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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended March 31, 1999 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ___________ to _____________.
Commission file number 333-11591
Tice Technology, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 62-1647888
(State of Incorporation) (IRS Employer Identification No.)
6711 Maynardville Highway
Knoxville, Tennessee 37918
(Address of Principal Executive Offices)
(423) 925-4501
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered pursuant to Section 12(g) of this Act:
Common Shares, $0.01 per value per share
Common Stock Purchase Warrants
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 requirement for the past 90 days. Yes X No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [_]
The aggregate market value, as of June 24, 1999 (based upon the average bid
and asked prices on such date) of the voting and non-voting common equity held
by non-affiliates of the registrant was $1,755,798.
The number of shares outstanding of each class of the registrant's common
stock as of June 24, 1999 was: 7,012,214 Common Shares, 750,000 Class B Common
Shares and 0 Class D Common Shares.
Exhibit Index on page 47.
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TABLE OF CONTENTS
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PART I
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 10
Item 3. Legal Proceedings..................................................................... 10
Item 4. Submission of Matters to Vote of Security Holders..................................... 10
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters................. 10
Item 6. Selected Financial Data............................................................... 11
Item 7. Management=s Discussion and Analysis of Financial Condition and Results of Operations. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 21
Item 8. Financial Statements and Supplementary Data........................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. 41
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 41
Item 11. Executive Compensation................................................................ 43
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 44
Item 13. Certain Relationships and Related Transactions........................................ 45
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 47
SIGNATURES
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PART I
Item 1. Business.
The Company
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Tice Technology, Inc. ("TTI") is a holding company which was formed on June
21, 1996 by Tice Engineering & Sales, Inc. ("TES") and Monogenesis Corporation,
a closed-end investment company ("Monogenesis"), to acquire and hold the issued
and outstanding stock of TES. On August 1, 1997, TTI acquired all of the issued
and outstanding TES stock in exchange for 5,450,220 of its Common Shares and
750,000 of its Class B Common Shares. TTI also issued 300,000 Common Shares and
1,000,000 Common Stock Purchase Warrants (the "Warrants") for $.01 each to
Monogenesis, most of which were distributed to Monogenesis' shareholders. This
established TTI's shareholder base of approximately 1,200 institutional
investors. TTI also issued 88,560 Common Shares in satisfaction of certain of
TES's debts. Upon completion of the exchange, TES became a wholly owned
subsidiary of TTI. TTI's Common Shares trade on the Electronic Bulletin Board
under the symbol TICE.
TES was incorporated in 1973 and is an engineering firm which provides
engineering and technical solutions, generally through the development or
enhancement of equipment, for the apparel industry. TES researches, designs,
develops, tests, manufactures and markets specialized high technology, garment
production line stitching machines and related equipment. During manufacture and
assembly, the arrangement of component parts of a tice7 product are configured
to meet the purchaser's special production line application requirements.
Accordingly, most of TES's products are made-to-order pursuant to customer
specifications as indicated on purchase orders received from customers.
Generally, a potential customer outlines a need or problem relating to its
manufacturing process, TES reviews the need as it would apply to the industry as
a whole and estimates the cost to provide the product or service. Once
manufactured for the initial customer, TES retrofits the unit to fit
specifications for other customers that would also benefit from the new TES
product that lessens or solves the problem encountered in their same
manufacturing process. TES obtains patents on many of its products which, when
patented, it licenses to other manufacturers to produce or contract manufactures
for its own customers. TES generally retains the rights to the design of all
products it designs and manufactures.
Prior to October 1996, 95% of TES's revenues were derived from the sale of
products designed and manufactured by TES and further described below. The
remaining revenues were derived from rents received from real property owned by
TES and some consulting fees. TES sold the rental real estate on September 30,
1996. The consulting fees are very minor as independent revenues; traditionally
these fees are encompassed in the design and manufacture of TES's products for a
particular customer. In January 1997, TES granted a major sewing machine
manufacturer, Brother Industries, Ltd. of Nagoya, Japan, a nonexclusive license
to make, assemble, use and sell products incorporating TES's patented electronic
gearing technology and know-how. Since that time approximately 18% of TES's
revenues have been derived from license fees and in June 1997 TES began
receiving income from royalties on sales of machines produced under the license.
Royalty income represented 20% of TES's revenues for the year ending March 31,
1999. TES also
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manufactures replacement parts for its products and a few minor attachments and
provides consulting services at hourly rates.
During the past six years, in addition to marketing and selling the
conventional product line that it has sold for some time, TES has spent
considerable time developing new technology and obtained four patents, two in
1994, one in 1995 and one in 1998. The bulk of the research efforts since 1993
have been centered on the electronic gearing technology. This technology was
initially developed for the double needle belt loop machine and, by using a
computer and servo motors, eliminates approximately 90% of the mechanical parts
as well as certain other technical problems associated with the previous
machine.
TES's success is dependent on its ability to provide solutions to the
sewing industry (and, to a certain extent, some other industries) through its
existing products or by developing new or enhanced products. TES believes the
electronic gearing technology has application to many other types of machines
including machines used in industries other than the sewing industry, such as
the automotive industry. To date, in addition to the double needle belt loop
machine and the lap seam felling machine (see "Business - Research and
Development"), TES has built "proof of concept" models of the multi-head
buttonhole machine and, the plain lock stitch sewing machine.
The Company believes that the income received from license fees and
royalties will increase over the next several years. This belief is based on
forecasts of increased sales of the equipment produced under license in the
December 1997 Bobbin magazine as well as anticipated successful results of
current negotiations with other manufacturers to enter into additional license
agreements. The Company also anticipates increased sales revenues in the current
fiscal year upon startup of production of the lap seam felling machine under the
joint development agreement described in the section labeled Research and
Development.
Products
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Standard Products
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TES sells various products mainly to the sewn products industry. Many of
its products are covered by patents which generally provide protection for
seventeen to twenty years from date of issue. TES's basic products include:
1) Twin Needle Belt-Loop Sewing Machine -- Patent #5,458,075 issued October
17, 1995.
2) Ergonomic Stands (pneumatic and electronic) -- Patent #5,313,893 issued May
24, 1994.
3) Single Needle Belt Loop Machines -- Prior patents, if any, have expired.
4) Button Hole Indexers -- Prior patents, if any, have expired.
5) Takeaway Mechanisms -- Patent #5,303,910 issued April 19, 1994.
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6) Indexing Stackers -- (incorporates takeaway Mechanism covered under patent
#5,303,910).
7) Label Loader/Folders -- Patent #4,677,923 and #4,979,934 issued July 7,
1987 and December 25, 1990 respectively.
8) Automatic "J" Tackers -- Prior patents, if any, have expired.
9) Belt-Loop Winders -- No patents exist on this product.
10) Needle Positioners -- Prior patents have expired.
11) Pocket Creasers -- No patents exist on this product.
12) Pneumatic Circuit Boards -- No patents exist on this product although the
circuit boards created were copyrighted from 1976 to 1986.
13) Air Operated Clamp Lifts -- Prior patents have expired.
14) Electronic Gearing Components for Sewing Machines -- Covered by patent
#5,458,075 issued on October 17, 1995 and patent #5,839,382 issued on
November 24, 1998.
New Product Development
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TES continues to develop new products and upgrade existing products to meet
its customer's needs and to provide solutions to problems not previously
addressed by other equipment manufacturers. The end result developed by TES is
targeted to provide the customer with benefits such as increased production,
less down-time and maintenance cost, less operator fatigue, less operator
training, and increased flexibility to change equipment specifications on site.
During the fiscal year ending March 31, 1999, TES introduced the following new
products and product upgrades:
1) Single Needle Loop Machines -- This product is an attachment that works
with a customer's existing sewing-head to automate the process of attaching
the single loop onto the tongue of athletic shoes. The machine feeds the
loop out to the proper length, cuts the loop and folds both ends under by
way of turning pins. Next the operator activation presents the pre-cut,
pre-folded loop to the shoe tongue whereupon two air-operated presser feet
descend upon the folded loop ends, the turning pins then retract, one end
of the loop is sewn, the unit indexes and the opposite end of the loop is
sewn. The presser feet return to the up position, the operator moves the
material and the process is repeated.
2) Label Loaded -- This product is an attachment that works with a customer's
existing sewing head to automate the process of attaching soft woven labels
to garments. The label loader feeds a woven label from a hopper inserting
it into a specially designed clamp. The operator needs only to place the
garment under the clamp and engage the sewing cycle. Upon completion of the
sewing cycle, the garment is removed and the process is repeated thus
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allowing greater accuracy in placement of hard-to-handle soft woven labels.
This product will be made available to accommodate labels of different
sizes. Label sizes can then be changed on existing units with
interchangeable conversion kits.
During the fiscal year ending March 31, 1999, sales of Automatic J-Tackers,
Single Needle 'Loop' Machines and Label Loader/Folders generated sales of 17.7%,
21.6% and 20.0% respectively. During fiscal year ending March 31, 1998, sales of
the Label Loader/Folders and Single Needle Belt Loop Machines contributed 22.5%
and 22.4% to product sales respectively. Sales of Ergonomic Stands represented
12.8% of product sales revenues in the 1998 period. During fiscal year 1997,
sales of the Label Loader/Folders contributed 34% to product sales revenues with
sales of the folders divided between two models representing 18% and 16%
respectively. Sales of the J-Tackers represented 16% of product sales revenues
in the 1997 period. Management expects that products containing the electronic
gearing technology will become its dominant products over the next several
years.
Patents and Trademarks
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The Company relies on a combination of patent, trade secret and trademark
laws, confidentiality procedures, and contractual provisions to protect its
intellectual property. TES patents many of the products it develops. TES
currently has seven patents under which it is producing products and is working
on designs for additional products. The patents have expiration dates ranging
from 2004 to 2015. TES also sells products on which it holds patents that have
expired. TES is currently working on obtaining patent protection in countries
other than the U.S. on its electronic gearing technology and has applied for a
second U.S. patent on the technology. In February 1998, TES announced that it
received a favorable report regarding the international patents from the
International Preliminary Examining Authority on the Company's electronic
gearing technology. The report indicated that all 46 claims of the application
met the requirements for novelty, inventive step and industrial applicability.
In addition to patents, the Company also holds registered trademarks on its
name "Tice" as well as the name "Tice Technology" and related logo. The
registration certificate for the name "Tice" was obtained from the U.S. Patent
and Trademark Office in 1980 and the registration certificate for the name "Tice
Technology" and related logo was obtained June 10, 1997. The registered name
"Tice Technology" and related logo are required to be prominently displayed on
all equipment, advertisements, and printed matter which relates to equipment
produced under license from TES that incorporates TES's patented electronic
gearing technology.
Research and Development
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The Company conducts an active and ongoing research, development and
engineering program that focuses on advancing the electronic gearing technology
as well as improving the performance of current products, developing new
products both with and without the electronic gearing technology, and expanding
the electronic gearing technology to serve new markets. When a sewing
manufacturer or other customer comes to TES with a production or ergonomic
problem, TES will generally consult, build and then manufacture a piece of
equipment designed to eliminate
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or lessen production or ergonomic problems or enhance production capabilities.
Once the piece of equipment has been designed and produced as required by the
customer, TES generally retains rights to the design and then offers the
equipment and technology to the industry as a whole. In many cases, TES obtains
a patent on the process to protect its rights. TES also has the option to
license other manufacturers to produce and market the product in exchange for
license fees and royalties.
