it had not made provisions, related to potential future stock option grants to GlobalSCAPE’s President, Ms. Poole-Christal.  In April 2001, GlobalSCAPE and Ms. Poole-Christal resolved her claim that her option should be adjusted as a result of the 7.6:1 forward split performed in May 2000.   As part of the resolution of this claim, Ms. Poole-Christal was granted 808,571 fully vested options at $0.0132 per share, 575,000 options at $0.464 per share and will be paid a bonus of $0.0868 per share, grossed up for taxes, for each share exercised related to the original 291,429 options issued on January 15, 1998.  GlobalSCAPE recognized a non-cash compensation charge for these grants of approximately $405,000 for the estimated intrinsic value of the fully vested options and reflected this charge as an increase in operating expenses and a corresponding increase in additional paid-in capital.

 

On April 4, 2001, GlobalSCAPE issued options under the 2000 Stock Option Plan to substantially all of its employees, an aggregate of 551,000 options with an exercise price of $0.464 per share.  The options vest in thirds over a three-year period and expire on April 3, 2011.  No compensation expense was recognized related to these grants.

 

37



 

On April 20, 2001, GlobalSCAPE issued 808,571 options under the 1998 Stock Option Plan to Ms. Poole-Christal at an exercise price of $0.0132 per share.  The options are fully vested.  Compensation expense was recognized related to these grants and the price adjustment of the 291,429 original options in the amount of $405,000, as described above.

 

On April 20, 2001, GlobalSCAPE issued 575,000 options under the 2000 Stock Option Plan to Ms. Poole-Christal at an exercise price of $0.464 per share.  The options vest in thirds over a three-year period and expire on April 19, 2011.  No compensation expense was recognized related to these grants.

 

On August 2, 2001, GlobalSCAPE issued 250,000 options under the 2000 Stock Option Plan to Tim Nicolaou at an exercise price of $0.46 per share.  The options vest in thirds over a three-year period and expire on August 1, 2011.  No compensation expense was recognized related to these grants.

 

On December 20, 2001, Sandra Poole-Christal exercised her option to purchase 86,000 shares of GlobalSCAPE commons stock at an exercise price of $0.10 per share.  The Company paid a bonus to Ms. Poole-Christal related to this exercise of approximately $12,000.

 

GlobalSCAPE, Inc. records compensation expense for stock options issued below intrinsic value as those options vest.  For the year ended December 31, 2001, total non-cash compensation charges related to the issuance of stock options below fair market value was $434,000.

 

Supplemental Disclosures for Stock Options

 

The following table shows the number of options granted, cancelled and exercised for all option plans for the three years ending December 31, 2001.

 

 

 

Number of
Shares

 

Weighted Avg.
Exercise Price

 

 

1999

 

 

 

 

 

 

Granted

 

26,500

 

$

0.10

 

Cancelled

 

 

 

Exercised

 

 

 

Outstanding December 31, 1999

 

384,499

 

0.10

 

 

 

 

 

 

 

 

2000

 

 

 

 

 

 

Granted

 

1,582,599

 

0.54

 

Cancelled

 

384,499

 

0.10

 

Exercised

 

16,190

 

0.10

 

Outstanding December 31, 2000

 

1,566,409

 

 

0.54

 

 

 

 

 

 

 

 

2001

 

 

 

 

 

 

Granted

 

2,184,571

 

0.30

 

Cancelled

 

107,500

 

0.46

 

Exercised

 

86,000

 

0.10

 

Outstanding December 31, 2001

 

3,557,480

 

$

0.41

 

 

38



 

The following table shows information about outstanding stock options at December 31, 2001.

 

 

 

 

 

Options Outstanding

 

Options Exercisable

Range of
Exercise Prices

 

Options
Outstanding

 

Weighted
Average
Remaining
Contractual
Life

 

Weighted
Average
Exercise
Price

 

Number of
Options

 

Weighted
Average
Exercise
Price

$ 0.0132

 

1,101,171

 

8.74

 

$

0.0132

 

1,082,171

 

$

0.0132

$ 0.10

 

237,809

 

6.00

 

0.10

 

237,809

 

0.10

$ 0.46 - $0.464

 

1,518,500

 

9.27

 

0.463

 

357,000

 

0.463

$ 1.00

 

700,000

 

8.79

 

1.00

 

300,000

 

1.00

$ 0.0132 - $1.00

 

3,557,480

 

8.79

 

$

0.41

 

1,976,980

 

$

0.255

 

The Company has elected to follow APB 25, however, FAS 123 requires presentation of pro forma net income and earnings per share as if the Company had accounted for its employee stock options granted under the fair value method of that statement.  The weighted average fair value of the individual stock options granted during 1999, 2000, and 2001 is estimated at $0.02, $0.02 and $0.24, respectively, on the date of grant.  The impact on net income is minimal; therefore, pro forma disclosure requirements prescribed by FAS 123 are not significant to the Company.  The fair values were determined using a minimum value options-pricing model with the following assumptions:

 

 

 

1999

 

2000

 

2001

 

Dividend Yield

 

None

 

None

 

None

 

Expected volatility

 

n/a

 

n/a

 

n/a

 

Risk-free interest rate

 

5.68

%

6.38

%

4.99

%

Expected life

 

5.0

 

3.6

 

5.0

 

 

9.             Quarterly Financial Information (unaudited)

 

 

 

Fiscal Year 2000

 

 

 

1st Quarter

 

2nd Quarter

 

3rd Quarter

 

4th Quarter

 

Total revenues

 

$

1,450,014

 

$

1,541,256

 

$

1,526,586

 

$

1,217,820

 

Total operating expenses

 

761,529

 

1,275,111

 

1,353,160

 

1,664,585

 

Net income (loss) before provision for income taxes

 

680,272

 

252,263

 

161,537

 

(469,307

)

Net income (loss)

 

444,524

 

157,783

 

101,273

 

(388,941

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

0.03

 

0.01

 

0.01

 

(0.03

)

Diluted

 

0.03

 

0.01

 

0.01

 

(0.03

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

12,920,000

 

12,920,000

 

12,923,168

 

12,924,866

 

Diluted

 

13,278,318

 

13,287,029

 

12,923,168

 

12,924,866

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

1,473,209

 

$

1,352,396

 

$

1,237,802

 

$

1,234,281

 

Total operating expenses

 

1,818,632

 

1,370,446

 

1,232,604

 

1,175,856

 

Net income (loss) before provision for income taxes

 

(350,333

)

(17,265

)

8,449

 

63,719

 

Net income (loss)

 

(375,961

)

(16,761

)

725

 

134,862

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

(0.03

)

(0.00

)

0.00

 

0.01

 

Diluted

 

(0.03

)

(0.00

)

0.00

 

0.01

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

12,936,190

 

12,936,190

 

12,936,190

 

12,946,473

 

Diluted

 

12,936,190

 

12,936,190

 

14,262,212

 

14,186,495

 

 

The Company recognized non-cash compensation charges in the fourth quarter of 2000 and the first quarter of 2001 of $214,714 and $417,570, respectively.  Comparisons of GlobalSCAPE’s quarterly results from operations should take these charges into consideration.

 

39



 

 

10.           Subsequent Events (unaudited)

 

None.

 

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

Part III

 

Item 10 Directors and Executive Officers of the Registrant

 

The information called for by item 10 of Form 10-K as to Directors is incorporated herein by reference to such information included in our Proxy Statement for the 2002 Annual Meeting of Stockholders.  The information called for by item 10 of Form 10-K as to Executive Officers appears in Part I of this Form 10-K.

 

Item 11. Executive Compensation

 

The information called for by item 11 of Form 10-K is incorporated herein by reference to such information included in our Proxy Statement for the 2002 Annual Meeting of Stockholders, except for those parts under the captions “Board Report on Executive Compensation” and “Report on Repricing of Options”.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management

 

The information called for by item 12 of Form 10-K is incorporated herein by reference to such information included in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

 

Item 13. Certain Relationships and Related Transactions

 

The information called for by item 13 of Form 10-K is incorporated herein by reference to such information included in our Proxy Statement of the 2002 Annual Meeting of Stockholders.

 

40



 

PART IV

 

Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K

 

(a)(1)       Financial Statements and Schedules

 

The following financial statements of GlobalSCAPE, Inc. are included in Item 8:

Balance sheets – December 31, 2000 and 2001

Statements of operations – Years ended December 31, 1999, 2000 and 2001

Statements of stockholders’ equity – Years ended December 31, 1999, 2000 and 2001

Statements of cash f lows – Years ended December 31, 1999, 2000 and 2001

Notes to financial statements – December 31, 2001

 

(2)                       Schedules not listed above have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Financial Statements or Notes thereto.

 

(3)       Exhibits

 

Exhibit Number

 

Description

3.1

Certificate of Incorporation of the Company dated April 17, 1996 (Filed as Exhibit 3.1 to Form 10 filed May 12, 2000).

3.2

Certificate of Renewal and Revival of Certificate of Incorporation for the Company dated February 16, 1999 (Filed as Exhibit 3.2 to Form 10 filed May 12, 2000).

3.3

Certificate of Amendment to Certificate of Incorporation dated May 11, 2000 (Filed as Exhibit 3.3 to Form 10 filed May 12, 2000).

3.4

Certificate of Amendment to Certificate of Incorporation dated September 5, 2000 (Filed as Exhibit 3.5 to Form 10, Amendment No. 2, filed September 12, 2000)

3.5

Bylaws of the Company (Filed as Exhibit 3.4 to Form 10 filed May 12, 2000).

3.6

Amended and Restated Bylaws of the Company effective as of September 1, 2000 (Filed as Exhibit 3.6 to Form 10, Amendment No. 2, filed September 12, 2000).

3.7

Amended and Restated Bylaws of GlobalSCAPE effective as of October 10, 2000 (Filed as Exhibit to Form 8-K filed October 10, 2000).

4.1

Specimen of Stock Certificate (Filed as Exhibit 4.1 to Annual Report on Form 10-K filed April 2, 2001).

*10.1

1998 Stock Option Plan as amended May 13, 1999 (Filed as Exhibit 4.2 to Form 10 filed May 12, 2000).

*10.2

2000 Stock Option Plan dated May 8, 2000 (Filed as Exhibit 4.3 to Form 10 filed May 12, 2000).

*10.3

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 (Filed as Exhibit 4.6 to Form 10 filed May 12, 2000).

*10.4

Form of 1998 Stock Option Plan Rights Termination Letter Agreement for Employees and Consultants to Cancel Options dated February 8, 2000 (Filed as Exhibit 4.7 to Form 10, filed May 12, 2000).

*10.5

Form of 1998 Stock Option Plan Rights Termination Letter of Officer to Agree Not to Claim Any Right of Adjustment dated February 8, 2000 (Filed as Exhibit 4.8 to Form 10 filed May 12, 2000).

*10.6

Form of 1998 Stock Option Plan Rights Termination Letter Agreement of Officer to Agree Not to Exercise Options dated February 8, 2000 (Filed as Exhibit 4.9 to Form 10 filed May 12, 2000).

 

41



 

Exhibit Number

 

Description

*10.7

Form of 1998 Stock Option Plan Reinstatement and Adjustment Letter for Employees dated December 19, 2000 (Filed as Exhibit 10.17 to Annual Report on Form 10-K filed April 2, 2001).

*10.8

Form of Release and Indemnity Agreement between GlobalSCAPE, Inc. and Employees dated December 19, 2000 (Filed as Exhibit 10.18 to Annual Report on Form 10-K filed April 2, 2001).

10.9

Commercial Lease Agreement between ACLP University Park S.A. II, L.P. and the Company dated April 13, 1999 (Filed as Exhibit 10.1 to Form 10 filed May 12, 2000).

10.10

NTFC Loan and Security Agreement between AmericanTeleSource International, Inc. (Delaware), American TeleSource International, Inc. (Texas), TeleSpan, Inc. and Company dated July 31, 1999 (Filed as Exhibit 10.4 to Form 10, Amendment No. 1, filed July 28, 2000).

10.11

NTFC Promissory Note for $2,000,000.00 between American TeleSource International, Inc. (Delaware), American TeleSource International, Inc. (Texas), TeleSpan, Inc., and the Company dated August 26, 1999 (Filed as Exhibit 10.5 to Form 10 filed May 12, 2000).

*10.12

Employment Agreement between Tim Nicolaou and GlobalSCAPE, Inc. (Filed as Exhibit 10.1 to Quarterly Report on Form 10-Q filed November 15, 2000).

*10.13

Incentive Stock Option Agreement between GlobalSCAPE, Inc. and Tim Nicolaou dated October 16, 2000 (Filed herewith).

*10.14

Incentive Stock Option Agreement between GlobalSCAPE, Inc. and Tim Nicolaou dated December 14, 2000 (Filed herewith).

*10.15

Incentive Stock Option Agreement between GlobalSCAPE, Inc. and Tim Nicolaou dated August 2, 2001 (Filed herewith).

*10.16

Employment Agreement between Sandra Poole-Christal and GlobalSCAPE, Inc. dated effective January 1, 2002 (Filed herewith).