TES is in the process of designing the following equipment which uses TES's
patented electronic gearing technology:
. A felling machine (virtually complete)
. A multi-head button hole machine (proof of concept model completed)
. A single needle plain sewer (proof of concept model completed)
. A multi-head button sewing machine (initial prototype development)
. A sewing machine capable of sewing in three dimensions for use in sewing
automotive air bags (project in initial design phase)
With respect to the felling machine, TES entered into a Joint Development
Agreement with a denim clothing manufacturer to develop a felling machine
suitable for inseaming jeans using TES's electronic gearing technology. Under
the agreement, TES retains ownership of the technology, but granted the
manufacturer a nonexclusive, paid-up license to the jointly developed felling
machine. The manufacturer paid TES a fee of $300,000 to develop the felling
machine. In return, in addition to the license, it has the exclusive right after
production of the first felling machine to purchase the resulting felling
machines so long as it purchases a minimum of the lesser of TES's entire
production or 249 machines during each year. The cost of each machine to the
manufacturer is not to exceed $20,000 per machine. With respect to felling
machines sold to any other company, the manufacturer is entitled to receive a
royalty of 4% of the gross selling price until such time as it has received an
amount equal to the amount paid by it to develop the product plus interest at a
rate of 10% per annum. Although the denim manufacturer put a hold on the project
in November 1996 due to plant reorganizations which limited its ability to take
delivery of the machines, TES resumed work on the project independent of the
manufacturer in June 1997. TES currently is fine tuning the pre-production model
and expects to ship at least 10 production units by September 30, 1999.
TES incurred research and development expenses of $163,204, $208,407, and
$172,590 respectively in fiscal years 1997, 1998, and 1999. As the demand for
the Tice electronic gearing technology grows, the Company is making preparations
to meet the existing and expected future demands by increasing engineering
personnel.
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Market
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TES's customers are primarily, but not exclusively, apparel manufacturers.
In addition to providing products used in apparel manufacturing, TES has
designed and built special equipment for Ford Motor Company, Lockheed Aerospace,
Camel Tent and Awning, and California Sail and Rigging as well as a number of
furniture manufacturers and medical supply companies. The Company continually
strives to broaden its customer base by obtaining new customers and by
increasing its business with those existing customers which have historically
comprised a small percentage of the Company's revenue, as well as by developing
products for industries outside of the apparel industry that would benefit from
the Company's technology. For example, TES is currently developing a machine
incorporating the electronic gearing technology to allow three-dimensional
sewing of airbags for the automotive industry.
The Company markets its products and services worldwide with the primary
concentration of sales being in North America, South America, and Europe. TES
distributes its products to end users through direct technical sales persons as
well as through an independent sales and distribution network of approximately
125 dealers. In addition, TES advertises in one or more of the apparel
industry's international trade magazines and regularly attends apparel industry
trade shows as an exhibitor to display its equipment and technology. The Company
exhibited at the IMB Show in Cologne, Germany in May 1997, at the Bobbin Show in
September 1997, and at the Bobbin World Show in Atlanta, Georgia in September
1998. The Company plans to exhibit equipment at the Bobbins Americas Show in
Atlanta, Georgia in September/October, 1999 and at the IMB Machinery Show to be
held in Germany in June, 2000. Several of the Company's distributors also
display Tice equipment in their booths at various trade shows. Since January
1999, TES's distributors have displayed Tice equipment at the following trade
shows: April 1999, Sewn Products Expo in Los Angeles, California; May 1999,
Apparel Sourcing Show, Guatemala City, Guatemala; May 1999 JIAM (Japan
International Apparel Machinery) Show in Tokyo, Japan; and May 1999, Bobbin Expo
in Mexico City. Upcoming trade shows in which distributors may display Tice
equipment include: Bobbin Expo in Sao Paulo, Brazil, August 1999; and The 807
Laguna Show, Torreon Mexico, October 1999. All equipment manufactured by TES
bears the Company's registered trademark, and applicable patent numbers.
Equipment produced under a license agreement from the Company is advertised in
trade publications and displayed in trade shows by the licensee with the "Tice
Technology(R)" registered logo, trademark, and patent numbers properly
displayed.
International sales represented 6%, 24%, and 13% of total revenues in the
fiscal years ending March 31, 1997, 1998, and 1999 respectively. The reduced
international sales in the 1999 period was primarily the result of shipments
being held pending resolution of delinquent account balances due from one of the
Company's primary international distributors. Management is currently reviewing
the distributor's account and has taken measures to insure that the end users of
the equipment will receive ongoing sales, service, and support by increasing
direct sales to end users as well as signing additional distributors to cover
the growing Latin American market. All export sales are paid in U.S. Funds,
either in advance of shipment or with an irrevocable letter of credit,
therefore, there are no gains or losses included in operations related to
foreign currency exchanges. To better serve its international customers, the
Company's customer service department has personnel who are fluent in German and
Spanish.
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Revenue Sources
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Product Revenue
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Historically, TES has primarily designed and manufactured special
application equipment and attachments for denim (blue jeans) and work wear
manufacturers. It also has manufactured equipment for other types of sewing
manufacturers that produce drapery products; upholstery; shoes; sewn medical
supplies; boat, car, and aircraft interiors; and general apparel. In fiscal
1999, TES received approximately 65% of its annual product revenue from three
primary customers, Wrangler, Inc. ("Wrangler," d.b.a. "VF Jeanswear"), Levi
Strauss & Company ("Levi"), and Superior's of Mexico. Sales to Wrangler and
Levi, two denim and work wear manufacturers, accounted for 30.5% and 22.3%
respectively of total product revenue during the 1999 fiscal year. Sales to
Superior's, an equipment distributor for the apparel industry, accounted for
12.3% of product revenue for the 1999 year. Substantially all of TES's license
fee and royalty revenue to date is from one customer, Brother Industries, Ltd.
("Brother") of Nagoya, Japan. The loss of any of these customers could
materially affect TES's revenues and net income. However, management believes
that, as it further develops uses for the electronic gearing technology, such as
the three-dimensional stitching machine for automotive airbags, TES's dependence
on a few customers or segment of the sewing industry will lessen or disappear.
TES is also in various stages of formal and informal negotiations with various
other manufacturers of equipment for the license of the electronic gearing
technology.
License and Royalty Revenue
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TES granted Brother a nonexclusive license effective as of January 1, 1997
to make, assemble, use, and sell products (consisting of up to twelve categories
of industrial sewing machines) incorporating the electronic gearing technology
and know-how and related additional technology which may be developed by TES.
The license is granted for the term of the applicable patent. TES is also
required to provide Brother with technical assistance and training. In return
for the license, if certain conditions are met, in addition to royalties, TES is
entitled to license fees for each category of machine developed by Brother using
the technology which, if all machines are developed will total $6,000,000. TES
received an initial license fee of $250,000 corresponding to the first category
of machines (the electronic double-needle tacker) on February 25, 1997 and in
April 1997 received a payment of $250,000 corresponding to the second category
of machines (the multi-head embroidery machine). Brother has agreed to pay TES
$250,000 within thirty days of the date of the first commercial shipment of a
product in any of the remaining ten categories and $250,000 within sixty days of
the date the aggregate net sales of products in a category equals $30,000,000.
In addition, TES is entitled to a continuing royalty of 2% of net sales, 1.75%
of net sales relating to additional "know-how" provided by TES to Brother and
80% of any sub-license income of Brother relating to the TES technology during
the life of the patent or any continuation thereof. Brother is required to pay
TES additional fees at TES published rates for technical assistance and
training.
All products produced under license from TES must prominently display the
registered "Tice Technology(R)" trademark on the equipment, service manuals,
advertisements and other related items. Brother has developed machines in two
categories which it is actively advertising and promoting at trade shows and
selling. Royalties on net sales of equipment sold under license were to be
reported
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at the end of each six-month period, June and December each year, and are paid
within thirty days after such report. Royalties reported in July 1997 for the
period January through June 1997 totaled $12,908. Royalties reported in January
1998 for the period July 1997 through December 1997 totaled $102,664. In
February 1998, TES requested that Brother report royalties on a quarterly basis
although payment would remain due on a semi-annual basis. This change in
reporting requirements allowed management to reflect the amount of royalties due
on each quarterly financial report. Brother complied with the requested
reporting change and in April 1998 reported royalties due for the period January
1998 through March 1998 which totaled $85,946 for the three month period. Income
from royalties was $144,751 for the fiscal year ending March 31, 1999 as
compared to $201,518 for the fiscal year ending March 31, 1998. Management
believes that this reduction was primarily due to the slowdown in the Asian
markets for TES's licensee. Management anticipates that revenue from license
fees and royalties will increase as Brother introduces more machines using the
electronic gearing technology and as Brother's sales of the two existing
machines increase.
Backlog
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As of March 31, 1999, TES had backlog orders it believes to be firm
totaling approximately $280,000 of which approximately $65,500 is for equipment
that is part of the Company's standard product line and is expected to be
completed by June 30, 1999. The backlog also reflects orders of approximately
$214,000 for eleven FS2000 Felling Machines. Delivery of the FS2000 is expected
to begin in the Fall of 1999 as a result of the successful completion in June
1999 of the Company's private placement offering. In addition, the Company has
received requests from 69 different manufacturers for a FS2000 trial unit. The
Company also has indications of interest for additional orders totaling
approximately $1,200,000 relating to products, other than the felling machine,
using the electronic gearing technology upon completion of production models and
$490,000 for new products currently being developed using traditional
technology. There is no assurance that these indications of interest will become
firm orders.
Competition
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Management believes that all of the large Japanese and most of the other
manufacturers of equipment for the apparel industry maintain research and
development departments which perform research along the same lines as TES. All
of these companies are much larger than TES and have much larger research and
development facilities. In addition, management estimates that there are four
companies of approximately the same size as TES that provide similar services
and products. The Company's management is also aware of two companies in Europe
which perform similar services, but does not know the size of the companies.
Like TES, most of these competitors perform research and development at a
customer's request. TES has found that its competitors have designed products
(none of which use the electronic gearing technology) similar to TES's Single
Needle Belt Loop Machine, Ergonomic Stands, and Pocket Creasers to which extent
there is direct competition with these TES products. One of TES's largest
competitors has licensed the patented electronic gearing technology from TES as
opposed to trying to develop its own technology. Generally, the market in this
industry is targeted through advertising in trade journals and attendance at
trade shows such as the Bobbin Show. The
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principal methods of competition, in addition to technology, are price,
workmanship, overall machine performance, and service offered.
Manufacturing
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TES generally manufactures all prototype products which it develops and
manufactures the already developed products it offers. However, TES's general
policy has been to out source manufacturing of components or manufacturing
processes (such as nickel and chrome plating for the ergonomic stands) which for
various reasons create environmental hazards. So far TES has found that it has
generally been less expensive to outsource when the environmental compliance
costs are factored in. In the event that TES were no longer able to outsource
the component or process, it would most likely change the component or finishing
process. TES has no current plans or perceived need to make any material capital
expenditures for environmental control.
TES's facility has the machining capabilities of sawing, milling, welding,
brazing, sanding, surface grinding, drilling, tapping, threading, turning
(lathe), riveting, bending, heat treating, and painting. TES maintains an
assembly department which consists of eight assembly stations, each with an
assortment of hand tools, electronic and air-driven power tools, vises, air
supply, and electronic requirements. In addition, the assembly department has
two stations designated for the assembly of electronic circuit boards and
components. During manufacture and assembly and prior to shipment, each product
manufactured by TES goes through a series of quality checks.
TES maintains an in-house inventory of all parts it manufactures and
approximately 80% of the components supplied by outside vendors. Approximately
25% of components of TES products are vendor supplied. TES generally uses
components supplied by a number of different sources and is therefore not
predominantly dependent on one supplier of any component of any of its products.
In addition, with the exception of a few items such as P.L.C.s (programmable
logic controller, i.e. mini computer), PC computers, electric motors and
electric switches (which are available from numerous suppliers), TES has the
capability of manufacturing the components used in its products. Raw materials,
such as aluminum, steel and brass, are also available from many suppliers.
Employees
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As of March 31, 1999, the Company had sixteen full time employees. This
number includes ten hourly and six salaried employees. The Company employs
machinists, welding specialists, electronic specialists, assembly personnel,
shipping and inventory personnel, clerical workers, electronic and mechanical
engineers, and sales and service personnel. Approximately 83% of the Company's
management have been employees of TES for at least ten years.
The Company considers its relationship with its employees to be good, and
none of its employees currently are represented by a union in collective
bargaining with the Company.
Due to the growing demand for the electronic gearing technology, the
Company expects to increase its workforce by approximately 80% during the
current fiscal year. The additional personnel will consist of engineers needed
for the increased demand on the research and
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development department as well as assembly and production workers needed for the
increased production output upon completion of the felling machine.
Item 2. Properties
Tice Technology's corporate headquarters are located in Knoxville,
Tennessee and are housed in the manufacturing facility leased through its
subsidiary, TES. The facility consists of approximately 20,000 square feet. Of
that space, the manufacturing area consists of 18,000 square feet, 2,000 of
which constitute research and development operations. The remaining 2,000 square
feet houses the administrative offices. The facility is located in a small
retail center which was owned by TES prior to October 1996. As a condition of
the sale of the center, TES remained in the center rent free through May 1997.
Upon the expiration of the rent free period, TES continues to rent the
manufacturing facility on a month to month basis at $6,773 per month.
To provide for continued growth, the Company plans to either build a new
facility or lease/purchase a facility that will provide sufficient space for the
Company's needs. The Company owns approximately six acres of undeveloped land
where a new facility could be constructed. Management has decided that it would
be economically feasible to start a second shift and to subcontract some of its
manufacturing processes at such time that the demand exceeds the capacity of the
operations capable in one eight-hour shift at the present facility, thus
allowing the possible use of the existing site. This decision will be made in
the next twelve to eighteen months.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which Tice Technology,
Inc. or its subsidiaries or to which any of its properties are subject.
Item 4. Submission of Matters to Vote of Security Holders .
No matters were submitted to a vote of security holders of Tice Technology,
Inc. during the fourth quarter of the Company's fiscal year ended March 31,
1999.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters.
Trading of Tice Technology, Inc.'s Common Shares and Warrants is reported
on the Electronic Bulletin Board under the symbols TICE and TICEW, respectively.
Reporting commenced on August 28, 1997.
The following table reflects the high and low bid prices for the Company's
Common Shares and Warrants for each quarter of its fiscal year ended March 31,
1999:
10
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Common Shares Purchase Warrants
------------- -----------------
High Low High Low
<S> <C> <C> <C> <C>
4/th/ Quarter, 1999 $ 1.6875 $ 0.75 $ 0.0** $ 0.0**
3/rd/ Quarter, 1999 $ 1.75 $ 0.125 $ 0.25 $ 0.0625
2/nd/ Quarter, 1999 $ 3.00 $ 0.75 $ 0.625 $ 0.0625
1/st/ Quarter, 1999 $ 5.00 $ 2.00 $ 1.00 $ 0.25
4/th/ Quarter, 1998 $ 8.00 $ 2.00 $ 0.875 $ 0.3125
3/rd/ Quarter, 1998 $14.00 $ 3.625 $ 1.00 $ 0.05
2/nd/ Quarter, 1998 $ 4.25 $ 2.50 $ 0.0** $ 0.0**
1/st/ Quarter, 1998 N/A* N/A* N/A N/A
</TABLE>
* No trading during April 1998 - June 1998.
** No trades recorded.
The approximate number of holders of Common Shares of TTI as of June 15,
1999 were 1,063 (based upon the number of record holders), excluding
stockholders whose Common Shares are held in nominee or street name by brokers.
The approximate number of holders of Warrants as of that same date were
approximately 1,031 (based upon the number of record holders), excluding holders
whose Warrants are held in nominee or street name by brokers.
TTI had never paid cash dividends on its Common Shares, Class B Common
Shares, or Class D Common Shares. Any future payment of cash dividends by TTI
would require TES to pay cash dividends to TTI, and TES has not paid cash
dividends to TTI in the past. TTI does not anticipate paying cash dividends on
the Common Shares, Class B Common Shares or Class D Common Shares in the
foreseeable future because it intends to cause TES to retain its earnings to
finance the expansion of TES's business and for general corporate purposes. The
declaration and payment of any dividends on the Common Shares will be at the
discretion of TTI's Board of Directors and will depend on, among other things,
the Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors considered relevant by the Board of Directors.
Item 6. Selected Financial Data.
The following table summarizes certain selected consolidated financial data
of the Company and is qualified in its entirety by the more detailed
consolidated financial statements and notes thereto appearing elsewhere herein.
The data have been derived from the audited consolidated financial statements of
the Company.
11
<PAGE>
- --------------------------------------------------------------------------------
Statement of Earnings Data:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
(Amounts in thousands except
per share amounts)
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 731 $ 1,344 $1,397 $1,242 $1,240
Operating expenses:
Cost of revenues 474 751 815 699 712
Research and development (net) 172 208 163 47 43
Selling, general, and administrative 560 882 563 482 420
------ ------- ------ ------ ------
Total operating expenses 1,206 1,841 1,541 1,228 1,175
Operating income (loss) (475) (497) (144) 14 65
Total other income (expense) (90) (1,370) 298 5 (100)
------ ------- ------ ------ ------
Income (loss) before taxes (565) (1,867) 154 19 (35)
Income tax expense (benefit) 14 47 113 4 (5)
------ ------- ------ ------ ------
Net income (loss) $ (579) $(1,914) $ 41 $ 15 $ (30)
====== ======= ====== ====== ======
Net income (loss) per common share
Basic and diluted $(0.09) $ (0.30) $ 0.01
</TABLE>
- --------------------------------------------------------------------------------
Balance Sheet Data:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
(Amounts in thousands)
-----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $ 846 $1,102 $1,001 $1,431 $1,578
Total long-term liabilities $ 630 $ 556 $ --- $ 661 $ 302
Total stockholders' equity $(539) $ (61) $ 176 $ 142 $ 121
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998
- -----------------------------------------------------------------
Total operating revenues decreased in 1999 by 46% to $730,937 from
$1,344,231 in 1998. Product revenues decreased 34% to $586,186 in 1999 from
$892,713 in 1998 as capital constraints limited new product introductions
featuring the Company's electronic gearing technology and sales of traditional
products decreased significantly due to increased competition and limited
resources available to the Company to effectively market the products worldwide.
In 1999, sales of TES's Automatic J-Tackers, Belt Loop Machines and Label
Loaders/Folders generated sales of $103,698 (17.7%), $126,438 (21.6%) and
$117,079 (20.0%), respectively, whereas sales in 1998 of each product produced
sales of $86,504 (9.8%), $197,804 (22.4%) and $198,089 (22.5%), respectively.
While sales of the traditional products are expected to continue through the
efforts of the Company to continually upgrade and customize these products to
meet customer needs, most of the anticipated source of future revenues for the
Company is expected to be generated from new products either virtually developed
or currently in development. Also, in addition to product revenue, royalty
income decreased 28% in 1999 to $144,751 from $ 201,518 in 1998 primarily due to
the slowdown in the Asian markets for TES's licensee. And finally, license fees
decreased 100% to none in 1999 from $250,000 in 1998 as TES's licensee did not
introduce any new products or meet any set sales milestones utilizing the TES's
electronic gearing technology which would require payment of the established
license fees.
Total operating losses decreased approximately 4%, primarily due to
decreased operating expenses more than offsetting the decreased operating
revenues.
Cost of revenues, as a percentage of total revenues, increased 9.0% to
64.8% from 55.8%, primarily due to the lower royalty income and lack of license
fee income, neither of which have associated costs. Costs associated with
product sales decreased 4% in 1999 from approximately 84% in 1998 to 80% in
1999. This decrease was primarily the result of lower labor and overhead costs
due to cost-controlling efforts by management.
Research and development ("R&D") costs decreased 17% to $172,590 in 1999
from $208,407 in 1998 the result of lower salary costs ($124,514 in 1999
compared to $169,755 in 1998). Minimal new product development activities
occurred during 1999.
Selling, general, and administrative ("SG&A") expenses decreased 37% to
$560,009 in 1999 from $882,161 in 1998. This was primarily as a result of
lowered compensation and benefit costs from both reductions in headcount and
curtailed benefit programs ($290,764 in 1999 compared to $460,882 in 1998),
reduced advertising and selling costs as the Company was awaiting the launch of
new products ($43,908 in 1999 compared to $81,824 in 1998), lower legal and
accounting costs due to a reduced need for such services ($47,975 in 1999
compared to $84,151 in 1998), lower recruiting costs due to curtailed hiring of
new personnel ($11,170 in 1999 compared to $42,000 in
13
<PAGE>
1998) and lower stock promotion costs ($3,550 in 1999 compared to $55,788 in
1998). These reductions were offset somewhat by an increase in allowance for bad
debts related to an international distributor of the Company's products ($28,374
in 1999 compared to none in 1998).
Other expenses for the 1999 fiscal year totaled $90,038, comprised mainly
of interest expense of $96,747. Interest expense was incurred on notes issued to
finance working capital and operating losses as well as property and equipment
owned by the Company. In 1998, interest expense totaled $94,358. Also in 1998,
other expenses totaled $1,370,013, of which $1,091,280 non-cash expenses and
$187,593 other expenses were due to the recording of non-recurring registration
expenses upon the August 1, 1997 effective date of the registration statement.
There were no comparable registration expenses in 1999.
The Company recorded a lower income tax expense of $14,174 in 1999 compared
to $47,020 in 1998, mainly as a result of lower royalty and licensing fees and
foreign tax credits withheld from such payments but not utilized by the Company
due to net operating losses.
Year Ended March 31, 1998 Compared with Year Ended March 31, 1997
- -----------------------------------------------------------------
Product revenues decreased approximately 22% from $1,147,281 in fiscal 1997
to $892,713 in fiscal 1998 largely due to decreased sales of Automatic J-Tackers
and Label Loader/Folders. In 1998, sales of the Automatic J-Tackers and Label
Loader/Folders constituted approximately $86,500 (9.8%) and $198,100 (22.5%),
respectively, of product sales revenue; whereas, in 1997, sales of the Automatic
J-Tackers and Label Loader/Folders generated $180,000 (16%) and $394,000 (34%),
respectively, of product sales revenue. These products, part of the Company's
traditional product line, are continually upgraded to meet changing customer
requirements and are expected to show sales increases in the current fiscal year
based on the completion of upgrades in the first and second quarter and new
product developments for the Label Loader/Folders. The decrease in sales of
these two machines was offset somewhat by an increase in sales of the single
needle belt loop machine. Sales of the single needle belt loop machine increased
during the 1998 year, representing approximately $197,800 (22.4%) of product
revenue as compared to 1997 sales of the same machine which represented
approximately $106,200 (9.2%) of product revenue in that year. The decrease in
product revenue was also offset somewhat by $201,518 in royalty income recorded
in the 1998 year as royalties were reported from a non-exclusive license
agreement signed in the fourth quarter of the 1997 fiscal year. Income from
license fees remained consistent at $250,000 in each of the two years. Total
operating revenues for the 1998 year amounted to $1,344,231 which is a 3.8%
decrease from $1,397,281 total revenues in the prior year.