*10.17

Release and Indemnity Agreement between GlobalSCAPE, Inc. and Sandra Poole-Christal dated April 2, 2001 (Filed herewith).

*10.18

Granting letter for 808,571 options to Sandra Poole-Christal under GlobalSCAPE, Inc. 1998 Stock Option Plan dated April 20, 2001 (Filed herewith).

*10.19

Bonus letter for Sandra Poole-Christal in connection with grant of 808,571 options under 1998 Stock Option Plan (Filed herewith).

*10.20

Incentive Stock Option Agreement between GlobalSCAPE, Inc. and Sandra Poole Christal dated April 20, 2001 (Filed herewith).

*10.21

Form of granting letter to GlobalSCAPE, Inc. employees under GlobalSCAPE, Inc. 2000 Stock Option Plan (Filed herewith).

10.22

Note from ATSI Communications, Inc. dated April 27, 2001 in the original principal amount of $200,000 (Filed herewith).

10.23

Security Agreement between TeleSpan, Inc. and GlobalSCAPE, Inc. dated April 27, 2001 securing April 27, 2001 Note from ATSI Communications, Inc. (Filed herewith).

10.24

Note from ATSI Communications, Inc. dated November 15, 2001 in the original principal amount of $100,000 (Filed herewith).

10.25

Security Agreement between TeleSpan, Inc. and GlobalSCAPE, Inc. dated November 15, 2001 securing November 15, 2001 Note from ATSI Communications, Inc. (Filed herewith).

10.26

Note from ATSI Communications, Inc. dated December 12, 2001 in the original principal amount of $40,000 (Filed herewith).

10.27

Security Agreement between TeleSpan, Inc. and GlobalSCAPE, Inc. dated December 12, 2001 securing December 12, 2001 Note from ATSI Communications, Inc. (Filed herewith).

10.28

Note from ATSI Communications, Inc. date February 15, 2002 in the original principal amount of $50,000 (Filed herewith).

10.29

Security Agreement between TeleSpan, Inc. and GlobalSCAPE, Inc. dated February 15, 2002 securing February 15, 2002 Note from ATSI Communications, Inc. (Filed herewith).

10.30

Lockup Agreement between GlobalSCAPE, Inc. and members of the Board of Directors, officers and certain significant employees of GlobalSCAPE, Inc. dated effective February 6, 2002 (Filed herewith).

23.1

Consent of Ernst & Young LLP (filed herewith).

 


* Management Compensatory Plan or Agreement

 

(b)  Reports on Form 8-K.  No reports on Form 8-K were filed during the last quarter of the period covered by this report.

 

42



 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in San Antonio, Texas on March 29, 2002.

 

GlobalSCAPE, Inc.

 

 

By:  /s/ Tim Nicolaou

 

 

Tim Nicolaou

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

By:  /s/ Daniel McRedmond

 

 

Daniel McRedmond

 

 

Director of Finance and Accounting

 

 

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 29, 2002.

 

Signature

 

Title

 

 

 

/s/  Tim Nicolaou

 

Chief Executive Officer and Director

 

 

(Principal Executive Officer)

 

 

 

/s/  Arthur L. Smith

 

Chairman of the Board and Director

 

 

 

/s/  H. Douglas Saathoff

 

Director

 

 

 

/s/  Daniel McRedmond

 

Director of Finance and Accounting

 

 

(Principal Accounting and Financial Officer)

 

43


EXHIBIT 10.13

 

GLOBALSCAPE, INC.

INCENTIVE STOCK OPTION AGREEMENT

 

This Incentive Stock Option Agreement (the “ Agreement ”) is entered into between GlobalSCAPE, Inc., a Delaware corporation (the “ Company ”), and Tim Nicolaou (the “ Optionee ”) as of the 16th day of October, 2000 (the “ Date of Grant ”).  In consideration of the mutual promises and covenants made herein, the parties hereby agree as follows:

 

1.             Grant of Option.   Under the terms and conditions of the Company’s 2000 Stock Option Plan (the “ Plan ”), which is incorporated herein by reference, the Company grants to the Optionee an option (the “ Option ”) to purchase from the Company all or any part of a total of Seven Hundred Thousand (700,000) shares of the Company’s Common Stock, par value $0.001 per share, at a price of $1.00 per share.

 

2.             Certain Defined Terms .  The terms “Disability,” “Termination Without Cause,”  “Termination for Employee’s Good Cause,” and “Change in Control” shall have the meaning given to them in that Employment Agreement between Optionee and Company executed November 7, 2000 effective October 16, 2000.

 

3.             Character of Option.   The Option is an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended; provided, however, that to the extent the Option does not qualify as an incentive option by virtue of exceeding the $100,000 limitation in Section 422(d) of such Code, the Option shall be treated as an option other than an incentive stock option.

 

4.             Term.   The Option will expire or terminate on the earlier of the day prior to the tenth anniversary of the Date of Grant or, in the event of the Optionee’s termination of service as an employee, director, or advisor of the Company, on the last day of the exercise period set forth in Section 5.

 

5.             Vesting; Exercisability.   Subject to any provisions of the Plan concerning exercisability and vesting of options, the Option shall vest according to the following schedule:

 

Plan
Shares
Vested

 

Period

200,000

 

The earlier of the date of a Company initial public offering or October 16, 2001

200,000

 

The earlier of the first anniversary of a Company initial public offering or October 16, 2002

100,000

 

October 16, 2001

100,000

 

October 16, 2002

100,000

 

October 16, 2003

 


1


 

The unvested portion of the Option shall vest immediately upon Optionee’s death, Disability, Termination Without Cause, Termination for Employee’s Good Cause, or a Change in Control.

 

The exercise period for any portion of this Option that does not qualify as an incentive option under Section 422 of the Code (as determined as of the vesting date), whether vested prior to or on the date of death, Disability, Termination Without Cause, Termination for Employee’s Good Cause, or a Change in Control, shall be six months from the date of such event if such event occurs on or before October 16, 2001, nine months from the date of such event if such event occurs after October 16, 2001 and before October 16, 2002, and twelve months from the date of such event if such event occurs on or after October 16, 2002.  The exercise period for any Option that is an Incentive Stock Option shall be the maximum time permitted by the Plan.

 

The unexercised portion of the Option from one period may be carried over to a subsequent period or periods, and the right of the Optionee to exercise the option as to such unexercised portion shall continue for the entire term.

 

6.             Procedure for Exercise.   Exercise of the Option or a portion thereof shall be effected by the giving of written notice to the Company by the Optionee in accordance with the Plan and payment of the purchase price prescribed in Section 1 above for the shares to be acquired pursuant to the exercise.

 

7.             Payment of Purchase Price.   Payment of the purchase price for any shares purchased pursuant to the Option shall be in accordance with the provisions of the Plan.

 

8.             Transfer of Options.   The Option may not be transferred except (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and, during the lifetime of the Optionee, may be exercised only by the Optionee or by the Optionee’s legally authorized representative.

 

9.             Acceptance of the Plan.   The Option is granted subject to all of the applicable terms and provisions of the Plan, and such terms and provisions are incorporated by reference herein.  The Optionee hereby accepts and agrees to be bound by all the terms and conditions of the Plan.

 

10.          Amendment.   This Agreement may be amended by an instrument in writing signed by both the Company and the Optionee.

 

[Remainder of page intentionally left blank]

 

2



 

11.          Miscellaneous.   This Agreement will be construed and enforced in accordance with the laws of the State of Texas and will be binding upon and inure to the benefit of any successor or assign of the Company and any executor, administrator, trustee, guarantor or other legal representative of the Optionee.

 

Executed to be effective as of the date set forth above.

 

 

GLOBALSCAPE, INC.

 

 

 

 

 

By:

/s/ Arthur L. Smith

 

 

Name:

Arthur L. Smith

 

 

Its: 

Chairman of the Board of Directors

 

Date: 

2-13-01

 

 

 

 

 

/s/ Tim Nicolaou

 

 

Tim Nicolaou

 

 

 

 

 

[Social Security No]

 

 

Social Security Number of Optionee:

 

 

3


EXHIBIT 10.14

 

GLOBALSCAPE, INC.

INCENTIVE STOCK OPTION AGREEMENT

 

This Incentive Stock Option Agreement (the “ Agreement ”) is entered into between GlobalSCAPE, Inc., a Delaware corporation (the “ Company ”), and Tim Nicolaou (the “ Optionee ”) as of the 14th day of December, 2000 (the “ Date of Grant ”).  In consideration of the mutual promises and covenants made herein, the parties hereby agree as follows:

 

1.             Grant of Option.   Under the terms and conditions of the Company’s 2000 Stock Option Plan (the “ Plan ”), which is incorporated herein by reference, the Company grants to the Optionee an option (the “ Option ”) to purchase from the Company all or any part of a total of Two Hundred and Fifty Thousand (250,000) shares of the Company’s Common Stock, par value $0.001 per share, at a price of $0.464 per share.

 

2.             Certain Defined Terms .  The terms “Disability,” “Termination Without Cause,”  “Termination for Employee’s Good Cause,” and “Change in Control” shall have the meaning given to them in that Employment Agreement between Optionee and Company executed November 7, 2000 effective October 16, 2000.

 

3.             Character of Option.   The Option is an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended; provided, however, that to the extent the Option does not qualify as an incentive option by virtue of exceeding the $100,000 limitation in Section 422(d) of such Code, the Option shall be treated as an option other than an incentive stock option.

 

4.             Term.   The Option will expire or terminate on the earlier of the day prior to the tenth anniversary of the Date of Grant or, in the event of the Optionee’s termination of service as an employee, director, or advisor of the Company, on the last day of the exercise period set forth in Section 5.

 

5.             Vesting; Exercisability.   Subject to any provisions of the Plan concerning exercisability and vesting of options, the Option shall vest according to the following schedule:

 

Plan
Shares
Vested

 

Period

125,000

 

Upon the date of the approval of your business plan for the Company by the Company’s Board of Directors

125,000

 

Upon the date that you have completed the recruitment of two independent members for the Company’s Board of Directors, which shall be the date of the second independent members’ election to the Board of Directors.

 

1



 

The unvested portion of the Option shall vest immediately upon Optionee’s death, Disability, Termination Without Cause, Termination for Employee’s Good Cause, or a Change in Control.

 

The exercise period for any portion of this Option that does not qualify as an incentive option under Section 422 of the Code (as determined as of the vesting date), whether vested prior to or on the date of death, Disability, Termination Without Cause, Termination for Employee’s Good Cause, or a Change in Control, shall be six months from the date of such event if such event occurs on or before October 16, 2001, nine months from the date of such event if such event occurs after October 16, 2001 and before October 16, 2002, and twelve months from the date of such event if such event occurs on or after October 16, 2002.  The exercise period for any Option that is an Incentive Stock Option shall be the maximum time permitted by the Plan.

 

The unexercised portion of the Option from one period may be carried over to a subsequent period or periods, and the right of the Optionee to exercise the option as to such unexercised portion shall continue for the entire term.

 

6.             Procedure for Exercise.   Exercise of the Option or a portion thereof shall be effected by the giving of written notice to the Company by the Optionee in accordance with the Plan and payment of the purchase price prescribed in Section 1 above for the shares to be acquired pursuant to the exercise.

 

7.             Payment of Purchase Price.   Payment of the purchase price for any shares purchased pursuant to the Option shall be in accordance with the provisions of the Plan.

 

8.             Transfer of Options.   The Option may not be transferred except (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and, during the lifetime of the Optionee, may be exercised only by the Optionee or by the Optionee’s legally authorized representative.

 

9.             Acceptance of the Plan.   The Option is granted subject to all of the applicable terms and provisions of the Plan, and such terms and provisions are incorporated by reference herein.  The Optionee hereby accepts and agrees to be bound by all the terms and conditions of the Plan.

 

10.          Amendment.   This Agreement may be amended by an instrument in writing signed by both the Company and the Optionee.

 

[Remainder of page intentionally left blank]

2



 

11.          Miscellaneous.   This Agreement will be construed and enforced in accordance with the laws of the State of Texas and will be binding upon and inure to the benefit of any successor or assign of the Company and any executor, administrator, trustee, guarantor or other legal representative of the Optionee.

 

Executed to be effective as of the date set forth above.

 

 

GLOBALSCAPE, INC

 

 

 

By:

/s/ Arthur L. Smith

 

:

Name:

Arthur L. Smith

 

Its:

Chairman of the Board of Directors

 

Date:

2-13-01

 

 

 

/s/ Tim Nicolaou

 

 

Tim Nicolaou

 

 

 

[SOCIAL SECURITY NUMBER]

 

 

Social Security Number of Optionee:

 

3


EXHIBIT 10.15

 

GLOBALSCAPE, INC.