Total operating losses increased by approximately 246% from $143,733 in the
1997 fiscal year to $497,430 in the 1998 fiscal year largely due to increases in
SG&A expenses.
Cost of revenues as a percentage of total revenues decreased 2.4% to 55.8%
of total revenues for fiscal 1998 as compared to 58.3% of total revenues for
fiscal 1997. This decrease was largely the result of recording royalty revenue
in the 1998 fiscal year which had no associated cost. Also, in the fourth
quarter of the 1997 fiscal year, the Company recorded a provision of $120,000
for excess
14
<PAGE>
and obsolete inventory. The royalty revenue helped to offset increases in direct
labor and related benefits as well as increased overhead applied relating to
increases in rent expenses incurred during the 1998 year.
R&D costs increased by 27.7% to $208,407 in the 1998 fiscal year from
$163,204 in the 1997 fiscal year due to increased salaries and benefits relating
to engineering as well as officers' salaries and increased R&D inventory.
SG&A expenses increased 56.6% to $882,161 in fiscal 1998 from $563,223 in
fiscal 1997. Compensation expenses relating to employee stock options granted
August 1, 1997 totaling $109,375 as well as $79,174 in expenses relating to
stock promotions and stockholder relations were recorded during fiscal 1998
whereas the prior year had no such expenses. Legal and accounting fees also
increased approximately 50.7% to $84,151 in fiscal 1998 from $55,807 in fiscal
1997 as a result of additional expenses incurred with quarterly reporting
requirements. Salary and related expenses increased in the 1998 period as a
result of increases in salaries and related benefits in the fourth quarter of
fiscal 1997 and expenses related to recruiting additional personnel during the
first nine months of the 1998 fiscal year.
Other expenses for the 1998 fiscal year totaled $1,370,013, of which
$1,091,280 non-cash expenses and $187,593 other expenses were due to the
recording of non-recurring registration expenses upon the August 1, 1997
effective date of the registration statement; whereas the 1997 fiscal year
reflected only $107,687 in non-recurring expenses relating to the registration
process. The 1997 fiscal year reflected a $500,363 gain on the sale of rental
property during that period whereas the 1998 period had no comparable gain.
The Company recorded a lower income tax expense of $47,020 in 1998 compared
to $112,746, mainly the result of taxable income in 1997 (primarily the gain on
sale of the shopping center) compared to a net loss in 1998.
Inflation
- ---------
Inflation has not had a significant impact on the Company's operations to
date.
Liquidity and Capital Resources
- -------------------------------
Since its inception, the Company has financed its operations through a
combination of cash flow from operations, bank borrowings, and borrowings from
individuals. The Company's capital requirements have arisen primarily in
connection with purchases of fixed and intangible assets, and the Company has
historically made significant expenditures each year for research and
development and marketing new technology, though these activities were somewhat
curtailed in 1999.
Net cash used by operating activities was $277,111 in 1999, $541,206 in
1998 and $110,993 in 1997. The primary cause of the net use of cash from
operations in 1999 was the operating loss of $579,552 offset by increases and
decreases in working capital items. In 1998 the primary cause of the net use of
cash was the net loss of $1,914,463 offset by non-cash expenses related to the
stock registration of $1,047,000, non-cash compensation expenses related to the
issuance of employee stock options of $109,375 and increases and decreases in
working capital items. In 1997, the primary cause of the net use of cash was net
income of $41,479, deferred income taxes
15
<PAGE>
of $112,476, recording a provision for inventory obsolescence of $120,000, and
increases and decreases in working capital items offset by the gain on sale of
property and equipment of $500,363.
Net cash provided (used) by investing activities was ($9,488) in 1999,
($42,579) in 1998 and $695,475 in 1997. Primary uses of funds in 1999 were
related to capital expenditures and patents. Primary uses of funds in 1998 and
1997 were related to capital expenditures, patents, and notes receivable. The
primary source of funds in 1997 was generated through the sale of company assets
including a shopping center. Capital expenditures totaled approximately $3,600
in 1999 compared to approximately $7,000 in 1998 and $11,000 in 1997. Capital
expenditures are expected to increase over the next year during which time the
Company expects to move from its existing facility (see "Future Operations").
Net cash provided (used) by financing activities was $291,691 in 1999,
$533,455 in 1998 and ($517,911) in 1997. The cash provided by financing
activities in 1999 was primarily related to proceeds from notes payable issued
to related parties and others as well as proceeds from the issuance of stock and
stock warrants. In 1998 the cash provided by financing activities was primarily
related to proceeds from the exercise of employee stock options and warrants and
from notes payable issued to related parties and others. In 1997 the cash used
from financing activities primarily included proceeds from notes payable issued
to related parties and others. In all years such amounts were used primarily to
make debt repayments including notes related to the shopping center that was
sold in 1997.
The Company's principal commitments at March 31, 1999 consisted primarily
of notes payable to related parties as well as other notes payable. The Company
used the proceeds of these notes to provide working capital for operations and
for the continuing development of the electronic gearing technology as well as
to fund the costs of license and royalty agreement negotiations and registration
of securities of the Company. Several of these notes were extended to retain
working capital. On August 1, 1997, the effective date of the registration
statement, $145,770 of notes payable to related parties and $119,910 of notes
were converted to 88,560 Common Shares of the Company at $3.00 per share.
Remaining notes payable, with interest rates ranging from 10% to prime plus 1%
are due in fiscal 1999 and 2000. The Company plans to extend the remaining
related party notes payable if working capital is not sufficient to repay the
loans.
Subsequent to March 31, 1999, the Company entered into a binding letter of
intent with investors to provide the Company $280,000 of additional capital
through the purchase of 700,000 restricted Common Shares and provided for a
"best efforts" underwriting for the Company to secure an additional $2,050,000
of funds to be used mainly for working capital, capital expenditures, additional
patent work, retirement of certain notes payables to a shareholder, payment of
existing accounts payable, and for costs associated with the offering. Upon the
successful completion of the offering on June 25, 1999, the Company issued
1,500,000 restricted Common Shares for $0.70 per share and $1,000,000 in
promissory notes. The notes include warrants to purchase 100,000 restricted
Common Shares of the Company at $0.50 per share for 48 months. The notes bear
interest at 10% per annum. The interest accrued during the first year is payable
at the end of the year. Thereafter, accrued interest is payable quarterly. The
notes may be prepaid without penalty and are secured by the patents on the
electronic gearing technology.
16
<PAGE>
In connection with the offering, the placement agent received a commission
of 10% on the proceeds of the sale of the notes and the shares. In addition, the
finder received a fee of 3% of the funds raised (including the initial $280,000)
and options to purchase 50,000 restricted Common Shares at $1.00 per share for
five years.
In addition, as part of this agreement, two related party note holders
agreed to convert their existing notes payable and related interest totaling
$296,181 to Common Shares of the Company. In addition, except for a $125,000
payment from the proceeds of the offering, the Company's majority stockholder
agreed to subordinate all amounts due him to the $1,000,000 in promissory notes.
Management believes that the funds from the offering will allow the Company to
complete and launch new products utilizing the electronic gearing technology as
well as hire additional personnel to sell and support both the existing products
and future products. Finally, the Company is in negotiation with two regional
banks to provide the Company up to a $1,000,000 revolving line of credit for
additional working capital resources to be secured by the Company's accounts
receivable, inventory, and fixed assets.
Effect of Recently Issued Accounting Standards
- ----------------------------------------------
In June, 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for the fiscal quarters
of fiscal years beginning after June 15, 1999. It is not anticipated that this
statement will have a material impact on the Company.
Year 2000 Issues
- ----------------
Many currently installed computer systems and software products are coded
to accept only two-digit entries to represent years. For example, the year
"1997" would be represented by "97". These systems and products will need to be
able to accept four-digit entries to distinguish years beginning with 2000 from
prior years. As a result, systems and products that do not accept four-digit
year entries will need to be upgraded or replaced to comply with such "Year
2000" requirements.
The Company's products are not date sensitive. With respect to its internal
systems, the Company has reviewed such systems to assess the impact of the Year
2000. Based upon that review and information provided from vendors, the Company
believes that the only one of its internal systems that will be affected is its
IBM AS400 main frame computer which controls the Company's administrative,
accounting, financial, and inventory software. As part of the Company's
participation in IBM's ongoing maintenance program, IBM has indicated that it
has made the necessary modifications available in an upgrade for the operating
system and software packages that the Company uses. The Company purchased the
upgrade package during the 1998 fiscal year at a cost of $1,400. Upon attempting
to install the upgrade in December 1998, it was discovered that memory size
needed to be increased. The Company purchased additional memory in January 1999
for $677. The Company has completed approximately 50% of the installation and
does not anticipate any material disruptions in its operation as the result of
installing the upgrades. The Company believes that the overall cost of
compliance should not exceed $7,000 and expenses such compliance costs when
incurred.
17
<PAGE>
It is uncertain whether the Company's customers and suppliers will have
Year 2000 issues that may affect the Company, but the Company currently is
developing a plan to evaluate the Year 2000 compliance status of its customers
and suppliers. There can be no guarantee that those customers and suppliers with
systems that are not now Year 2000 compliant will be timely converted to
compliance. Additionally, there can be no guarantee that those customers and
suppliers of business importance to the Company will successfully and timely
reprogram or replace, and test, all of their own computer hardware, software,
and process control systems.
Although the Company expects its critical systems to be compliant by
September 30, 1999, there is no guarantee that these results will be achieved.
Specific factors that give rise to this uncertainty include a possible loss of
technical resources to perform the work, failure to identify all susceptible
systems, non-compliance by third parties whose systems and operations impact the
Company, and other similar uncertainties. A reasonably possible worst case
scenario might include the Company's inability to accurately maintain accounting
records. Such an event could result in a material disruption to the Company's
operations. Specifically, the Company could experience an interruption in its
ability to collect and process payments of receivables, invoice shipments,
and/or process payables. Should the worst case scenario occur it could,
depending on its duration, have a material impact on the Company's results of
operations and financial positions, although the Company does have manual
procedures in place that would help keep disruption to a minimum.
Future Operations
- -----------------
Management believes that although its traditional products will continue to
generate sales revenue and that TES will continue to solve other problems for
customers as they arise in their manufacturing processes, the majority of future
revenues are dependent on anticipated new product introductions. Management
reduced overhead in all areas in order to lower operating expenses until the
Company completed its financing for additional working capital and production
begins on the FS2000 Felling Machines. At that time, management expects that
overhead will increase as necessary to meet production demands of the Felling
Machine.
Recent new product developments such as the label loader/folder for woven
labels and upgrades to existing equipment, using traditional technology, are
expected to keep the traditional product line competitive as the Company
continually works on developing products that its competitors have not attempted
or have failed to develop. Management believes that these products and upgrades
can be completed with the existing R&D staff. In addition, there is a great
demand for products incorporating the electronic gearing technology. The Company
is in various stages of design and development on machines using the electronic
gearing technology including a three-dimensional stitching machine for
automotive air bags, a multi-head buttonhole machine, a multi-head button sewing
machine, a single needle plain sewer, and a keyhole buttonhole machine. Research
and development of these items has been halted but is expected to resume as soon
as additional working capital is obtained and additional engineering personnel
are added.
The Company anticipates that income from license fees and royalty revenues
will increase over the next several years as its existing licensee introduces
new electronically geared equipment to the market, as additional manufacturers
license the technology, and as royalty revenues increase
18
<PAGE>
based on increased sales of products by the current licensee and royalties are
generated by potential additional licensees.
To provide for continued growth, the Company plans to either build a new
facility or lease (with an option to purchase) a facility that will provide
sufficient space for the Company's needs. The Company owns approximately six
acres of undeveloped land where a new facility could be constructed, or suitable
other land is available should the Company choose to build. Management has
decided that it would be economically feasible to start a second shift and to
subcontract some of its manufacturing processes at such time that the demand
exceeds the capacity of the operations capable in one eight-hour shift in the
present site, thus allowing the possible use of the existing site until a
decision is reached with regards to future facility needs.
Although the Company has no present acquisition agreement or arrangements,
management may make strategic acquisitions in the future which may or may not be
in related industries, using stock, cash, debt, or a combination thereof.
Depending on the terms of the acquisition, the Company may need to incur
additional indebtedness or issue equity securities to make any such acquisition.
Management has not identified any particular targets for acquisition.
The Company believes that future results of operations will be influenced
by a number of factors including general economic conditions, dependence on key
customers, and market acceptance of new technology. Because of these factors,
as well as other factors, historical results should not be relied on as an
indicator of future performance.
Special Considerations
- ----------------------
This section captioned "Special Considerations" and other parts of this
Annual Report on Form 10-K include certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the occurrence or
timing of certain events could differ materially from those described in any of
such forward-looking statements due to a number of factors, including those set
forth below and elsewhere in this Form 10-K. See "Other Factors Relating to
Forward-Looking Statements" below.
Diversification and Long Term Growth. The Company plans to diversify its
------------------------------------
business and to seek opportunities for long term growth by developing additional
products for sale to manufacturers in industries other than the apparel industry
as well as additional licensing of the electronic gearing technology. There is
no assurance that the Company will be successful in these efforts.
Product Development. As described above, the Company is in the process of
-------------------
developing new products, including the label loader/feeder for woven labels, the
felling machine, and the sewing machine capable of three dimensional stitching
of automotive air bags. The Company plans to investigate other new product
development opportunities as part of its effort to expand its product offerings
and market. There are no assurances that the Company will be able to locate
such opportunities or successfully exploit them once located.
19
<PAGE>
Other Factors Relating to Forward-Looking Statements
- ----------------------------------------------------
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes", "anticipates", "expects", and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of the Company or events, or timing
of events, relating to the Company to differ materially from any future results,
performance, or achievements of the Company or events, or timing of events,
relating to the Company expressed or implied by such forward-looking statements.
The Company cannot assure that it will be able to anticipate or respond timely
to the changes which could adversely affect its operating results in one or more
fiscal quarters. Results of operations in any past period should not be
considered indicative of results to be expected in future periods. Fluctuations
in operating results may result in fluctuations in the price of the Company's
securities.
In the event the Company needed additional financing, there can be no
assurance that any such financing will be available on acceptable terms. If
such financing is not available on satisfactory terms, the Company may be unable
to expand its business or develop new customers as desired and its operating
results may be adversely affected. Debt financing will increase expenses and
must be repaid regardless of operating results. Equity financing could result
in dilution to existing stockholders.
Some of the more prominent known risks and uncertainties of the Company's
business are set forth below. However, this section does not discuss all
possible risks and uncertainties to which the Company and its business is
subject, nor can it be assumed that there are not other risks and uncertainties
which may be more significant to the Company.
Such other factors include, among others, those described in the "Business"
section and elsewhere in "Management's Discussion and Analysis" and the
following:
.. the lack of working capital needed to further develop and apply the
electronic gearing technology and other products and management's ability
to find acceptable financing to supply such working capital;
.. the potential failure by the Company to successfully negotiate additional
licensing agreements;
.. continued dependence on a small number of significant customers for
substantially all of the Company's revenue and the potential loss of one or
more of the Company's principal customers;
.. the shortage of qualified and competent engineers and the risk that the
Company will be unable to retain its key employees and managers, especially
in the event the Company loses one or more of its principal customers;
20
<PAGE>
.. dependence on the apparel industry and the potential failure to diversify
the Company's product and service offerings and to expand its markets into
other industries;
.. the unanticipated expense of new product development, the potential failure
by the Company to complete new products under development and others
started in the future successfully or on a timely, cost effective basis,
and the failure of any such products to achieve substantial market
acceptance;
.. the dependence on patents and ability to protect proprietary products, the
potential that existing patents held by TES or future patents obtained by
TES will not be enforceable, the risk that TES products will infringe on
patents held by others, or the risk that competitors will develop similar
or functionally similar products; and
.. the potential adverse effect of competition, the potential failure by the
Company to provide competitive timely designs of cost-effective solutions
and products to manufacturers, and the potential adverse effect of
technological change with which the Company is unable to keep pace.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tice Technology, Inc. & Subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Tice
Technology, Inc. & Subsidiary (the "Company") at March 31, 1999 and 1998, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Knoxville, Tennessee
June 16, 1999, except as to Note 14
for which the date is June 25, 1999
22
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Balance Sheets
As of March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets
Cash and cash equivalents $ 24,155 $ 19,063
Accounts receivable, net 65,245 192,615
Note receivable -- 11,993
Prepaid expenses 8,097 9,013
Inventory, net 387,654 394,116
--------- ----------
Total current assets 485,151 626,800
Property and equipment:
Land 130,000 130,000
Equipment 536,254 528,740
Vehicles 107,751 124,599
Total property and equipment 774,005 783,339
Less accumulated depreciation (596,364) (603,700)
--------- ----------
Property and equipment, net 177,641 179,639
Patents, net 178,803 174,462
Note receivable from related party -- 79,610
Other assets 4,350 41,818
--------- ----------
Total assets $ 845,945 $1,102,329
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Notes payable and current maturities of long-term debt $ 214,790 $ 255,039
Accounts payable 233,030 304,448
Accrued liabilities 109,798 38,815
Notes payable to related parties, current portion 197,698 8,741
---------- -----------
Total current liabilities 755,316 607,043
Notes payable to related parties, long-term portion 620,482 556,310
Note payable, long-term portion 9,424 --
---------- -----------
Total liabilities 1,385,222 1,163,353
Stockholders' equity (deficit):
Capital stock, no par value; 2,000 shares authorized; 750 shares
issued and outstanding at March 31, 1999 and 1998 13,493 13,493
Common shares, par value $.01; 30,000,000 shares authorized;
5,994,064 and 5,907,639 shares issued and outstanding
at March 31, 1999 and 1998, respectively 59,941 59,076
Class B common shares, convertible, par value $.01;
5,000,000 shares authorized; 750,000 shares issued and
outstanding at March 31, 1999 and 1998 7,500 7,500
Class D common shares, convertible, par value $.01;
600,000 shares authorized, none issued or outstanding
at March 31, 1999 and 1998 -- --
Preferred shares, par value $.01; 10,000,000 shares authorized;
none issued or outstanding at March 31,1999 and 1998 -- --
Additional paid in capital 1,704,161 1,603,727
Accumulated deficit (2,324,372) (1,744,820)
---------- -----------
Total stockholders' equity (deficit) (539,277) (61,024)
---------- -----------
Total liabilities and stockholders' equity (deficit) $ 845,945 $ 1,102,329
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Operations
For the years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating revenues:
Sales and service $ 586,186 $ 892,713 $ 1,147,281
License fees -- 250,000 250,000
Royalties 144,751 201,518 --
---------- ----------- ------------
Total operating revenues 730,937 1,344,231 1,397,281
Operating expenses:
Cost of revenues 473,678 751,093 814,587
Research and development 172,590 208,407 163,204
Selling, general and administrative 560,009 882,161 563,223
---------- ----------- ------------
Total operating expenses 1,206,277 1,841,661 1,541,014
---------- ----------- ------------
Operating loss (475,340) (497,430) (143,733)
Other income (expense):
Registration expenses -- (1,278,873) (107,687)
Rental income -- -- 28,200
Rental expense -- -- (29,792)
Gain on sale of fixed assets 3,274 -- 500,363
Interest expense - related parties (65,690) (49,772) (16,830)
Interest expense (31,057) (44,586) (75,652)
Other income (expense) 3,435 3,218 (644)
---------- ----------- ------------
Total other income (expense) (90,038) (1,370,013) 297,958
---------- ----------- ------------
Income (loss) before income taxes (565,378) (1,867,443) 154,225
Income tax expense 14,174 47,020 112,746
---------- ----------- ------------
Net income (loss) $ (579,552) $(1,914,463) $ 41,479
========== =========== ============
Income (loss) per share (Note 11):
Basic and diluted $ $(0.09) $ $(0.30) $ 0.01
========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Retained Total
Class B Additional Earnings Stockholders'
Capital Common Common Paid In (Accumulated Equity
Stock Shares Shares Capital Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1996 $ 8,634 $ - $ - $ 4,859 $ 128,164 $ 141,657
Net income - - - - 41,479 41,479
---------- ----------- ----------- ----------- ----------- -------------
Balances, March 31, 1997 8,634 - - 4,859 169,643 183,136
Exercise of 30 capital stock warrants 4,859 - - (4,859) - -
Issuance of 5,750,220 common shares,
1,000,000 warrants to purchase common
shares and 750,000 Class B common
shares in connection with the effectiveness
of registration statement - 57,502 7,500 1,039,139 - 1,104,141
Conversion of debt into 88,560 common shares - 886 - 264,964 - 265,850
Exercise of 400 common share warrants - 4 - 3,196 - 3,200
Issuance of 43,750 options to purchase
common shares at below fair market value - - - 109,375 - 109,375
Exercise of 28,459 employee common
share options - 284 - 28,175 - 28,459
Conversion of accounts payable into
40,000 common shares - 400 - 158,878 - 159,278
Net loss - - - - (1,914,463) (1,914,463)
---------- ----------- ----------- ----------- ----------- -------------
Balances, March 31, 1998 13,493 59,076 7,500 1,603,727 (1,744,820) (61,024)
Retirement of 375 common shares
without reissue - (3) - 3 - -
Issuance of 77,500 common shares - 775 - 89,225 - 90,000
Exercise of 5,300 employee common share
options - 53 - 5,247 - 5,300
Conversion of accounts payable into
4,000 common shares - 40 - 5,959 - 5,999
Net loss - - - - (579,552) (579,552)
---------- ----------- ----------- ----------- ----------- -------------
Balances, March 31, 1999 $ 13,493 $ 59,941 $ 7,500 $ 1,704,161 $(2,324,372) $ (539,277)
========== =========== =========== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statement of Cash Flows
For the years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income (loss) $ (579,552) $ (1,914,463) $ 41,479
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 14,289 18,550 35,683
Noncash registration expenses -- 1,047,000 ---
Noncash compensation expense -- 109,375 --
Noncash interest expense -- 44,280 --
Increase in cash surrender value of life insurance (2,572) (17,178) (9,500)
Provision for inventory obsolescence -- -- 120,000
Provision for doubtful accounts receivable 28,374 -- --
Gain on sale of property and equipment (3,274) -- (500,363)
Deferred income taxes 14,174 47,020 112,746
Changes in operating assets and liabilities:
Receivables 110,989 (116,173) 46,626
Prepaid expenses 916 (7,625) 11,884
Inventory 6,462 (26,513) (22,606)
Accounts payable and accrued liabilities 133,083 274,521 53,058
------------ ------------- -----------
Net cash used by operating activities (277,111) (541,206) (110,993)
------------ ------------- -----------
Cash flows from investing activities:
Purchases of property and equipment (3,644) (6,737) (10,974)
Proceeds from disposal of property and equipment 3,793 -- 825,000
Additions to patents (9,637) (20,240) (72,323)
Additions to note receivable from related party -- (15,602) (46,228)
------------ ------------- -----------
Net cash provided (used) by investing activities (9,488) (42,579) 695,475
------------ ------------- -----------
Cash flows from financing activities:
Proceeds from loan on life insurance 40,040 -- --
Proceeds from notes payable to related parties 335,941 652,490 324,000
Proceeds from notes payable and long-term debt 5,207 50,000 940,201
Principal payments on notes payable to related parties (174,058) (184,741) (252,733)
Principal payments on notes payable and long-term debt (10,739) (28,953) (1,529,379)
Proceeds from issuance of stock and stock warrants 90,000 13,000 --
Proceeds from exercise of stock options and warrants 5,300 31,659 --
------------ ------------- -----------
Net cash provided (used) by financing activities 291,691 533,455 (517,911)
------------ ------------- -----------
Net increase (decrease) in cash and cash equivalents 5,092 (50,330) 66,571
Cash and cash equivalents, beginning of year 19,063 69,393 2,822
------------ ------------- -----------
Cash and cash equivalents, end of year $ 24,155 $ 19,063 $ 69,393
============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Notes to Financial Statements
1. Summary of Significant Accounting Policies and Other Disclosures
General Information - Tice Technology, Inc. & Subsidiary ("Tice" or "the
Company") provides engineering and technical solutions, generally through
the development or enhancement of equipment for the apparel industry. Tice
researches, designs, develops and tests specialized high technology,
garment production line stitching machines and related equipment, which
when patented, it manufactures for its own customers or licenses the
technology to other manufacturers for their production.