INCENTIVE STOCK OPTION AGREEMENT

 

This Incentive Stock Option Agreement (the “ Agreement ”) is entered into between GlobalSCAPE, Inc., a Delaware corporation (the “ Company ”), and Tim Nicolaou (the “ Optionee ”) as of the 2nd day of August, 2001 (the “ Date of Grant ”).  In consideration of the mutual promises and covenants made herein, the parties hereby agree as follows:

 

1.             Grant of Option.   Under the terms and conditions of the Company’s 2000 Stock Option Plan (the “ Plan ”), which is incorporated herein by reference, the Company grants to the Optionee an option (the “ Option ”) to purchase from the Company all or any part of a total of Two Hundred and Fifty Thousand (250,000) shares of the Company’s Common Stock, par value $0.001 per share, at a price of $0.464 per share.

 

2.             Certain Defined Terms .  The terms “Disability,” “Termination Without Cause,”  “Termination for Employee’s Good Cause,” and “Change in Control” shall have the meaning given to them in that Employment Agreement between Optionee and Company executed November 7, 2000 effective October 16, 2000.

 

3.             Character of Option.   The Option is an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended; provided, however, that to the extent the Option does not qualify as an incentive option by virtue of exceeding the $100,000 limitation in Section 422(d) of such Code, the Option shall be treated as an option other than an incentive stock option.

 

4.             Term.   The Option will expire or terminate on the earlier of the day prior to the tenth anniversary of the Date of Grant or, in the event of the Optionee’s termination of service as an employee, director, or advisor of the Company, on the last day of the exercise period set forth in Section 5.

 

5.             Vesting; Exercisability.   Subject to any provisions of the Plan concerning exercisability and vesting of options, the Option shall vest according to the following schedule:

 

Percentage
Vested

 

Period

72,000

 

The earlier of the date of a Company initial public offering or October 16, 2001

72,000

 

The earlier of the first anniversary of Company initial public offering or October 16, 2002

35,000

 

October 16, 2001

35,000

 

October 16, 2002

36,000

 

October 16, 2003

 

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The unvested portion of the Option shall vest immediately upon Optionee’s death, Disability, Termination Without Cause, Termination for Employee’s Good Cause, or a Change in Control.

 

The exercise period for any portion of this Option that does not qualify as an incentive option under Section 422 of the Code (as determined as of the vesting date), whether vested prior to or on the date of death, Disability, Termination Without Cause, Termination for Employee’s Good Cause, or a Change in Control, shall be six months from the date of such event if such event occurs on or before October 16, 2001, nine months from the date of such event if such event occurs after October 16, 2001 and before October 16, 2002, and twelve months from the date of such event if such event occurs on or after October 16, 2002.  The exercise period for any Option that is an Incentive Stock Option shall be the maximum time permitted by the Plan.

 

The unexercised portion of the Option from one period may be carried over to a subsequent period or periods, and the right of the Optionee to exercise the option as to such unexercised portion shall continue for the entire term.

 

6.             Procedure for Exercise.   Exercise of the Option or a portion thereof shall be effected by the giving of written notice to the Company by the Optionee in accordance with the Plan and payment of the purchase price prescribed in Section 1 above for the shares to be acquired pursuant to the exercise.

 

7.             Payment of Purchase Price.   Payment of the purchase price for any shares purchased pursuant to the Option shall be in accordance with the provisions of the Plan.

 

8.             Transfer of Options.   The Option may not be transferred except (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and, during the lifetime of the Optionee, may be exercised only by the Optionee or by the Optionee’s legally authorized representative.

 

9.             Acceptance of the Plan.   The Option is granted subject to all of the applicable terms and provisions of the Plan, and such terms and provisions are incorporated by reference herein.  The Optionee hereby accepts and agrees to be bound by all the terms and conditions of the Plan.

 

10.          Amendment.   This Agreement may be amended by an instrument in writing signed by both the Company and the Optionee.

 

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11.          Miscellaneous.   This Agreement will be construed and enforced in accordance with the laws of the State of Texas and will be binding upon and inure to the benefit of any successor or assign of the Company and any executor, administrator, trustee, guarantor or other legal representative of the Optionee.

 

Executed to be effective as of the date set forth above.

 

 

GLOBALSCAPE, INC.

 

 

 

By: 

/s/ Arthur L. Smith

 

 

Name:

Arthur L. Smith

 

Its:

Chairman of the Board of Directors

 

Date:

August 2, 2001

 

 

 

 

 

 

Tim Nicolaou

 

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EXHIBIT 10.16

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“ Agreement ”), executed this 5 day of December  2001 to be effective as of January 1, 2002, is between GlobalSCAPE, Inc., a Delaware corporation (the “ Employer ”), and Sandra Poole-Christal (“ Employee ”).

 

R E C I T A L S :

 

A.                                    The Employer and Employee entered into an Executive Employment Agreement dated effective January 1, 1998 for a period of three years.

 

B.                                      The Employer decided not to renew the Executive Employment Agreement, and has given notice to Employee that the Executive Employment Agreement will not renew and will therefore terminate effective December 31, 2001.

 

C.                                      The Employer and Employee have agreed to enter into a new employment agreement for a one-year term on the terms and conditions herein provided.

 

D.                                     The Employer considers the maintenance of a sound management team, including Employee, essential to protecting and enhancing its best interests and those of its stockholders.

 

E.                                       Employee will be an officer of the Employer and Employee will be a member of Employer’s management team.

 

NOW, THEREFORE, in consideration of Employee’s future employment with Employer and other good and valuable consideration, the parties agree as follows:

 

Section 1 .              Employment .  The Employer hereby employs Employee, and Employee hereby accepts employment, upon the terms and subject to the conditions stated in this Agreement.

 

Section 2 .              Duties .  Employee shall be employed as President and Chief Operating Officer of the Employer, or such other positions with Employer to which she may be appointed by Chief Executive Officer (the “ CEO ”) or the Board of Directors of the Employer (the “ Board ”).  Employer may require Employee from time to time to provide assistance or services to, or act as an officer or director of  Employer’s subsidiaries or other affiliates. Employee shall perform such services and, if elected as a director or officer of any such company, shall hold such office (and discharge its duties) without additional compensation other than the compensation set forth in this Agreement.  Employee agrees to devote her full work time and best efforts to the performance of the duties as an Employee

 

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of Employer and to the performance of such other duties as assigned her from time to time by the Chief Executive Officer or the Board.

 

Section 3 .              Term .  The initial term of employment of Employee hereunder shall continue for one year, from January 1, 2002 (“ Employment Date ”) until December 31, 2002, unless earlier terminated pursuant to Section 6 herein.

 

Section 4 .              Compensation and Benefits .  In consideration for the services of Employee hereunder, the Employer shall compensate Employee as follows:

 

(a)   Weekly Base Salary .  Until the termination of Employee’s employment hereunder, Employer shall pay Employee a base salary at a weekly rate of at least $2403.84 (“ Weekly Base Salary ”), payable in accordance with the regular payroll practices of the Employer for executives, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations and less such other deductions or amounts, if any, as are authorized by Employee.  The Weekly Base Salary may not be decreased at any time during the term of Employee’s employment hereunder.  Any increase in Weekly Base Salary shall be in the sole discretion of Employer.

 

(b )   Executive Bonus Plan .  Employee shall be eligible to receive from the Employer such management incentive bonuses as may be provided in management incentive bonus plans adopted from time to time by Employer.

 

c)  Vacation .  Employee shall be entitled time off in accordance with the Employee’s vacation and absence policy, as it may be modified from time to time during Employee’s employment hereunder, provided that Employee will have no less than three (3) weeks of paid vacation during the term of this Agreement.

 

(d)  Life Insurance Benefits .  Employer shall pay the premiums allocable to a term life insurance policy in the face amount of $125,000 covering Employee as the named insured, subject to Employee’s passing a standard physical examination in order to permit issuance of the policy at standard (non-rated) premiums and satisfaction of any other standard underwriting requirements.  Employee shall be the owner of such policy and shall have the right to designate the beneficiary of the policy proceeds.  Employee shall be liable for income taxes with respect to premium amounts includable in Employee’s taxable income.

 

(e)   Group Insurance Benefits .  Employee shall be entitled to participate in the Employer’s group health, life and disability programs as are made available to the Employer’s other executives and officers and the Employee’s participation in such programs shall be at the same rates which are available to the Employer’s other executives and officers.

 

(f)  Savings Plans.  Employee shall be entitled to participate in Employer’s 401(k) plan, or other retirement or savings plans as are made available to the Employer’s other executives and officers on the same terms which are available to the Employer’s other executives and officers.

 

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Section 5 .              Expenses .  The parties anticipate that in connection with the services to be performed by Employee pursuant to the terms of this Agreement, Employee will be required to make payments for travel, entertainment of business associates and similar expenses.  Employer shall reimburse Employee for all appropriate and reasonable expenses authorized by Employer and incurred by Employee in the performance of her duties hereunder.  Employee shall comply with such budget limitations and approval and reporting requirements with respect to expenses as Employer may establish from time to time.

 

Section 6 .              Termination .

 

(a)           General .  Employee’s employment hereunder shall commence on the Employment Date and continue until the end of the term specified in Section 3 , except that the employment of Employee hereunder shall terminate prior to such time in accordance with the following:

 

(i)            Death or Disability .  Upon the death of Employee during the term of her employment hereunder or, at the option of Employer, in the event of Employee’s Disability, upon 30 days’ notice to Employee.  “ Disability ” with respect to an Employee shall be deemed to exist if the Employee meets the definition of either “disabled” or “disability” under the terms of the Employer’s long-term disability benefit program (including the definitions for total or partial disability). Any refusal by Employee to submit to a reasonable medical examination to determine whether Employee is so disabled shall be deemed to constitute conclusive evidence of Employee’s disability.

 

(ii)           For Cause .  For “Cause” immediately upon notice by Employer to Employee.  A termination shall be for “Cause” if:

 

(1)                                   Employee commits fraud, bribery, embezzlement or other material dishonesty with respect to the business of Employer, or Employer discovers that Employee has committed any such act in the past with respect to a previous employer; or

 

(2)                                   Employee commits a felony or any criminal act involving moral turpitude or Employer discovers that Employee has committed any such act in the past; or

 

(3)                                   Employee commits a material breach of any of the covenants, representations, terms or provisions hereof; or

 

(4)                                   Employee violates any instructions or policies of Employer with respect to the operation of its business or affairs or Employee fails to obey directions delivered to Employee by the Employer’s Chief Executive Officer, Board or Chairman of the Board of Directors; or

 

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(5)                                   Employee commits or omits to perform any act the performance of which or the omission of which constitutes substantial failure of Employee to diligently and effectively perform her duties to Employer or adversely affects or could adversely affect the Employer’s business reputation; or

 

(6)                                   Employee uses illegal drugs.

 

(iii)          Without Cause .  Without Cause immediately upon notice by Employer to Employee.

 

(iv)          By the Employee for Good Cause .  Employee may terminate her employment hereunder for Good Cause upon written notice to Employer setting forth the nature of such Good Cause in reasonable detail.  “Good Cause” shall mean:

 

 

(1)                                   the material failure of Employer to provide Employee the Weekly Base Salary and  benefits in accordance with the terms of Section 4 herein;

 

(2)                                   a change in Employer’s job title as specified in Section 2 herein, provided that Employee terminates her employment within two (2) weeks of such change in job title;

 

(3)                                   a “Change in Control” as defined in Section 6 below, provided that Employee terminates her employment within the time period described in Section 6 below.

 

(b)           Severance Pay .

 

(i)            Termination Upon Death or Disability or For Cause .  Employee shall not be entitled to any severance pay or other compensation upon termination of her employment pursuant to Section 6(a)(i) or (ii) except for her then current Weekly Base Salary accrued but unpaid as of the date of termination, unpaid expense reimbursements under Section 5 for expenses incurred in accordance with the terms hereof prior to termination, and compensation for accrued, unused vacation as of the date of termination (“ Accrued Amounts ”), and in the event of termination pursuant to Section 6(a)(i) for Disability, an amount equal to twenty six (26) times the difference between the Weekly Base Salary in effect at the time of termination and the weekly benefit to be paid under the Employer’s long term disability plan.  This amount shall be paid in a lump sum no later than ten (10) business days following the date of Employee’s termination.

 

(ii)           Employer’s Termination without Cause or Employee’s Termination for Good Cause .  In the event Employee’s employment hereunder is terminated pursuant to Section 6(a)(iii) or (iv) prior to the expiration of the term of this Agreement, Employer shall pay Employee, as consideration for the execution of a separation and release agreement and in

 

4



 

lieu of any further compensation payable hereunder other than Accrued Amounts, a cash amount equal to fifty-two (52) times Employee’s then current Weekly Base Salary.  Such separation payment shall be Employee’s sole remedy in connection with such termination.  The Separation payment shall be made as specified above without regard to the number of months remaining in the term of this Agreement, and may be paid, at Employer’s option, either in a lump sum within ten (10) business days of the Employee’s execution of a separation and release agreement, or in bi-weekly installments coincident with Employer’s payroll schedule over a 52 week period beginning with the pay period that first begins following the Employee’s execution of a separation and release agreement.