Consolidated Financial Statements - The accompanying consolidated financial
statements include the accounts of Tice Technology, Inc. ("TTI") and its
wholly-owned subsidiary, Tice Engineering and Sales, Inc. ("TES"). The
consolidation of these entities will be collectively referred to as the
Company or Tice. All significant intercompany balances and transactions
have been eliminated.
On August 1, 1997 TTI acquired all of the issued and outstanding stock of
TES including 750 shares outstanding at March 31, 1997 and 30 shares issued
in connection with the exercise of warrants subsequent to March 31, 1997,
from the shareholders of TES in exchange for 5,450,220 Common Shares and
750,000 Class B Common Shares. In addition, Monogenesis Corporation
purchased 300,000 Common Shares and 1,000,000 warrants to purchase Common
Shares at par value ($.01). In connection with the registration of the
securities issued, the Company recognized $1,047,000 in registration
expenses for the difference between the $3.50 initial share value and the
price paid by Monogenesis for the stock. A portion of the shares and
warrants were subsequently distributed by Monogenesis to its shareholders.
Cash and Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less as
cash equivalents.
Trade Accounts Receivable and Concentrations of Credit Risk - The Company
conducts a substantial portion of its business with three customers in the
sewing industry (Note 6) with approximately $35,000 of total accounts
receivable represented by these customers at March 31, 1999. One of the
customers has a significantly delinquent account balance. Although
management is working with the customer to resolve the matter and bring the
account current, management recorded a $26,000 allowance for doubtful
accounts during the fourth quarter of fiscal 1999.
28
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Inventories - Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over
the estimated useful lives of the assets. The estimated useful lives of
building and improvements is 15 - 31.5 years, equipment 5 - 7 years, and
vehicles 5 years. Routine repair and maintenance costs are expensed as
incurred. Costs of major additions, replacements and improvements are
capitalized. Gains and losses from disposals are included in operating
results.
Patents - Certain legal and other direct expenses incurred in order to
obtain patents on designed and manufactured parts have been capitalized at
their cost to the Company. Amortization is calculated using the straight-
line method over the estimated useful lives of the patents, primarily
seventeen years. Amortization expense totaled $5,296, $5,210 and $4,548
during the years ended March 31, 1999, 1998 and 1997, respectively.
Note Receivable from Related Party - The Company previously paid premiums
on a life insurance policy for an officer of the Company in a split dollar
agreement with collateral assignment, whereby the premiums paid by the
Company are to be repaid upon receipt of the policy proceeds by the
officer's beneficiaries. The Company is not a beneficiary of the policy. In
April, 1998, the Company chose to cancel the policy in order to reduce
expenditures and the total premium paid to date, $79,610, was applied as a
payment against noted payable to the officer. Premiums paid by the Company
totaled $17,178 in fiscal 1998.
Impairment of Long-Lived Assets - The Company follows the provisions of
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which (i)
requires that long-lived assets to be held and used be reviewed for
impairment whenever events or circumstances indicate that the carrying
value of an asset may not be recoverable, (ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or
the fair value less costs to sell, and (iii) provides guidelines and
procedures for measuring impairment losses that are different from
previously existing guidelines and procedures in that recoverability is
assessed based on estimates of undiscounted expected future cash flows of
the asset being evaluated.
Accounting for Stock Based Compensation - The Company follows the
provisions of FASB SFAS No. 123, Accounting for Stock Based Compensation.
In accordance with this Statement, the Company records all stock-based
compensation awarded to vendors at the fair value of
29
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
the services received. As permitted by SFAS 123, the Company has chosen to
apply APB Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for stock-based compensation awarded to
employees.
Effect of New Accounting Pronouncements - In June, 1998, the FASB issued
SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
which may be effective for the fiscal quarters of fiscal years beginning
after June 15, 1999. It is not anticipated that this statement will have a
material impact on the Company.
Research and Development Costs - Research and development ("R&D") costs,
including work performed under contracts to perform R&D for others
(development agreements), are expensed as incurred, net of reimbursements
(Note 7).
Income Taxes - The asset and liability method is used in accounting for
income taxes, whereby deferred tax assets and liabilities are determined
based upon the differences between financial reporting and tax bases of
assets and liabilities and are measured based on enacted tax rates and laws
when the differences are expected to reverse.
Revenue Recognition and Deferred Revenue - The Company generally recognizes
revenue at the time related products are shipped or at the time services
are rendered. License fees and related royalties are recognized as earned
based on sales of equipment by the manufacturer using the Company's
technology.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
30
<PAGE>
Notes to Financial Statements, Continued
2. Inventories
<TABLE>
<CAPTION>
Inventories at March 31 consist of:
1999 1998
<S> <C> <C>
Raw materials $ 343,968 $ 363,472
Work in process 118,103 66,410
Finished goods 45,583 84,234
--------- ---------
507,654 514,116
Reserve for obsolescence (120,000) (120,000)
--------- ---------
Inventory, net $ 387,654 $ 394,116
========= =========
</TABLE>
3. Notes Payable to Related Parties
Notes payable to related parties consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Notes payable to an officer, dated May 31, 1998 to March 31, $472,174 $556,310
1999; interest at 10%; due May 31, 2000 to March 31, 2001;
subordinate to all other debt.
196,006 8,741
Notes payable to employee and outside director (business
associates), dated December 15, 1996 to December 31, 1998;
due August 31, 2003; interest at 10%; principal and interest
due semiannually; $191,425 personally guaranteed by an
officer and majority stockholder.
Note payable to officer, dated March 19, 1999; due June 19, 1999; 100,000 -0-
interest at 10%; principal and interest due upon receipt of
specific accounts receivable
</TABLE>
31
<PAGE>
Notes to Financial Statements, Continued
<TABLE>
<S> <C> <C>
Note payable to immediate family member of officer, dated May
27, 1998 and last renewed May 23, 1999; renewable every 90
days; interest at 10% due monthly; principal due August 22,
1999. 50,000 -0-
-------- --------
818,180 565,051
Less current portion 197,698 8,791
-------- --------
$620,482 $556,310
======== ========
8
</TABLE>
4. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable to a bank, due June 13, 1999, interest at 9.25% $ 7,240 $ 12,000
payable with 90 day renewals, vehicle pledged as collateral,
personally guaranteed by an officer and majority stockholder.
Note payable to a bank, dated August 31, 1996, monthly -0- 188,344
payments of $4,712 with final payment due April 2, 1998.
Note payable to legal counsel for services rendered dated 21,778 -0-
August 11, 1998; interest at 6%; interest and principal
payable monthly; due August 11, 2000.
Note payable to a bank dated May 15, 1998, renewed through 190,502 -0-
December 17, 1999; interest at 9.5%; interest due upon
renewal; undeveloped property pledged as collateral;
personally guaranteed by an officer and majority stockholder.
Notes payable to individuals (business associates) dated June 4,695 4,695
18, 1996 to August 29, 1996, renewable every 90 days,
interest at 10%, principal and interest due April 24,1999.
Note payable to a bank, dated October 2, 1997, interest at -0- 50,000
7.25%, principal and interest due October 2, 1998. -------- --------
</TABLE>
32
<PAGE>
Notes to Financial Statements, Continued
<TABLE>
<S> <C> <C>
224,214 255,039
Less current maturities 214,790 255,039
-------- --------
Long-term debt, less current maturities $ 9,424 $ -0-
======== ========
</TABLE>
On August 1, 1997, $119,910 of the notes payable to individuals were
converted into 39,970 common shares.
5. Income Taxes
The provision for income taxes for the periods ended March 31, 1999, 1998
and 1997, is comprised of:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current income tax expense:
Federal $ - $ - $ -
State - - -
Deferred income tax expense:
Federal 14,174 47,020 100,971
State - - 11,775
------- ------- --------
Total expense $14,174 $47,020 $112,746
======= ======= ========
</TABLE>
The components of temporary differences and the approximate tax effects
that give rise to the Company's net deferred tax asset at March 31, 1999
and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current:
Section 263A cost in ending inventory $ 44,545 $ 41,340
Inventory reserves 31,200 31,200
Accounts receivable reserve 6,760 -
--------- ---------
82,505 72,540
Valuation allowance (82,505) (72,540)
--------- ---------
Total current asset $ - $ -
========= =========
</TABLE>
33
<PAGE>
Notes to Financial Statements, Continued
5. Income Taxes, continued
<TABLE>
<S> <C> <C>
Long-term:
Net operating loss carryforwards $ 348,277 $ 215,400
Foreign tax credit carryforwards 61,194 47,020
Stock options 758 4,200
--------- ---------
410,229 266,620
Valuation allowance (410,229) (266,620)
--------- ---------
Total long-term asset $ - $ -
========= =========
</TABLE>
During 1999, the Company increased its valuation allowance by $153,574 to
$492,734, which is maintained against deferred tax assets. Management is
unable to currently assert that it is more likely than not that the
deferred tax asset will be realized.
The provision for income taxes at March 31 differs from the "expected"
income tax expense (using a Federal income tax rate of 21%) as a result of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(121,706) $(392,163) $ 55,002
State income taxes, net of federal income taxes (28,978) (93,372) 13,096
Permanent differences including nondeductible
registration expenses 2,531 261,385 450
Utilization of state NOLs not previously recorded - - (23,792)
Change in valuation allowance 153,574 271,170 67,990
Other 8,753 - -
--------- --------- ---------
Provision for income taxes $ 14,174 $ 47,020 $ 112,746
========= ========= =========
</TABLE>
At March 31, 1999, the Company had net operating loss carryforwards of
approximately $1.320,000 and $1,428,000 for federal and state purposes,
respectively, available to offset future taxable income. These
carryforwards will expire, if not utilized, in 2011 through 2014. The
Company had $61,194 of foreign tax credit carryforwards at March 31, 1999.