 

(c)            Change in Control.   If a “Change in Control” occurs during Employee’s employment under this Agreement, and if Employee’s employment is terminated  “Without Cause” pursuant to Section 6(a)(iii) above prior to the end of a period of twelve (12) months beyond the month in which a “Change in Control of the Employer” occurs, or if Employee voluntarily terminates her employment prior to the end of a period three (3) months beyond the month in which a Change in Control of the Employer occurs, Employee shall receive the amount determined pursuant to Section 6(b)(ii) above.  A “Change in Control” of Employer shall be deemed to have occurred if (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Act”)), becomes the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of outstanding securities of Employer representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the Employer, or (ii) during any period of two consecutive years, individuals who, at the beginning of such period constitute the Board, cease for any reason to constitute a majority of the Board (except that any new director who is elected by the Board to fill a vacancy created by the death, resignation or disqualification of a member of the Board shall not be considered a new member of the Board for purposes of this definition), or (iii) the shareholders of Employer approve (A) a merger or consolidation of Employer with any other entity, other than a merger or consolidation which would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of Employer, or (B) a plan of complete liquidation of Employer, or (C) an agreement or agreements for the sale or disposition, in a single transaction or series of related transactions, by the Employer of all or substantially all of the property and assets of Employer.

 

(d)           Voluntary Termination by Employee.   Except as provided in Section 6(a)(iv), in the event that Employee’s employment with Employer is terminated by Employee, such termination shall be a breach of this Agreement and the Employer shall have no further obligations hereunder from and after the date of such termination.

 

Section 7 .              Inventions; Assignment .

 

(a)           Inventions Defined .  All rights to discoveries, inventions, improvements, designs and innovations (including all data and records pertaining thereto) that relate to the business of

 

5



 

Employer, including its affiliates, whether or not able to be patented, copyrighted or reduced to writing, that Employee may discover, invent or originate during the term of her employment hereunder, and for a period of six months thereafter, either alone or with others and whether or not during working hours or by the use of the facilities of Employer (“ Inventions ”), shall be the exclusive property of Employer.  Employee shall promptly disclose all Inventions to Employer, shall execute at the request of Employer any assignments or other documents Employer may deem necessary to protect or perfect its rights therein, and shall assist Employer, at Employer’s expense, in obtaining, defending and enforcing Employer’s rights therein.  Employee hereby appoints Employer as her attorney–-in–-fact to execute on her behalf any assignments or other documents deemed necessary by Employer to protect or perfect its rights to any Inventions.

 

(b)           Covenant to Assign and Cooperate .  Without limiting the generality of the foregoing, Employee shall assign and transfer to Employer the worldwide right, title and interest of Employee in the Inventions.  Employee agrees that Employer may apply for and receive patent rights (including Letters Patent in the United States) for the Inventions in Employer’s name in such countries as may be determined solely by Employer.  Employee shall communicate to Employer all facts known to Employee relating to the Inventions and shall cooperate with Employer’s reasonable requests in connection with vesting title to the Inventions and related patents exclusively in Employer and in connection with obtaining, maintaining and protecting Employer’s exclusive patent rights in the Inventions.

 

(c)           Successors and Assigns .  Employee’s obligations under this Section 7 shall inure to the benefit of Employer, its affiliates and their respective successors and assigns and shall survive the expiration of the term of this Agreement for such time as may be necessary to protect the proprietary rights of Employer and its affiliates in the Inventions.

 

Section 8 .              Confidential Information .

 

(a)           Acknowledgment of Proprietary Interest .  Employee acknowledges the proprietary interest of Employer and its affiliates in all Confidential Information (as defined below).  Employee agrees that all Confidential Information learned by Employee during her employment with Employer or otherwise, whether developed by Employee alone or in conjunction with others or otherwise, is and shall remain the exclusive property of Employer.  Employee further acknowledges and agrees that her disclosure of any Confidential Information will result in irreparable injury and damage to Employer.

 

(b)           Confidential Information Defined .  “Confidential Information” means all trade secrets, copyrightable works, confidential or proprietary information of Employer or its affiliates, including without limitation, (i) information derived from reports, investigations, experiments, research and work in progress, (ii) methods of operation, (iii) market data, (iv) proprietary computer programs and codes, (v) drawings, designs, plans and proposals, (vi) marketing and sales programs, (vii) the identities of clients or customers, (viii) historical financial information and financial projections, (ix) pricing formulae and policies, (x) all other concepts, ideas, materials and

 

6



 

information prepared or performed for or by Employer and (xi) all information related to the business, services, products, purchases or sales of Employer or any of its suppliers and customers, other than information that is publicly available.

 

(c)           Covenant Not To Divulge Confidential Information .  Employer is entitled to prevent the disclosure of Confidential Information.  As a portion of the consideration for the employment of Employee and for the compensation being paid to Employee by Employer, Employee agrees at all times during the term of her employment hereunder and thereafter to hold in strict confidence and not to disclose or allow to be disclosed to any person, firm or corporation, other than to persons engaged by Employer to further the business of Employer, and not to use except in the pursuit of the business of Employer, the Confidential Information, without the prior written consent of Employer.

 

(d)           Return of Materials at Termination .  In the event of any termination or cessation of her employment with Employer for any reason, Employee shall promptly deliver to Employer all documents, data and other information derived from or otherwise pertaining to Confidential Information.  Employee shall not take or retain any documents or other information, or any reproduction or excerpt thereof, containing or pertaining to any Confidential Information.

 

Section 9 .              Non-Solicitation .

 

(a)           Solicitation of Employees .  During Employee’s employment with Employer and for a period of twelve (12) months after termination of such employment at any time and for any reason, and regardless of whether any payments are made to Employee under this Agreement as a result of such termination, Employee shall not solicit, participate in or promote the solicitation of any person who was employed by Employer or any of its affiliates at the time of Employee’s termination of employment with Employer to leave the employ of Employer or any of its affiliates, or, on behalf of herself or any other person, hire, employ or engage any such person.  Employee further agrees that, during such time, if an employee of Employer or any of its affiliates contacts Employee about prospective employment, Employee will inform such employee that he or she cannot discuss the matter further without the consent of Employer (and the applicable affiliate).

 

(b)           Solicitation of Clients, Customers, Etc .  During Employee’s employment with Employer and for a period of twelve (12) months after termination of Employee’s employment at any time and for any reason, and regardless of whether any payments are made to Employee under this Agreement as a result of such termination, Employee shall not, directly or indirectly, solicit any person who, at the time of termination of Employee’s employment with Employer, was a client, customer, vendor, consultant or agent of Employer or its affiliates to discontinue business, in whole or in part, with Employer or its affiliates.  Employee further agrees that, during such time, if such a client, customer, vendor, or consultant or agent contacts Employee about discontinuing business with Employer or moving that business elsewhere, Employee will inform such client, customer, vendor, consultant or agent that he or she cannot discuss the matter further without the consent of Employer (and the applicable affiliate).

 

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Section 10 .            No-Compete .

 

(a)           Competition During Employment .  Employee agrees that during the term of her employment with Employer, neither she nor any of her affiliates, will directly or indirectly compete with Employer or its affiliates in any way, and that she will not act as an officer, director, employee, consultant, shareholder, lender, or agent of any entity which is engaged in any business of the same nature as, or in competition with, the businesses in which Employer and its affiliates are now engaged or in which Employer or its affiliates become engaged during the term of employment; provided, however, that this Section 10(a) shall not prohibit Employee or any of her affiliates from: (i) purchasing or holding an aggregate equity interest of up to 1%, so long as Employee and her affiliates combined do not purchase or hold an aggregate equity interest of more than 5%, in any business in competition with Employer and its affiliates.    Furthermore, Employee agrees that during the term of employment, she will undertake no planning for the organization of any business activity competitive with the work she performs as an employee of Employer and Employee will not combine or conspire with any other employees of Employer and its affiliates for the purpose of the organization of any such competitive business activity.

 

(b)           Competition Following Employment .  In order to protect Employer against the unauthorized use or the disclosure of any Confidential Information of Employer and its affiliates presently known or hereinafter obtained by Employee during her employment under this Agreement, Employee agrees that for a period of twelve (12) months after the termination or cessation of her employment with Employer at any time and for any reason, and regardless of whether any payments are made to Employee under this Agreement as a result of such termination, neither Employee nor any of her affiliates, shall, directly or indirectly, for itself or herself or on behalf of any other corporation, person, firm, partnership, association, or any other entity (whether as an individual, agent, servant, employee, employer, officer, director, shareholder, investor, principal, consultant or in any other capacity):

 

(i)            engage or participate in any business which engages in competition with such businesses being conducted by Employer or any of its affiliates during the term of employment anywhere in any state in the United States or in any foreign country where the Employer or any of its affiliates distributes software or performs services related to the distribution of software, or any other business in which the Employer or any of its affiliates has been actively engaged during the term Employee performed services for the Employer; provided, however, that this provision shall not prohibit Employee or any of her affiliates from purchasing or holding an aggregate equity interest of up to 1%, so long as Employee and her affiliates combined do not purchase or hold an aggregate equity interest of more than 5%, in any business in competition with Employer;

 

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(ii)             assist or finance any person or entity in any manner or in any way inconsistent with the intents and purposes of this Agreement.

 

Section 11 .            General .

 

(a)           Notices .  All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party in accordance with this Section 11(a):

 

If to Employer, to:

 

GlobalSCAPE, Inc.

6000 Northwest Parkway, Suite 100

San Antonio, Texas  78249

(210) 690-8824 facsimile

 

(or the subsequent headquarters of Employer as known to Employee)

 

If to Employee, to the Employee’s last known address appearing on Employer’s records

 

(b)           Withholding .  All payments required to be made to Employee by Employer under this Agreement shall be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law.

 

(c)           Equitable Remedies .  Each of the parties hereto acknowledges and agrees that upon any breach by Employee of her obligations under any of Sections 7, 8, 9, and 10 Employer shall suffer immediate, substantial and irreparable injury and shall have no adequate remedy at law.   Accordingly, in event of such breach, Employer shall be entitled, in addition other remedies and without showing actual damages, to specific performance and other appropriate injunctive and equitable relief.

 

(d)           Severability .  If any provision of this Agreement is held to be illegal, invalid or unenforceable, 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.  Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

 

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(e)           Waivers .  No delay or omission by either party in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.

 

(f)            Counterparts .  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

 

(g)           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.

 

(h)           Interpretation of Agreement .  This Agreement shall be construed according to its fair meaning and not for or against either party.  Use of the words “herein,” “hereof,” “hereto,” “hereunder” and the like in this Agreement refer to this Agreement only as a whole and not to any particular section or subsection of this Agreement, unless otherwise noted.  The masculine gender shall be deemed to denote the feminine or neuter genders, the singular to denote the plural, and the plural to denote the singular, where the context so permits.

 

(i)            Binding Agreement ; Assignment.   This Agreement shall be binding upon and inure to the benefit of the parties and shall be enforceable by the personal representatives and heirs of Employee and the successors and assigns of Employer.  The affiliates of Employer shall be considered third party beneficiaries of this Agreement with respect to any services provided by Employee to them and in connection with Employee’s covenants in Sections 7,8,9 and 10 hereof.  The Employer may assign this Agreement; provided that in the event of any such assignment, the Employer shall remain liable for all of its obligations hereunder and shall be liable for all obligations of all such assignees hereunder.  If Employee dies while any amounts would still be payable to her hereunder, such amounts shall be paid to Employee’s estate.  This Agreement is not otherwise assignable by Employee.

 

(j)            Entire Agreement .  This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto.

 

(k)           Governing Law .  This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Texas, without regard to its choice of law principles.

 

(l)            Arbitration.   Without limiting Employer’s right to seek equitable remedies under Section 11(c) above, Employer and Employee agree that any dispute or controversy arising under or in connection with this Agreement shall be settled by arbitration.  Arbitration under this Agreement shall be governed by the Federal Arbitration Act and proceed in San Antonio, Texas in accordance with the rules of the American Arbitration Association (“AAA”).  Arbitration will be conducted

 

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before a panel of three neutral arbitrators selected from a AAA list of proposed arbitrators with business law experience.  Either party may take any legal action needed to protect any right pending completion of the arbitration.  The arbitrator will determine whether an issue is arbitrable and will give effect to applicable statutes of limitation.  The arbitrator has the discretion to decide, upon documents only or with a hearing, any motion to dismiss for failure to state a claim or any motion for summary judgment.  Discovery shall be governed by the Federal Rules of Civil Procedure and the Federal Rules of Evidence.  All information developed by the arbitration or litigation shall be held in confidence subject to such protective orders, as the arbitrator deems useful to ensure complete confidentiality. The decision of the arbitrator shall be final and binding on all parties to this Agreement, and judgment thereon may be entered in any court having jurisdiction over the parties.  All costs of the arbitration proceeding or litigation to enforce the arbitration award shall be paid by the party against whom the arbitrator decides.

 

(m)          Employee Representations.    Employee represents and certifies to Employer that she:  (i) has received a copy of this Agreement for review and study and has had ample time to review it before signing; (ii) has read this Agreement carefully; (iii) has been given a fair opportunity to discuss and negotiate the terms of this Agreement; (iv) understands its provisions; (v) has had the opportunity to consult her attorney; (vi) has determined that it is in her best interest to enter into her Agreement; (vii) has not been influenced to sign this Agreement by any statement or representation by Employer or its counsel not contained in this Agreement; and (viii) enters into this Agreement knowingly and voluntarily.

 

 

EXECUTED as of the date and year first above written.

 

 

GLOBALSCAPE, INC.

 

 

 

/s/ Tim Nicolaou

 

 

Tim Nicolaou

 

Chief Executive Officer

 

 

 

 

 

/s/ Sandra Poole-Christal

 

 

Sandra Poole-Christal

 

11


EXHIBIT 10.17

 

RELEASE AND INDEMNITY AGREEMENT

 

GlobalSCAPE, Inc. and Sandra Poole Christal execute this Release and Indemnity Agreement effective April 20, 2001.

 

I.              DEFINITIONS .  The following terms shall have the meanings given below:

 

ATSI ” means:  ATSI Communications, Inc. and its agents, employees, officers, directors, shareholders, insurers, attorneys, all persons who control, are controlled by or under common control of ATSI Communications, Inc. and the predecessors, successors, heirs and assigns of any of them;

 

Bonus Agreement ” means:  that Bonus Agreement executed by Executive and GlobalSCAPE effective April 20, 2001 and attached to this Release as Exhibit A ;

 

Claims ” means:  any and all claims that arose or may have arisen in whole or in part before the date of this Release and any all damages of any kind or nature allegedly resulting therefrom, including exemplary damages.  This shall include, but is not limited to, claims related to Executive’s employment and claims arising under contract, tort, common law, state or federal constitution, state or federal statute or city ordinance.  This also includes, but is not limited to, any and all claims, rights, and causes of action based on public policy, claims involving employment discrimination of any form, claims of breach of contract, fraud, fraudulent inducement and breach of fiduciary duty and claims arising out of or in any way related to the Stock Split, the No Adjustment Letter, the Lock Up Letter, the Employment Agreement, the First Option, the Second Option, the Third Option or any other equity interest in GlobalSCAPE.  Notwithstanding the foregoing, Executive shall continue to have the right to purchase shares of Common Stock pursuant to and in accordance with the vesting and other terms of the agreements evidencing the First Option, Second Option and/or Third Option, provided, however, that the number of shares of Common Stock that Executive shall have the right to purchase under such options, and the related exercise price, shall be in the amounts set forth in the original grants, without giving effect to any adjustment that may otherwise have resulted from any corporate action after the date of such grant and prior to the date hereof, including, without limitation, any adjustment that may have arisen in connection with the Stock Split (any rights to such adjustment being waived and released hereunder).

 

Common Stock ” means:  the Common Stock, par value $.001 per share, of GlobalSCAPE;

 

Consideration ” means:  the Second Option, the Third Option and the Bonus Agreement;

 

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Employment Agreement ” means: that Corrected and Restated Employment Agreement between GlobalSCAPE and Executive dated effective January 1, 1998, and that Executive Employment Agreement between Executive and GlobalSCAPE, collectively, attached as Exhibit B and Exhibit C , respectively, to this Release;

 

Executive ” means:  Sandra Poole-Christal, her heirs, administrators, executors and assigns;

 

First Option ” means: that option granted by GlobalSCAPE pursuant to the 1998 Stock Option Plan to purchase Two Hundred Ninety One Thousand, Four Hundred Twenty Nine (291,429) shares of Common Stock of GlobalSCAPE, Inc. for $0.10 per share, vesting in thirds over a three year period granted to Executive in that letter agreement between Executive and GlobalSCAPE dated  January 1, 1998 and attached as Exhibit D to this Release;

 

GlobalSCAPE ” means:  GlobalSCAPE, Inc. and its agents, employees, officers, directors, shareholders, insurers, attorneys, all persons who control, are controlled by or under common control of GlobalSCAPE, Inc. and the predecessors, successors, heirs, executors, administrators, and assigns of any of them;

 

Lock Up Letter ” means that letter agreement between Executive and GlobalSCAPE dated February 8, 2000 and attached as Exhibit E to this Release;

 

No Adjustment Letter ” means: that letter agreement between Executive and GlobalSCAPE dated February 8, 2000 and attached as Exhibit F to this Release;

 

Release ” means: this Release and Indemnity Agreement;

 

Second Option ” means: that option granted by GlobalSCAPE pursuant to the 1998 Stock Option Plan to purchase Eight Hundred and Eight Thousand, Five Hundred Seventy One (808, 571) shares of Common Stock of GlobalSCAPE for $0.0132 per share, vesting effective February 1, 2001 and attached as Exhibit G to this Release;

 

Stock Split ” means that seven and sixth tenths’ for one (7.6:1) stock split of the outstanding shares of the Common Stock of GlobalSCAPE declared by the Board of Directors of GlobalSCAPE effective May 8, 2000;

 

Third Option ” means: that option granted by GlobalSCAPE pursuant to the 2000 Stock Option Plan to purchase Five Hundred Seventy Five Thousand (575,000)  shares of Common Stock of GlobalSCAPE for $0.4640 per share and attached as Exhibit H to this Release;

 

1998 Stock Option Plan ” means:  the GlobalSCAPE, Inc. 1998 Stock Option Plan, as adopted by the GlobalSCAPE Board of Directors on January 15, 1998,

 

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and amended on May 13, 1999, December 3, 1 999, March 22, 2001, attached as Exhibit I to this Release;

 

2000 Stock Option Plan ” means: the GlobalSCAPE, Inc. 2000 Stock Option Plan as adopted by the GlobalSCAPE Board of Directors of GlobalSCAPE May 8, 2000 attached as Exhibit J to this Release;

 

II.             THE AGREEMENT

 

1.             For the Consideration, Executive (1) RELEASES, ACQUITS and FOREVER DISCHARGES GlobalSCAPE and ATSI from the Claims that have accrued or may ever accrue to Executive.

 

2.             The giving of the Consideration is not an admission of liability by either party.  GlobalSCAPE and Executive each acknowledge that this Release is made as a compromise to avoid further expense and to terminate for all time controversies involving the Claims.

 

3.             GlobalSCAPE and Executive each agree to INDEMNIFY and to HOLD the other HARMLESS from all Claims that have been or may later be asserted against the indemnified party by any third party claiming by, through, or under the indemnifying party, together with all costs, expenses, and legal fees in defending any such claims as they are incurred.  THIS INDEMNITY IS SPECIFICALLY INTENDED TO OPERATE AND BE APPLICABLE EVEN IF IT IS ALLEGED OR PROVED THAT ALL OR SOME OF THE CLAIMS WERE CAUSED AS A WHOLE OR IN PART BY ANY ACT, OMISSION, NEGLIGENCE, GROSS NEGLIGENCE, BREACH OF CONTRACT, INTENTIONAL CONDUCT, VIOLATION OF STATUE OR COMMON LAW, OR ANY OTHER CONDUCT WHASOEVER OF THE INDEMNIFIED PARTY.

 

4.             In return for the Consideration, Executive represents and warrants the following:

 

a.  Executive is correctly described in this Release;

 

b.  before executing this Release, Executive became fully informed of the terms, contents, conditions, and effect of this Release ;

 

c.  Executive has been advised in writing to consult with an attorney prior to the executing this Release, she has entered into this Release after consulting with her attorney regarding this Release, and her attorney has explained the terms and effect of this Release to her;

 

d.  Executive is legally competent to execute this Release;

 

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e.  this Release is fully and forever binding on the Executive, her heirs, administrators, executors assigns, or of any of them;

 

f.  no promise or representation of any kind has been made to Executive, except as is expressly stated in this Release;

 

g.  Executive enters this Release freely, by her own choice and judgment, and without duress or other influence.

 

5.             Executive shall keep the terms of this Release CONFIDENTIAL, and disclose the terms only to the parties to her legal spouse, family members, accountants, insures, and attorneys or as other wise required by law or regulation.

 

6.             The parties each acknowledge that this Release constitutes the entire agreement among them with respect to its subject matter and supercedes any prior agreements, whether written or oral, between Executive and GlobalSCAPE.

 

7.             The parties each acknowledge that if, for any reason, any provision hereof is found to be unenforceable, the remainder of this Release will nonetheless remain binding and in full effect.

 

8.             The laws of the State of Texas shall govern the construction and interpretation of this Release.

 

EXECUTED on the dates noted below to be effective as of the date stated above.

 

 

 

GlobalSCAPE, Inc.

 

 

 

/s/ Tim Nicolaou

 

 

 

 

Tim Nicolaou

 

Chief Executive Officer

 

Date: 4/25/01

 

 

 

/s/ Sandra Poole-Christal

 

 

Sandra Poole-Christal

 

Date: 4/25/01

 

 

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Exhibits:

 

A

 

Bonus Agreement

B

 

Corrected and Restated Employment Agreement

C

 

Employment Agreement

D

 

First Option

E

 

Lock Up Letter

F

 

No Adjustment Letter

G

 

Second Option

H

 

Third Option

I

 

1998 Stock Option Plan

J

 

2000 Stock Option Plan

 

 

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EXHIBIT 10.18

 

April 20, 2001

 

Sandra Poole-Christal

107 Talavera #715

San Antonio, Texas  78232

 

Dear Sandy:

 

On behalf of GLOBALSCAPE, INC. a Delaware Corporation (the “Company”), I am pleased to announce that the Company’s Board of Directors, operating under the GLOBALSCAPE, INC. 1998 Stock Option Plan (the “Plan”), on January 1, 1998 awarded you (the “Employee” or the “Optionee”) an incentive stock option (the “Option”) to purchase Eight Hundred Eight Thousand and Five Hundred Seventy One 808,571 shares of $0.001 par value common stock of GLOBALSCAPE, INC. (the “Shares”).  The Option to acquire the shares is awarded and granted upon the following terms and conditions as well as those terms, conditions, and limitations as set forth in the Plan, which is incorporated herein for all purposes.

 

1.  The Exercise Price for each share of common stock is $0.0132 per Share.

 

2.  The Option is vested effective February 1, 2001.

 

3.  Subject to Paragraphs 5 and 9 herein, the Option may be exercised at any time on or before April 20, 2011 (the “Expiration Date”).  No partial exercise of such Option may be for less than 100 full shares.  In no event shall the Company be required to transfer fractional shares to the Employee.

 

4.  Optionee may exercise the Option from time to time, to the extent then exercisable, upon the following terms:

 

(a)  Optionee shall deliver written notice to the Secretary of the Company at the Company’s principal corporate offices, specifying the number of Shares which Optionee is purchasing hereunder and the method of payment for such shares.  Such notice shall be accompanied by the original of this Option so that an appropriate endorsement can be made hereto to reflect the Shares so purchased and to reduce accordingly the number of Shares thereafter to be subject to the terms hereof.  If required by the Company, such notice shall also be accompanied by such other instruments or agreements duly signed by

 

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Optionee as deemed necessary or advisable by counsel for the Company in order that the issuance of the Shares complies with applicable federal and state securities laws and regulations and applicable requirements of any national securities exchange or other market on which the common stock may then be traded.

 

(b)  The Exercise Price for the number of Shares being purchased shall be payable upon exercise as follows:  (i) by delivery of a cashier’s check payable to the Company or such other form of immediate funds as the Company shall permit, (ii)  if there is an established public market for the common stock, by delivery of certificates representing shares of common stock having an equivalent Fair Market Value (as defined in the Plan), (iii) if there is an established public market for the common stock, by arranging with the Company and Optionee’s broker to deliver the Exercise Price for the number of Shares being purchased from the concurrent market sale of the purchased shares, or (iv) a combination of any of the foregoing.

 

(c)  Upon the valid exercise of the Option in accordance with the terms hereof, the Company shall deliver to Optionee a certificate representing the number of whole Shares purchased, bearing any legends as may be deemed necessary or advisable by counsel to the Company to satisfy applicable securities laws or regulations;  provided, however, that if any law or regulation requires the Company to take any action with respect to such Shares before the issuance thereof, then the sale, issuance and delivery of such shares shall be deferred for the period necessary to take such action.  Optionee hereby represents and agrees that, unless the Shares issued upon exercise of the Option are duly registered under applicable securities laws, the purchase by Optionee of such shares shall be solely for investment purposes and not with a view to the distribution thereof.

 

(d)  Optionee’s federal withholding tax (if any) due upon exercise of the Option shall be satisfied in cash by Optionee at the time of exercise or, if permitted by the Board of Directors or its designee(s) through the retention by the Company from the shares purchased the number of shares of common stock having a Fair Market Value equal to the required withholding tax.

 

The Company does not attempt to advise you on tax or other consequences arising from your acquisition of the common stock through the exercise of the Option.  For the specific tax consequences to you, please consult with your tax advisor.