These credits will expire, if not utilized, in 2004.
34
<PAGE>
Notes to Financial Statements, Continued
6. Major Customers and Export Sales
Tice Technology, Inc. had three customers that represented 31%, 22 and 12%
of its revenues in 1999; 31%, 20% and 19% of its revenues in 1998; and 33%,
32% and 7% of its revenues in 1997, respectively.
Approximately 13%, 24% and 6% of the Company's sales were export sales in
fiscal 1999, 1998 and 1997, respectively. All export sales are paid in U.S.
funds either in advance of shipment or with an irrevocable letter of
credit, therefore, there are no gains or losses included in operations
related to foreign currency exchanges.
7. Research and Development Costs and Joint Development Agreement
Research and development costs consist of the following approximate amounts
at March 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Salaries $125,000 $170,000 $108,000
Travel - - 5,000
Insurance 5,000 5,000 3,000
Payroll taxes 9,000 13,000 4,000
Telephone 3,000 4,000 3,000
Utilities 1,000 1,000 1,000
Materials 30,000 15,000 39,000
-------- -------- --------
$173,000 $208,000 $163,000
======== ======== ========
</TABLE>
In December 1994, the Company entered into an agreement with a denim
clothing manufacturer to develop a specialized sewing machine for the
manufacture of jeans. This agreement was accounted for by the Company in
accordance with SFAS 68. The manufacturer reimbursed the Company a total of
$300,000 for research and development costs, providing $150,000 in both
fiscal 1996 and 1995. Tice incurred total costs related to this agreement
of $18,600, $45,500 and $41,903 in fiscal 1999, 1998 and 1997,
respectively, which are included in the research and development costs
above.
Under the terms of the agreement, the denim clothing manufacturer will have
exclusive rights to purchase specialized sewing machines for an initial
period of two years from the date of shipment of the first production
machine. After the initial two year period, in order to maintain
35
<PAGE>
Notes to Financial Statements, Continued
its exclusive rights, the manufacturer must purchase certain minimum
quantities. In the event the Company sells the machines to a third party
during this two-year period, the Company is required to pay royalties to
the manufacturer at the rate of 4% of the gross selling price up to the
total amount reimbursed to the Company ($300,000) for research and
development costs, plus 10% interest. The Company has sold no machines to
third parties as of March 31, 1999. Under no circumstances is any portion
of the reimbursement refundable. The equipment related to this agreement is
currently in the final testing phase with expected shipment of the first
machines in the second or third quarter of fiscal 2000.
8. License and Royalty Agreement
In June 1996, the Company entered into a nonexclusive license and royalty
agreement with a sewing machine manufacturer to use the electronically
geared sewing machine technology developed and patented by the Company.
Under the terms of the agreement, the manufacturer is to pay the Company
$250,000 upon the sale of the first class of machine built by the
manufacturer using the technology. In addition, the manufacturer is to pay
the Company an additional $250,000 plus 2% of the sales price for sales of
each class of sewing machine produced and sold by the manufacturer using
the Company's technology. The manufacturer has no obligation to apply the
Company's technology to additional classes of industrial sewing machines.
In 1998, the Company earned $250,000 from the sale of one class of machines
under this license. Royalty income from the sale of the machines produced
under this agreement was $144,751 and $201,518 in 1999 and 1998,
respectively.
9. 401(k) Plan
The Company's 401(k) plan was established in fiscal 1997, and is available
to all full-time and part-time employees who have completed six months of
continuous employment with the Company. The Company can make a
discretionary matching contribution which is determined by the Board of
Directors at the beginning of each plan year. The matching contribution
vests at 20% per year over a five year period. Each year, employees must
work a minimum of 1,000 hours. Vesting at the plan start date is
retroactive to the date of employment for individuals employed by Tice
prior to the plan start date. The Company made contributions of
approximately $13,100 in fiscal 1998 and $0 in fiscal 1999.
10. Stock Warrants
On May 5, 1995, TES issued thirty stock warrants, valued at $4,895, to
Joseph Walker & Sons, Inc. as a retainer for consulting services provided
to TES in connection with a plan of reorganization. Remaining amounts due
Joseph Walker & Sons, Inc. were either paid or recorded as a payable and
have been expensed in the year services were performed. The warrants were
exercised at a price of $1 per share on August 1, 1997. Upon registration
of TTI's
36
<PAGE>
Notes to Financial Statements, Continued
Common Shares with the Securities and Exchange Commission, the thirty
shares were exchanged for 238,470 shares of TTI's Common Shares.
On August 1, 1997, the Company issued 1,000,000 warrants to Monogenesis
Corporation of which a portion was distributed to Monogenesis shareholders.
The warrants, each of which entitles the holder to purchase one Common
Share of the Company, have an exercise price of $8.00 and expire two years
from the date of issuance. At March 31, 1999, 400 warrants had been
exercised.
11. Earnings Per Share
Effective December 31, 1997, the Company adopted SFAS 128. Under SFAS 128,
both basic and diluted income (loss) per share were $(0.09), $(0.30) and
$0.01 for the respective years ended March 31, 1999, 1998 and 1997. Basic
income (loss) per share were computed by dividing net income (loss)
applicable to common stock by the weighted average common shares
outstanding during each period. Diluted income (loss) per share were
computed by dividing net income (loss) applicable to common stock plus the
effect of assumed conversion of debt and exercise of warrants by weighted
average common shares outstanding plus dilutive potential common shares.
Potential common shares are not included in the computation of diluted per
share amounts in periods when the Company reports a loss. Potentially
dilutive common equivalent shares were 3,550 and 13,130 for fiscal years
1999 and 1998, respectively. Basic and diluted income (loss) per share are
the same for all classes of the Company's common stock (thus they are not
presented separately) because they have noncumulative dividend rights of
which none were available for distribution under the terms of the
Certificate of Incorporation. Due to the Company's recapitalization in
August 1997, all common share and per share amounts in the accompanying
financial statements have been restated.
Following is a reconciliation of the numerators and denominators of the
basic and diluted income (loss) per share:
37
<PAGE>
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income (loss)
Basic:
Income (loss) available to common stockholders $ (579,552) $(1,914,463) $ 41,479
Effect of dilutive securities:
Convertible debt - - 17,900
---------- ----------- ----------
Diluted:
Income (loss) available to common stockholders
plus assumed conversions $ (579,552) $(1,914,463) $ 59,379
========== =========== ==========
Shares:
Basic:
Weighted average common shares outstanding 6,701,752 6,314,804 5,962,500
Effect of dilutive securities:
Convertible debt - - 59,040
Warrants - - 170,357
---------- ----------- ----------
Diluted:
Weighted average common shares outstanding
plus assumed conversions 6,701,752 6,314,804 6,191,897
========== =========== ==========
</TABLE>
12. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 45,818 $ 23,194 $ 67,240
</TABLE>
Noncash investing and financing activities:
In fiscal 1999, 1998, and 1997, the Company converted $50,929, $29,378 and
$25,222, respectively, of accrued interest into notes payable to business
associates and officers.
In fiscal 1997, the Company received eight months free rent included in the
sale of the shopping center and related property. The rent was valued at
$32,000 and was recorded by the Company as prepaid rent at the time of the
sale.
In fiscal 1998, the Company converted $265,850 of debt to business
associates into 88,560 Common Shares. In addition, the Company converted
$159,278 of trade accounts payable owed to vendors into 40,000 Common
Shares.
38
<PAGE>
Notes to Financial Statements, Continued
Also in fiscal 1998, TTI issued 5,450,220 Common Shares and 7,500 Class B
Common Shares in exchange for 780 shares of TES Capital Stock.
In fiscal 1999, the Company canceled a split dollar life insurance policy
and the corresponding related party note receivable of $79,610 was applied
against outstanding notes payable to a related party.
In fiscal 1999, the Company converted $24,707 of accounts payable into
notes payable. In addition, $19,926 of accounts payable, $50,000 of notes
payable, and $50,000 of accrued salaries payable were converted to a note
payable to a related party.
Also in fiscal 1999, the Company converted $5,999 of trade accounts payable
owed to vendors into 4,000 Common Shares.
13. Stock Options
The Company established a stock option plan in fiscal 1998, to provide
additional incentives to its officers and employees. Eligible persons are
determined by management. Each option granted under the plan shall be
exercisable only during a fixed term from the date of grant as specified by
management, but generally equal to 10 years. Options are fully vested on
the date of grant. In fiscal 1998, the Board of Directors approved the
issuance of up to 54,750 options to acquire common shares of which 43,750
options were granted during fiscal 1998 and became fully vested upon the
effective date of the registration statement. No additional options were
granted under this plan during fiscal 1999.
The Company established an additional stock option plan in fiscal 1999, to
provide additional incentives to its officers and employees. Eligible
persons are determined by management. Each option granted under the plan
shall be exercisable only during a fixed term from the date of grant as
specified by management, but generally not to exceed 10 years. Vesting
requirements of the option are determined by management, but are generally
not less than one year from the date of grant. The exercise price of the
options are at least fair market value on the date of grant. The
stockholders approved the issuance of up to 100,000 options to acquire
common shares of which no options were granted during the year.
A summary of outstanding options as of March 31, 1999, and changes during
the years ended March 31, 1999 and 1998, is presented below:
39
<PAGE>
Notes to Financial Statements, Continued
13. Stock Options, continued
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
<S> <C> <C>
Outstanding at April 1, 1997 - $ -
Granted 43,750 1.00
Exercised (28,459) 1.00
Forfeited - -
--------- ---------------
Outstanding at March 31, 1998 15,291 $ 1.00
========= ===============
Options exercisable at March 31, 1998 15,291 $ 1.00
========= ===============
Weighted-average fair value per
share of options granted
during the year 43,750 3.50
========= ===============
</TABLE>
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
<S> <C> <C>
Outstanding at April 1, 1998 15,291 $ 1.00
Granted - -
Exercised 5,300 1.00
Forfeited 713 -
--------- ---------------
Outstanding at March 31, 1999 9,278 $ 1.00
========= ===============
Options exercisable at March 31, 1999 9,278 $ 1.00
========= ===============
Weighted-average fair value per
share of options granted
during the year -0- -0-
========= ===============
</TABLE>
The weighted average remaining contractual life of outstanding options at
March 31, 1999 was 0.33 years. The fair value of each option granted is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: dividend growth rate of 0%;
expected volatility of 1.327; risk-free interest rate of 5.71%; and expected
lives of two years.
The Company recorded compensation expense of $109,375 related to options
granted in August 1997, as the exercise price of the options was less than
the initial share value of the Company's common stock at grant date. Had
compensation cost for the Company's plan been determined consistent with the
method of SFAS 123, the Company's net loss would have remained the same for
fiscal 1999 and 1998.
14. Subsequent Events
On April 30, 1999, the Company entered into an agreement with an outside
investment firm to sell up to 1,500,000 Common Shares for $0.70 per share and
$1,000,000 in notes payable coupled with warrants to purchase 100,000 Common
Shares utilizing a "best efforts" underwriting. On June 25, 1999, this offering
was completed and the Company received $2,025,000 less commissions of $203,913.
The notes payable are secured by the patents related to the Company's electronic
gearing technology and the warrants, which have an exercise price of $0.50 per
share, expire two years from the date of grant. The majority stockholder and
holder of $456,000 of related party notes payable agreed to subordination of
$336,000 of his notes until the $1,000,000 of notes payable are repaid in full.