 

5.  Subject to the limitations imposed pursuant to Section 4.(B) of the Plan, the Option shall remain exercisable until the Expiration Date, except that:

 

(a)  If Optionee voluntarily terminates Optionee’s employment with Company at any time without the consent of the Company or if Optionee’s employment is terminated by the Company for cause (of which the Board of Directors or its designee(s), in both cases, shall be the sole judge), then the Option may be exercised only during the three month period following such termination to the extent exercisable immediately prior to such termination, but in no event later than the Expiration Date.

 

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(b)  If (i) Optionee voluntarily terminates Optionee’s employment with the Company with the Company’s consent, (ii) Optionee’s employment with the Company is terminated by the Company without cause, or (iii) Optionee’s employment is terminated by reason of Optionee’s “permanent and total disability” within the meaning of section 22(e)3) of the Internal Revenue Code (of which the Board of Directors or its designee(s) in each such three cases, shall be the sole judge), then the Option may be exercised only during the three month period following such termination to the extent exercisable immediately prior to such termination, but in no event later than the Expiration Date.

 

(c)  if (i) Optionee dies during Optionee’s employment with  the Company or (ii) Optionee dies during the three month period under the conditions set for the in paragraph 6(b) immediately above (during which the  Optionee was entitled to exercise the Option), then the Option may be exercised only during the one-year period following Optionee’s death, but in no event later than the Expiration Date, by the persons to whom Optionee’s rights under the Option shall pass by Optionee’s will or the laws of descent and distribution, as applicable.

 

Notwithstanding the above, the Employee’s rights to the options which have not been exercised, and all rights granted by this agreement shall in all events terminate and become null and void if the Employee is employed either as an employee or consultant by any company, joint venture, partnership or individual which the Board of Directors or its designee(s) determines, in its sole discretion, in competition with the Company.

 

6.  During the lifetime of the Employee, the Option and all rights granted in this agreement shall be exercisable only by the Employee, and except as Paragraph 5 otherwise provides, the Option and all rights granted under the agreement shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process.  Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such Option or of such rights contrary to the provisions in this agreement, or upon the levy of any attachment or similar process upon such Option or such rights, such Option and such rights shall immediately become null and void.

 

7.  In the event of any change in the common shares of the Company subject to the Option granted hereunder, through merger, consolidation, reorganization, recapitalization, stock split, stock dividend or other change in the corporate structure, without consideration, appropriate adjustment shall be made by the Company in the number and kind of shares subject to such Option and the price per share.  Upon the dissolution or liquidation of the Company, the Option granted under this agreement shall terminate and become null and void, but the Employee shall have the right immediately prior to such dissolution or liquidation to exercise the Option granted hereunder to the full extent not before exercised.

 

8.  Neither the Employee nor his/her execuctor, administrator, heirs or legatees shall be or have any rights or privileges of a shareholder of the Company in respect of the shares transferable upon exercise of the Option granted under this agreement, unless and

 

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until certificates representing such shares shall have been endorsed, transferred and delivered and the transferee has caused his/her name to be entered as the shareholder of record on the books of the Company.  Nothing contained in the Plan or this Option shall confer upon the Employee any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company (subject to the terms of any separate agreement to the contrary) to terminate the Employee’s employment or to increase or decrease the Employee’s compensation at any time.

 

9.  The terms and conditions of the Plan, unless expressly supplemented by this Agreement, shall continue unchanged and in full force and effect.  To the extent that any terms or provision of the Option are or may be deemed expressly inconsistent with any terms or conditions of the Plan, the terms of this agreement shall control.  To the extent that any terms or provisions of the Option are or may be deemed expressly inconsistent with any terms of conditions of any separate employment contract, if any, signed by the Company and  Optionee, the terms of the employment contract shall control.

 

10.  The Employee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Employee pursuant to the express provisions of this Option.

 

11.  The rights of the Employee are subject to modifications and termination in certain events as provided in this Option and the Plan.

 

12.  This agreement shall be governed by, and construed in accordance with, the substantive laws of the State of Texas applicable to contracts made and to be wholly performed therein.

 

13.  This Option may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

 

14.  This Option and the Plan shall constitute the entire agreement between the parties with respect to the subject matter hereof, and supercedes all previously written or oral negotiations, commitments, representations and agreements with respect thereto.

 

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If the foregoing represents your understanding of the terms and conditions upon which your options have been granted, please execute in the space provided below, returning an executed copy to the undersigned.

 

GlobalSCAPE, Inc.

AGREED:

 

 

/s/ Tim Nicolaou

 

 

Tim Nicolaou

/s/ Sandra Poole-Christal

 

Chief Executive Officer

Sandra Poole-Christal

 

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EXHIBIT 10.19

 

April 20, 2001

 

Sandra Poole-Christal

107 Talavera #715

San Antonio, Texas  78232

 

Dear Sandy:

 

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 for $0.10 (ten cents) per share with the Option vesting over a three year period beginning January 1, 1998 (the “First Option”).

 

Effective April 20, 2001, you and GlobalSCAPE executed a Release and Indemnity Agreement (the “Release”) in connection with the First Option and other matters.  As part of the Consideration, as that term is defined in the Release, GlobalSCAPE agrees as follows:

 

For each share issued by GlobalSCAPE pursuant to the First Option, GlobalSCAPE shall pay you a bonus of $0.0868  per share plus a gross-up percentage per share of $0.0868 times the lower of 38% or the highest percentage tax bracket applicable to your income.

 

 

Sincerely,

 

 

 

/s/ Tim Nicolaou

 

 

Tim Nicolaou

 

Chief Executive Officer

 


EXHIBIT 10.20

 

GLOBALSCAPE, INC.

INCENTIVE STOCK OPTION AGREEMENT

 

This Incentive Stock Option Agreement (the “Agreement”) is entered into between GLOBALSCAPE, INC., a Delaware corporation (the “Company”), and Sandra Poole Christal (the “Optionee”) as of the 20th day of April, 2001 (the “Date of Grant”).  In consideration of the mutual promises and covenants made herein, the parties hereby agree as follows:

 

1.             Grant of Option.   Under the terms and conditions of the Company’s 2000 Stock Option Plan (the “Plan”), which is incorporated herein by reference, the Company grants to the Optionee an option (the “Option”) to purchase from the Company all or any part of a total of Five Hundred Seventy Five Thousand (575,000) shares of the Company’s Common Stock, par value $0.001 per share, at a price of $0.4640 per share.

 

2.             Character of Option.   The Option is an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended; provided, however, that to the extent the Option does not qualify as an incentive option by virtue of exceeding the $100,000 limitation in Section 422(d) of such Code, the Option shall be treated as an option other than an incentive stock option.

 

3.             Term.   The Option will expire on the day prior to the tenth anniversary of the Date of Grant or, in the event of the Optionee’s termination of service as an employee, director, or advisor of the Company, on such earlier date as may be provided in the Plan.

 

4.             Vesting; Exercisability.   Subject to any provisions of the Plan concerning exercisability and vesting of options, the Option shall vest according to the following schedule:

 

Percentage Vested

 

Period

33%

 

First anniversary of the Date of Grant

33%

 

Second anniversary of the Date of Grant

34%

 

Third anniversary of the Date of Grant

 

The unexercised portion of the Option from one period may be carried over to a subsequent period or periods, and the right of the Optionee to exercise the option as to such unexercised portion shall continue for the entire term.

 

Notwithstanding anything else to the contrary herein, upon the occurrence of a “Change of Control,” this Option shall become fully exercisable.  The term “Change of Control” shall mean the occurrence of any of the following events: (i)  any “person” as that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Company, ATSI Communications, Inc. (“ATSI”), any trustee or other

 

1



 

fiduciary holding securities under an employee benefit plan of the Company or ATSI, any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or any company owned, directly or indirectly, by the stockholders of ATSI in substantially the same proportions as their ownership of the stock of ATSI), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company  representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; (ii)  during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into any agreement with the Company to effect a transaction described in subsection (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination by the Board for election by the stockholders 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 was previously so approved, cease for any reason to constitute a majority of the Board; (iii)  the stockholders of the Company approve a merger, consolidation or reorganization of the Company with any other corporation, other than a merger,  consolidation, or reorganization which would result in the stockholders of the Company immediately before such merger, consolidation or reorganization, owning, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty-one percent (51%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger, consolidation or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, or reorganization; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.  Notwithstanding anything to the contrary herein, a Change of Control shall not be deemed to occur as a result of an acquisition of Company securities or assets by ATSI, or any consolidation, merger or exchange of securities with ATSI.

 

5.             Procedure for Exercise.   Exercise of the Option or a portion thereof shall be effected by the giving of written notice to the Company by the Optionee in accordance with the Plan and payment of the purchase price prescribed in Section 1 above for the shares to be acquired pursuant to the exercise.

 

6.             Payment of Purchase Price.   Payment of the purchase price for any shares purchased pursuant to the Option shall be in accordance with the provisions of the Plan.

 

7.             Transfer of Options.   The Option may not be transferred except (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and, during the lifetime of the Optionee, may be exercised only by the Optionee or by the Optionee’s legally authorized representative.

 

8.             Acceptance of the Plan.   The Option is granted subject to all of the applicable terms and provisions of the Plan, and such terms and provisions are incorporated by reference

 

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herein.  The Optionee hereby accepts and agrees to be bound by all the terms and conditions of the Plan.

 

9.             Amendment.   This Agreement may be amended by an instrument in writing signed by both the Company and the Optionee.

 

10.          Miscellaneous.   This Agreement will be construed and enforced in accordance with the laws of the State of Texas and will be binding upon and inure to the benefit of any successor or assign of the Company and any executor, administrator, trustee, guarantor or other legal representative of the Optionee.

 

Executed to be effective as of the date set forth above.

 

 

GLOBALSCAPE, INC.

 

 

 

By:

/s/ Tim Nicolaou

 

 

 

Tim Nicolaou

 

 

Chief Executive Officer

 

 

 

/s/ Sandra Poole-Christal

 

 

Sandra Poole-Christal

 

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EXHIBIT 10.21

 

GLOBALSCAPE, INC.

INCENTIVE STOCK OPTION AGREEMENT

 

This Incentive Stock Option Agreement (the “Agreement”) is entered into between GLOBALSCAPE, INC., a Delaware corporation (the “Company”), and                                          (the “Optionee”) as of the 4th day of April, 2001 (the “Date of Grant”).  In consideration of the mutual promises and covenants made herein, the parties hereby agree as follows:

 

1.             Grant of Option.   Under the terms and conditions of the Company’s 2000 Stock Option Plan (the “Plan”), which is incorporated herein by reference, the Company grants to the Optionee an option (the “Option”) to purchase from the Company all or any part of a total of                                                                     (                                      ) shares of the Company’s Common Stock, par value $0.001 per share, at a price of $0.4640 per share.

 

2.             Character of Option.   The Option is an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended; provided, however, that to the extent the Option does not qualify as an incentive option by virtue of exceeding the $100,000 limitation in Section 422(d) of such Code, the Option shall be treated as an option other than an incentive stock option.

 

3.             Term.   The Option will expire on the day prior to the tenth anniversary of the Date of Grant or, in the event of the Optionee’s termination of service as an employee, director, or advisor of the Company, on such earlier date as may be provided in the Plan.

 

4.             Vesting; Exercisability.   Subject to any provisions of the Plan concerning exercisability and vesting of options, the Option shall vest according to the following schedule:

 

Percentage Vested

 

Period

33%

 

First anniversary of the Date of Grant

33%

 

Second anniversary of the Date of Grant

34%

 

Third anniversary of the Date of Grant

 

The unexercised portion of the Option from one period may be carried over to a subsequent period or periods, and the right of the Optionee to exercise the option as to such unexercised portion shall continue for the entire term.

 

Notwithstanding anything else to the contrary herein, upon the occurrence of a “Change of Control,” this Option shall become fully exercisable.  The term “Change of Control” shall mean the occurrence of any of the following events: (i)  any “person” as that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Company, ATSI Communications, Inc. (“ATSI”), any trustee or other

 

1



 

 fiduciary holding securities under an employee benefit plan of the Company or ATSI, any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or any company owned, directly or indirectly, by the stockholders of ATSI in substantially the same proportions as their ownership of the stock of ATSI), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company  representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; (ii)  during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into any agreement with the Company to effect a transaction described in subsection (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination by the Board for election by the stockholders 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 was previously so approved, cease for any reason to constitute a majority of the Board; (iii)  the stockholders of the Company approve a merger, consolidation or reorganization of the Company with any other corporation, other than a merger,  consolidation, or reorganization which would result in the stockholders of the Company immediately before such merger, consolidation or reorganization, owning, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty-one percent (51%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger, consolidation or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, or reorganization; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.  Notwithstanding anything to the contrary herein, a Change of Control shall not be deemed to occur as a result of an acquisition of Company securities or assets by ATSI, or any consolidation, merger or exchange of securities with ATSI.

 

5.             Procedure for Exercise.   Exercise of the Option or a portion thereof shall be effected by the giving of written notice to the Company by the Optionee in accordance with the Plan and payment of the purchase price prescribed in Section 1 above for the shares to be acquired pursuant to the exercise.

 

6.             Payment of Purchase Price.   Payment of the purchase price for any shares purchased pursuant to the Option shall be in accordance with the provisions of the Plan.

 

7.             Transfer of Options.   The Option may not be transferred except (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and, during the lifetime of the Optionee, may be exercised only by the Optionee or by the Optionee’s legally authorized representative.

 

8.             Acceptance of the Plan.   The Option is granted subject to all of the applicable terms and provisions of the Plan, and such terms and provisions are incorporated by reference

 

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herein.  The Optionee hereby accepts and agrees to be bound by all the terms and conditions of the Plan.

 

9.             Amendment.   This Agreement may be amended by an instrument in writing signed by both the Company and the Optionee.

 

10.          Miscellaneous.   This Agreement will be construed and enforced in accordance with the laws of the State of Texas and will be binding upon and inure to the benefit of any successor or assign of the Company and any executor, administrator, trustee, guarantor or other legal representative of the Optionee.

 

Executed to be effective as of the date set forth above.

 

 

GLOBALSCAPE, INC.

 

 

 

By:

 

 

 

Tim Nicolaou

 

Chief Executive Officer

 

 

 

 

 

 

[Name of Optionee]

 

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EXHIBIT 10.22

 

Principal Amount: $200,000.00

Dated: April 27, 2001

NOTE

 

This Note is made and entered into effect as of this 27 th day of April, 2001 by and between ATSI Communications, Inc., a Delaware corporation (“ATSI”) with its principal place of business located at 6000 Northwest Parkway, Suite 110, San Antonio, Texas, and TeleSpan, Inc. (“Accomodation Maker”), a Texas corporation and wholly-owned subsidiary of ATSI located at 6000 Northwest Parkway, San Antonio, Texas, and GlobalSCAPE, Inc. (“Lender”), located at 6000 Northwest Parkway, Suite 100, San Antonio, Texas.

 

For value received, ATSI promises to pay TWO HUNDRED THOUSAND U.S. Dollars ($200,000) to the order of Lender at 6000 Northwest Parkway, Suite 100, San Antonio, Texas, or such other place in San Antonio, Texas as Lender may designate in writing, with interest on the unpaid principal amount at the rate of twelve percent (12%) per annum until paid in full with a final maturity of May 31, 2001. Lender may charge interest on overdue amounts at the lesser of one percent (1.0%) per month or the highest non-usurious rate permitted by applicable law.

 

TeleSpan executes this Note as Accomodation Maker as defined in the Texas Uniform Commercial Code and has simultaneously executed the Security Agreement dated this date to secure its obligation under this Note.

 

Upon and at any time after any Default (as defined below) all amounts due under this Note, at the option of Lender 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) ATSI 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) ATSI makes an assignment for the benefit of creditors, or any proceeding is filed or commenced by or against ATSI 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, ATSI or for any substantial part of its property) shall occur, or ATSI shall take any action to authorize any of the actions set forth above in this subsection.

 

ATSI hereby waives presentment, demand of payment, protest or notice with respect to the indebtedness evidenced by this Note including, without limitation, notice the Note, or any portion thereof, is due.

 



 

If Lender prevails in any action to collect on or enforce this Note or claims arising from the execution of this Note, then Lender’s reasonable attorneys’ 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 LENDER AGREES TO SUBMIT TO THE JURISDICATION 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 27 th day of April, 2001.

 

ATSI Communications, Inc.

GlobalSCAPE, Inc.

 

 

By: 

/s/ H. Douglas Saathoff

By: 

/s/ Tim Nicolaou

 

 

TeleSpan, Inc. as Accomodation Maker

 

 

 

By:

 /s/ H. Douglas Saathoff

 

 

 

 


EXHIBIT 10.23

SECURITY AGREEMENT

 

Borrower:

 

TeleSpan, Inc.

 

 

6000 Northwest Pkwy., Suite 110

 

 

San Antonio, TX 78249

 

 

 

Lender:

 

TeleSpan, Inc.

 

 

Northwest Pkwy., Suite 100

 

 

San Antonio, TX 78249

 

 

Principal Amount:  $200,000.00

Date of Note:  April 27, 2001

Maturity:  May 31, 2001

 

 

THIS SECURITY AGREEMENT is entered into between TeleSpan, Inc. (referred to below as “Grantor”); and GlobalSCAPE, Inc. (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 Security Agreement, as this Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this 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:

 

Grantor’s Accounts, as that definition may be amended from time to time, under that Carrier Service Agreement for International Terminating Traffic dated November 25, 1998 between Grantor and Qwest Communications, and;

 

 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.

 

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(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 American TeleSource International, 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 GlobalSCAPE, Inc., its successors and assigns.

 

Note .  The word “Note” means the note dated April 27, 2001, in the principal amount of $200,000.00 from Grantor 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.

 

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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 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 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.

 

Location of the Collateral .  Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located.  Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender.

 

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

 

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dispose of the Collateral.  While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business.  A sale in the ordinary course of Grantor’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale.  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 to the Collateral against the claims and demands of all other persons.

 

  Collateral Schedules and Locations .  Insofar as the Collateral consists of inventory, 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.

 

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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.

 

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 make any payment when due on the Indebtedness.

 

Other Defaults .  Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement of 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 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.

 

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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, and 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 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 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.

 

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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, 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 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.

 

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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, 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 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 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.

 

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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 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 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.

 

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.  THIS AGREEMENT IS DATED APRIL 27, 2001.

 

GRANTOR:

LENDER

 

 

 

 

TeleSpan, Inc.

GlobalSCAPE, Inc.

 

 

/s/ H. Doulgas Saathoff

 

/s/ Tim Nicolaou

 

 

 

H. Douglas Saathoff

Tim Nicolaou

Chief Financial Officer

Chief Executive Officer

 

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EXHIBIT 10.24

 

Principal Amount: $100,000.00

Dated: November 15, 2001

NOTE

 

This Note is made and entered into effect as of this 15th day of November, 2001 by and between ATSI Communications, Inc., a Delaware corporation (“ATSI”) with its principal place of business located at 6000 Northwest Parkway, Suite 110, San Antonio, Texas, and TeleSpan, Inc. (“Accomodation Maker”), a Texas corporation and wholly-owned subsidiary of ATSI located at 6000 Northwest Parkway, San Antonio, Texas, and GlobalSCAPE, Inc. (“Lender”), located at 6000 Northwest Parkway, Suite 100, San Antonio, Texas.

 

For value received, ATSI promises to pay ONE HUNDRED THOUSAND U.S. Dollars ($100,000) to the order of Lender at 6000 Northwest Parkway, Suite 100, San Antonio, Texas, or such other place in San Antonio, Texas as Lender may designate in writing, with interest on the unpaid principal amount at the rate of twelve percent (12%) per annum until paid in full with a final maturity of January 31, 2002. Lender may charge interest on overdue amounts at the lesser of one percent (1.0%) per month or the highest non-usurious rate permitted by applicable law.

 

TeleSpan executes this Note as Accomodation Maker as defined in the Texas Uniform Commercial Code and has simultaneously executed the Security Agreement dated this date to secure its obligation under this Note.

 

Upon and at any time after any Default (as defined below) all amounts due under this Note, at the option of Lender 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) ATSI 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) ATSI makes an assignment for the benefit of creditors, or any proceeding is filed or commenced by or against ATSI 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, ATSI or for any substantial part of its property) shall occur, or ATSI shall take any action to authorize any of the actions set forth above in this subsection.

 

ATSI hereby waives presentment, demand of payment, protest or notice with respect to the indebtedness evidenced by this Note including, without limitation, notice the Note, or any portion thereof, is due.

 



 

If Lender prevails in any action to collect on or enforce this Note or claims arising from the execution of this Note, then Lender’s reasonable attorneys’ 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 LENDER AGREES TO SUBMIT TO THE JURISDICATION 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 November, 2001.

 

ATSI Communications, Inc.

GlobalSCAPE, Inc.

 

 

 

 

By:

/s/ H. Douglas Saathoff

 

By:

/s/ Tim Nicolaou

 

H. Douglas Saathoff

Tim Nicolaou

Chief Financial Officer

Chief Executive Officer

 

 

TeleSpan, Inc. as Accomodation Maker

 

 

 

 

 

By:

/s/ H. Douglas Saathoff

 

 

H. Douglas Saathoff

 

Chief Financial Officer

 

 

2


EXHIBIT 10.25

SECURITY AGREEMENT

 

Borrower:                                             TeleSpan, Inc.

6000 Northwest Pkwy., Suite 110

San Antonio, TX 78249

 

Lender:

GlobalSCAPE, Inc.

 

6000 Northwest Pkwy., Suite 100

 

San Antonio, Texas  78249

 

 

Principal Amount:  $100,000.00

Date of Note:  November 15, 2001

Maturity:  January 31, 2002

 

THIS SECURITY AGREEMENT is entered into between ATSI Communications, Inc. (referred to below as “Grantor”); and GlobalSCAPE, Inc. (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 Security Agreement, as this Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this 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:

 

Grantor’s Accounts, as that definition may be amended from time to time, under that Carrier Service Agreement for International Terminating Traffic dated November 25, 1998 between Grantor and Qwest Communications Corporation.

 

 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.

 

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(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 American TeleSource International, 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 GlobalSCAPE, Inc., its successors and assigns.

 

Note .  The word “Note” means the note dated November 15, 2001, in the principal amount of $100,000.00 from Grantor 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.

 

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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 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 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.

 

Location of the Collateral .  Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located.  Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender.

 

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

 

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dispose of the Collateral.  While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business.  A sale in the ordinary course of Grantor’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale.  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 to the Collateral against the claims and demands of all other persons.

 

  Collateral Schedules and Locations .  Insofar as the Collateral consists of inventory, 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.

 

4



 

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.

 

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 make any payment when due on the Indebtedness.

 

Other Defaults .  Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement of 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 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.

 

5



 

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, and 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 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 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.

 

6



 

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, 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 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.

 

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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, 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 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 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.

 

8



 

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 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 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.

 

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.  THIS AGREEMENT IS DATED NOVEMBER 15, 2001.

 

GRANTOR:

LENDER

 

 

TeleSpan, Inc.

GlobalSCAPE, Inc.

 

 

/s/ H. Doulgas Saathoff

 

/s/ Tim Nicolaou

 

 

 

H. Douglas Saathoff

Tim Nicolaou

Chief Financial Officer

Chief Executive Officer

 

 

 

9


EXHIBIT 10.26

 

Principal Amount: $40,000.00

Dated: December 12, 2001

 

NOTE

 

This Note is made and entered into effect as of this 12 th day of December, 2001 by and between ATSI Communications, Inc., a Delaware corporation (“ATSI”) with its principal place of business located at 6000 Northwest Parkway, Suite 110, San Antonio, Texas, and TeleSpan, Inc. (“Accomodation Maker”), a Texas corporation and wholly-owned subsidiary of ATSI located at 6000 Northwest Parkway, San Antonio, Texas, and GlobalSCAPE, Inc. (“Lender”), located at 6000 Northwest Parkway, Suite 100, San Antonio, Texas.

 

For value received, ATSI promises to pay FORTH THOUSAND U.S. Dollars ($40,000) to the order of Lender at 6000 Northwest Parkway, Suite 100, San Antonio, Texas, or such other place in San Antonio, Texas as Lender may designate in writing, with interest on the unpaid principal amount at the rate of twelve percent (12%) per annum until paid in full with a final maturity of January 31, 2002. Lender may charge interest on overdue amounts at the lesser of one percent (1.0%) per month or the highest non-usurious rate permitted by applicable law.

 

TeleSpan executes this Note as Accomodation Maker as defined in the Texas Uniform Commercial Code and has simultaneously executed the Security Agreement dated this date to secure its obligation under this Note.

 

Upon and at any time after any Default (as defined below) all amounts due under this Note, at the option of Lender 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) ATSI 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) ATSI makes an assignment for the benefit of creditors, or any proceeding is filed or commenced by or against ATSI 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, ATSI or for any substantial part of its property) shall occur, or ATSI shall take any action to authorize any of the actions set forth above in this subsection.

 

ATSI hereby waives presentment, demand of payment, protest or notice with respect to the indebtedness evidenced by this Note including, without limitation, notice the Note, or any portion thereof, is due.

 



 

If Lender prevails in any action to collect on or enforce this Note or claims arising from the execution of this Note, then Lender’s reasonable attorneys’ 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 LENDER AGREES TO SUBMIT TO THE JURISDICATION 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 12 th day of December, 2001.

 

ATSI Communications, Inc

 

GlobalSCAPE, Inc

 

 

 

 

 

 

 

 

By: 

/s/ H. Douglas Saathoff

 

By: 

/s/ Tim Nicolaou

 

 

H. Douglas Saathoff

 

Tim Nicolaou

 

Chief Financial Officer

 

Chief Executive Officer

 

 

 

 

 

TeleSpan, Inc. as Accomodation Maker  

 

 

 

By:

/s/ H. Douglas Saathoff

 

 

H. Douglas Saathoff

 

Chief Financial Officer

 

 

 


EXHIBIT 10.27

SECURITY AGREEMENT

 

Borrower:                                             TeleSpan, Inc.

 6000 Northwest Pkwy., Suite 110

San Antonio, TX 78249

 

Lender:

GlobalSCAPE, Inc.

 

6000 Northwest Pkwy., Suite 100

 

San Antonio, Texas  78249

 

 

 

Principal Amount:  $40,000.00

Date of Note:  December 12, 2001

Maturity:  January 31, 2002

 

THIS SECURITY AGREEMENT is entered into between ATSI Communications, Inc. (referred to below as “Grantor”); and GlobalSCAPE, Inc. (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 Security Agreement, as this Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this 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:

 

Grantor’s Accounts, as that definition may be amended from time to time, under that Carrier Service Agreement for International Terminating Traffic dated November 25, 1998 between Grantor and Qwest Communications Corporation.

 

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.

 

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 (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 American TeleSource International, 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 GlobalSCAPE, Inc., its successors and assigns.

 

Note .  The word “Note” means the note dated December 12, 2001, in the principal amount of $40,000.00 from Grantor 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.

 

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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 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 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.

 

Location of the Collateral .  Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located.  Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender.

 

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

 

3



 

dispose of the Collateral.  While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business.  A sale in the ordinary course of Grantor’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale.  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 to the Collateral against the claims and demands of all other persons.

 

Collateral Schedules and Locations .  Insofar as the Collateral consists of inventory, 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.

 

4



 

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.

 

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 make any payment when due on the Indebtedness.

 

Other Defaults .  Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement of 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 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.

 

5



 

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, and 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 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 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.

 

6



 

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, 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 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.

 

7



 

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, 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 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 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.

 

8



 

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 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 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.

 

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.  THIS AGREEMENT IS DATED DECEMBER 12, 2001.

 

GRANTOR:                                                                                           LENDER

 

 

TeleSpan, Inc.

GlobalSCAPE, Inc.

 

 

/s/H. Doulgas Saathoff

/s/Tim Nicolaou

 

 

H. Douglas Saathoff

Tim Nicolaou

Chief Financial Officer

Chief Executive Officer

 

9


EXHIBIT 10.28

 

Principal Amount: $50,000.00

Dated: February 15, 2002

 

NOTE

 

This Note is made and entered into effect as of this 15 th day of February, 2002 by and between ATSI Communications, Inc., a Delaware corporation (“ATSI”) with its principal place of business located at 6000 Northwest Parkway, Suite 110, San Antonio, Texas, and TeleSpan, Inc. (“Accomodation Maker”), a Texas corporation and wholly-owned subsidiary of ATSI located at 6000 Northwest Parkway, San Antonio, Texas, and GlobalSCAPE, Inc. (“Lender”), located at 6000 Northwest Parkway, Suite 100, San Antonio, Texas.

 

For value received, ATSI promises to pay FIFTY THOUSAND U.S. Dollars ($50,000) to the order of Lender at 6000 Northwest Parkway, Suite 100, San Antonio, Texas, or such other place in San Antonio, Texas as Lender may designate in writing, with interest on the unpaid principal amount at the rate of twelve percent (12%) per annum until paid in full with a final maturity of April 30, 2002. Lender may charge interest on overdue amounts at the lesser of one percent (1.0%) per month or the highest non-usurious rate permitted by applicable law.

 

TeleSpan executes this Note as Accomodation Maker as defined in the Texas Uniform Commercial Code and has simultaneously executed the Security Agreement dated this date to secure its obligation under this Note.

 

Upon and at any time after any Default (as defined below) all amounts due under this Note, at the option of Lender 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) ATSI 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) ATSI makes an assignment for the benefit of creditors, or any proceeding is filed or commenced by or against ATSI 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, ATSI or for any substantial part of its property) shall occur, or ATSI shall take any action to authorize any of the actions set forth above in this subsection.

 

ATSI hereby waives presentment, demand of payment, protest or notice with respect to the indebtedness evidenced by this Note including, without limitation, notice the Note, or any portion thereof, is due.

 



 

If Lender prevails in any action to collect on or enforce this Note or claims arising from the execution of this Note, then Lender’s reasonable attorneys’ 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 LENDER AGREES TO SUBMIT TO THE JURISDICATION 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 15 th day of February, 2002.

 

 

ATSI Communications, Inc.

GlobalSCAPE, Inc.

 

 

 

 

By:

/s/ H. Douglas Saathoff

 

By:

/s/ Tim Nicolaou

 

H. Douglas Saathoff

Tim Nicolaou

Chief Financial Officer

Chief Executive Officer

 

TeleSpan Inc. as Accomodation Maker  

 

 

 

 

By:

/s/ H. Douglas Saathoff

 

H. Douglas Saathoff

 

Chief Financial Officer

 

 


EXHIBIT 10.29

SECURITY AGREEMENT

 

Borrower:                                             ATSI Communications, Inc.

6000 Northwest Pkwy., Suite 110

San Antonio, Texas  78249

 

Grantor:                                                      TeleSpan, Inc.

6000 Northwest Pkwy., Suite 110

San Antonio, TX 78249

 

Lender:

GlobalSCAPE, Inc.

 

6000 Northwest Pkwy., Suite 100

 

San Antonio, Texas  78249

 

 

Principal Amount:  $50,000

Date of Note:  February 15, 2002

Maturity:  April 30, 2002

 

THIS SECURITY AGREEMENT is entered into between TeleSpan, Inc. (referred to below as “Grantor”); and GlobalSCAPE, Inc. (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 Security Agreement, as this Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Security Agreement from time to time.

 

Borrower .  The word “Borrower” means ATSI Communications, Inc., its successors and assigns.

 

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:

 

Grantor’s Accounts, as that definition may be amended from time to time, under that Carrier Service Agreement for International Terminating Traffic dated November 25, 1998 between Grantor and Qwest Communications Corporation.

 

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 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 TeleSpan, 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 GlobalSCAPE, Inc., its successors and assigns.

 

Note .  The word “Note” means the note dated February 15, 2002, in the principal amount of Fifty Thousand Dollars ($50,000.00) from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for the note or credit agreement.

 

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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.

 

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 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 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.

 

Location of the Collateral .  Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located.  Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender.

 

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

 

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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.  While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business.  A sale in the ordinary course of Grantor’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale.  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 to the Collateral against the claims and demands of all other persons.

 

  Collateral Schedules and Locations .  Insofar as the Collateral consists of inventory, 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

 

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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.

 

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 Borrower to make any payment when due on the Indebtedness.

 

Other Defaults .  Failure of Grantor or Borrower to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement of in any of the Related Documents or in any other agreement between Lender and Grantor or Lender and Borrower.

 

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 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 or Borrower 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.

 

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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 or Borrower’s existence as a going business, the insolvency of Grantor or Borrower, the appointment of a receiver for any part of Grantor’s or Borrower’s property, any assignment for the benefit of creditors, and 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 Borrower or by any governmental agency against the Collateral or any other collateral securing the Indebtedness.

 

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 or Borrower’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 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 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

 

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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, 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 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:

 

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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 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, 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 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 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

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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 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 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.

 

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.  THIS AGREEMENT IS DATED FEBRUARY 15, 2002.

 

GRANTOR:

LENDER

 

 

 

 

TeleSpan, Inc.

GlobalSCAPE, Inc.

 

 

/s/ H. Douglas Saathoff

/s/ Tim Nicolaou

H. Douglas Saathoff

Tim Nicolaou

Chief Financial Officer

Chief Executive Officer

 

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EXHIBIT 10.30

 

LOCK UP AGREEMENT

 

This Lock Up Agreement (this “ Agreement ’) is entered into effective as of February 6, 2002 and is between GlobalSCAPE, Inc. (“ GlobalSCAPE ”) and certain officers and directors of GlobalSCAPE, Inc. and ATSI Communications, Inc. listed on the signature block to this Agreement (the “ Shareholders ”).

 

RECITALS

 

A.                                    As of December 31, 2001 GlobalSCAPE has 13,022,190 shares of common  stock issued and outstanding (the “ Common Stock ”), of which 9,433,905 shares are held by ATSI Communications, Inc.  (“ ATSI ”) and the remaining shares are held by various others, including numerous members of the public.

 

B.                                      The Shareholders are officers and directors of GlobalSCAPE and of ATSI and collectively own or have the vested right to acquire within the next 180 days  2,187,652 shares of the Common Stock.

 

C.                                      GlobalSCAPE expects it Common Stock to begin to be quoted on the NASD’s Over-the-Counter Bulletin Board (the “ OTCBB ”) on or around February 15, 2002.

 

D.                                     To promote an orderly market in the stock once it begins active trading, GlobalSCAPE and the Shareholders have agreed to the term of this Agreement stated below.

 

                NOW THEREFORE, each Shareholder agrees as follows:

 

1.             Lock Up .  Except as permitted in Section 2 below, for a period of 180 days from the first day that shares of GlobalSCAPE, Inc. common stock are first quoted on the OTCBB the Shareholders shall not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable or exercisable for any shares of Common Stock, enter into a transaction which would have the same effect, or enter into swap, hedge or other arrangement that transfers, in whole or part, any of the economic consequences of ownership of the Common Stock, whether any such transaction is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement.

 

2.             Permitted Transfers Section 1 shall not apply to:

 

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a)                 the pledge by a Shareholder of shares of Common Stock to a financial institution in connection with a bona fide financing transaction, provided that the financial institution is subject to the terms of this Agreement;

 

b)                transfers of shares of Common Stock to immediate family members or trusts for the benefit of such family members, provided such transferee is subject to the terms of this Agreement;

 

c)                 sales made as part of a “cashless exercise” of an option issued pursuant to the GlobalSCAPE, Inc. 1998 Stock Option Plan or the GlobalSCAPE, Inc. 2000 Stock Option Plan;

 

d)                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 subject to the terms of this Agreement; or

 

; provided, however, that no Shareholder may sell shares in a manner not permitted, or in an amount not permitted, by law, including the rules applicable to “affiliates” under SEC Rule 144, despite the availability of a permitted transfer under this Section 2 .

 

3.             Stop Transfer Instructions .  Each Shareholder will agree to the entry of stop transfer instructions with the Company’s transfer agent against the transfer of the securities held by such Shareholder except in compliance with the foregoing restrictions.  Promptly upon execution of this Agreement, each shareholder who holds shares of Common Stock in the name of a brokerage firm or other representative shall cause the shares to be transferred into the name of the Shareholder.

 

4.             Headings .  Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement.

 

5.             Modification .  This Agreement may be modified as to any Shareholder only by a written document that refers specifically to this Agreement and is signed by GlobalSCAPE and that Shareholder.

 

6.             Governing Law, Jurisdiction, Venue .  This Agreement shall be governed by the laws of the State of Texas.  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.

 

7 .             Termination of Employment .  This Agreement shall terminate as to any Shareholder who is also an employee if the Shareholder’s employment is terminated without cause.

 

8.             Severability .  If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be unenforceable or invalid, that provision shall be limited or

 

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eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

 

9.             Waiver .  No failure to exercise or delay in exercising any right under this Agreement will operate as a waiver of that right, nor will any single or partial exercise of any right or power preclude further exercise of that right or any other right.

 

10.          Final Agreement .  This Agreement, including exhibits, 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.

 

11.          Null and Void .  If shares of Common Stock do not begin to be quoted on the OTCBB by March 15, 2002, this Agreement shall be null and void.

 

12.          Counterparts .  This Agreement may be signed in multiple counterparts, which together will be deemed an original.  This Agreement shall be binding upon any signing Shareholder notwithstanding the failure of any other Shareholder to sign.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the              day of February, 2002

 

GLOBALSCAPE, INC.

 

 

 

By:

 

 

 

Tim Nicolaou

 

Chief Executive Officer

 

 

 

/s/ Tim Nicolaou

/s/ H. Doulgas Saathoff

Tim Nicolaou

H. Douglas Saathoff

 

 

/s/ Sandra Poole-Christal

 

 

Sandra Poole-Christal

Murray Nye

 

 

/s/ Brian Christal

 

 

Brian Christal

Richard Benkendorf

 

 

/s/ Daniel P. McRedmond

 

 

Daniel P. McRedmond

Carlos Kauachi

 

 

/s/ Arthur L. Smith

 

 

Arthur L. Smith

Tomas Revesz

 

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Exhibit 23.1

 

CONSENT OF INDEPENDENT AUDITORS

 

 

We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-61160) pertaining to the 1998 Stock Option Plan of GlobalSCAPE, Inc. and  (Form S-8 No. 333-61180) pertaining to the 2000 Stock Option Plan of GlobalSCAPE, Inc. of our report dated February 15, 2002 with respect to the consolidated financial statements of GlobalSCAPE, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2001.

 

 

 

 

 

 

 

/s/ Ernst & Young LLP

 

 

 

 

Ernst & Young LLP

San Antonio, Texas

 

 

 

 

March 29, 2002