In addition, two individuals and the investment firm immediately purchased
700,000 Common Shares for $280,000.
As conditions of the above referenced transactions, the Company appointed a
new President and Chief Executive Officer and entered into a three-year
employment agreement and an incentive stock option agreement with the new
employee. Also, the Company entered into a three-year employment agreement with
the majority stockholder as Executive Vice President and Chief Technology
Officer, and he will remain as Chairman of the Board of Directors. The Company
appointed the new President and Chief Executive Officer to the Board of
Directors, and appointed two representatives of the outside investment firm to
the Board of Directors filling seats opened by the resignation of two then
current Directors.
One current Director converted notes payable and related accrued interest
of $195,300 into 217,000 Common Shares and the new President and Chief Executive
Officer converted $101,150 of notes payable and related accrued interest into
101,150 Common Shares.
40
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following are TTI's executive officers and directors. Brief
descriptions of their experience follow.
Name Position
---- --------
William A. Tice Chairman of the Board, Chief
Technology Officer, Executive Vice
President, Director
Charles R. West President, Chief Executive Officer,
Director (1)
Karen A. Walton Vice President, Secretary/Treasurer
Michael A. Atkins Director (2)
Billie Joe Clayton Director
Patrick L. Martin Director (2)
- --------------------------------------------------------------------------------
(1) In connection with the employment of Mr. West, Mr. Tice, the holder of a
majority of the issued and outstanding Common Shares and all of the Class B
Common Shares, agreed to vote the number of his shares necessary to elect
Mr. West a director of the Company so long as Mr. West's employment
agreement remains in effect.
(2) In connection with their purchase of shares and the private placement
offering of debt and equity of the Company completed on June 25, 1999, Mr.
Tice agreed to elect two designees of the initial purchasers in the private
placement (Michael A. Atkins, Patrick L. Martin, and LandOak Securities
L.L.C., of which Mr. Atkins and Mr. Martin are members) for so long as
they, together with the initial investors under the private placement own
at least 10% of the Company's common stock. In addition, if the 10%
requirement is no longer met, so long as such persons own at least 5% of
the Company's common stock or the promissory notes sold in the private
placement remain outstanding, Mr. Tice agreed to elect one of their
designees a director of the Company. Mr. Atkins and Mr. Martin are the
initial designees.
41
<PAGE>
William A. Tice, age 54, has been a director of TTI since its incorporation
---------------
in June 1996. He has served as President and currently serves as Chairman of
the Board, Chief Technology Officer, and a director of TTI and President and a
director of TES. He has held the positions with TES since 1972 when he
purchased the business from his father. Mr. Tice received Associate Degrees in
Accounting and Business Administration from Knoxville Business College in 1973.
He has over 30 years experience in the sewing industry.
Charles R. West, age 42, was elected President, Chief Executive Officer,
---------------
and a director of TTI effective May 1, 1999. From August 1995 to April 1999,
Mr. West was a managing partner of Venture Alliance, LLC, a venture capital firm
in Knoxville, Tennessee, during which time he oversaw the launch of three out of
the firm's eight start-up businesses. In each of the three, he acted as Chief
Executive Officer until permanent management was located. Prior to working with
Venture Alliance, LLC, from 1986 to 1995, Mr. West was President and Chief
Executive Officer of MasterCraft Boat Company in Vonore, Tennessee. He was
Executive Vice President and General Manager of that company from 1985 to 1986
and Vice President - Finance from 1982 to 1985. Mr. West is a certified public
accountant and received a B.S. in Business Administration from The University of
Tennessee in Knoxville in 1979.
Karen A. Walton, age 38, currently serves as Vice President,
---------------
Secretary/Treasurer, and CFO of both TTI and TES. She is also Secretary and a
director of TES and has held those positions since 1983. She was Treasurer of
TES from December 1983 to June 1986 and has held that position since July 1996
and an employee since 1978. She became General Manager and a Vice President of
TES in 1988. Ms. Walton became a Licensed Public Accountant in 1989, but due to
her employment with a single company has ceased maintaining the license. Ms.
Walton received Associate Degrees in Accounting and Computer Programming from
Draughon's Junior College in Knoxville, Tennessee in 1986.
Michael A. Atkins, age 38, was elected a director of TTI in May 1999.
-----------------
Since March of 1983, Mr. Atkins has been employed by The Lanrick Group, Inc. in
Knoxville, Tennessee where he provides financial planning and services. Mr.
Atkins received a B.S. from Auburn University in Auburn, Alabama in 1982 and a
Masters in Financial Planning from The College of Financial Planning in Denver,
Colorado in 1994.
Billie Joe Clayton, age 62, became a director of TTI and TES in August
------------------
1996. Mr. Clayton is currently the Chief Executive Officer of Clayton Motors,
Inc. and affiliated companies and has held such position since 1961. He is also
a director and Vice Chairman of the Board of Clayton Homes, Inc. since 1985. He
is a Regional Director for First Tennessee Bank.
Patrick L. Martin, age 46, was elected a director of TTI in May 1999.
-----------------
Since August of 1981, Mr. Martin has been employed by The Lanrick Group, Inc. in
Knoxville, Tennessee where he provides financial planning and services. Mr.
Martin received a B.A. from the University of Tennessee inn Knoxville in 1974
and a Masters in Financial Planning from The College of Financial Planning in
Denver, Colorado in 1995.
42
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers, and persons who
beneficially own more than ten percent of the Common Shares (each, a "Reporting
Person") to file reports of ownership and changes of ownership with the
Securities and Exchange Commission. Copies of all filed reports are required to
be furnished to the Company pursuant to the Exchange Act. Based solely upon a
review of the forms and amendments thereto furnished to the Company during the
fiscal year ended March 31, 1999, the Company believes that each Reporting
Person complied with all applicable filing requirements during such fiscal year
with the exception that William A. Tice filed three Form 4s late which related
to three transactions.
Item 11. Executive Compensation
Effective on May 1, 1999, the Company entered into employment agreements
with William A. Tice to serve as its Chairman of the Board and Executive Vice
President and Charles R. West to serve as President and Chief Executive Officer.
Both agreements are for a term beginning on May 1, 1999 and ending on April 30,
2002 with automatic one-year renewal terms unless terminated on three-months
notice by either party after the initial term. The agreements may be earlier
terminated in the event of the death, permanent disability or, upon sixty-days
notice, the gross misconduct, material dishonesty or felony conviction of the
employee.
Compensation under both agreements, in addition to benefits provided to
other key employees, reimbursement of certain expenses and provision of an
automobile or automobile allowance, is a base salary of $150,000 (subject to
annual reviews and increases by the Board of Directors) and, beginning in the
fiscal year ending March 31, 2001, a target bonus of up to 50% of base salary
payable in accordance with annual goals and objectives set by the Board of
Directors. Both agreements also provide that if the employee is terminated
without cause, he will be entitled to receive severance pay equal to one-year of
his then current base salary plus the target bonus of 50% of base pay, payable
in a lump sum within fifteen days of termination. Benefits and perquisites
continue for one-year after termination without cause.
In addition to the compensation described above, Mr. West received
incentive stock options to purchase Common Shares in an amount that will, if
fully exercised, together with shares he received in payment of a loan to the
Company, bring his cumulative ownership to 10% of the fully diluted outstanding
Common Shares of the Company prior to the private placement. The options allow
for purchases of up to 690,071 Common Shares. One-third of the options will
vest on the first anniversary of employment and have an exercise price of $1.00
per share, one-third on the second anniversary with an exercise price of $3.50
per share and the remainder on the third anniversary with an exercise price of
$7.00 per share. The options will be exercisable for five years from the date
they vest.
The following table sets forth the compensation of the previous President
and Chief Executive Officer, William A. Tice, for the fiscal years ending March
31, 1999, 1998, and 1997.
43
<PAGE>
Summary Compensation Table
--------------------------
Annual Compensation
-------------------
<TABLE>
<CAPTION>
Name and Other Annual
Principal Position Year Salary ($)(1) Bonus ($) Compensation ($)(2)
- ----------------------------- ---- -------------- ------- -------------------
<S> <C> <C> <C> <C>
William A. Tice, President, 1999 100,000 -0- 11,871
Chief Executive Officer 1998 130,000 -0- 30,319
1997 105,000 -0- 58,097
</TABLE>
(1) The 1999 salary includes $25,000 which was converted to a note payable.
The remainder of $75,000 is carried as accrued salary payable. The 1998
salary includes $25,000 of accrued payroll that was converted to a note
payable as subordinate debt.
(2) Other annual compensation includes life insurance premiums on split dollar
(for 1999, $0.00; for 1998, $15,602; and for 1997, $46,228), regular life
insurance (for 1999, 1998 and 1997, $9,695), health insurance premiums (for
1999, $2,176; for 1998, $2,022; and for 1997, $1,274), and 401(k) Plan
match (for 1999, $0.00; for 1998, $3,000; and for 1997, $900) which is the
same percentage of employer contribution match offered to other employees.
The Company provided Mr. Tice with the use of a 1989 Mercedes 420 SEL; he
pays the expenses of operation. Mr. Tice also receives interest on certain
notes reflecting funds loaned to TES as subordinate debt.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to ownership of
issued and outstanding stock and warrants of TTI by management and 5% or greater
shareholders as of June 1, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Total Number of Percent
Securities Owned of
Name and Address Title of Class Beneficially Class (1)
---------------- -------------- ---------------- -----------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William A. Tice (1) Common Shares 5,786,025 75%
7610 Breckenridge Ln. Class B Common Shares 750,000 100%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ---------------------------------------------------------------------------------------------------
Michael A. Atkins (2) Common Shares 400,000 6%
1033 Spyglass Way Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ---------------------------------------------------------------------------------------------------
Patrick L. Martin (3) Common Shares 400,000 6%
30 Riverdell Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ---------------------------------------------------------------------------------------------------
Billie Joe Clayton Common Shares 258,900 4%
817 Laurel Hill Road Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ---------------------------------------------------------------------------------------------------
Charles R. West Common Shares 101,151 1%
3516 Navigator Place Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ---------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Total Number of Percent
Securities Owned of
Name and Address Title of Class Beneficially Class (1)
---------------- -------------- ------------ --------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles R. West Common Shares 101,151 1%
3516 Navigator Place Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- -------------------------------------------------------------------------------------------------
Karen Ann Walton Common Shares 10,837 *%
7633 Breckenridge Ln. Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- -------------------------------------------------------------------------------------------------
P. Bradley Walker (4) Common Shares 8,000 *%
Drawer 88, Walker Creek Rd. Class B Common Shares -0- 0%
Walker, WV 26180-9948 Common Stock Purchase Warrants 88,000 9%
- -------------------------------------------------------------------------------------------------
Walker Group, The Common Shares -0- 0%
Drawer 88, Walker Creek Rd. Class B Common Shares -0- 0%
Walker, WV 26180-9948 Common Stock Purchase Warrants 52,000 5%
- -------------------------------------------------------------------------------------------------
Monogenesis Corporation Common Shares 30,500 *%
Drawer 88, Walker Creek Rd. Class B Common Shares -0- 0%
Walker, WV 26180-9948 Common Stock Purchase Warrants 188,000 19%
- -------------------------------------------------------------------------------------------------
Directors and Officers Common Shares 6,856,913 87%
As a Group (5) Class B Common Shares 750,000 100%
Common Stock Purchase Warrants -0- 0%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Tice is Chairman of the Board, Executive Vice President, and a director
of TTI. The number of Common Shares listed for Mr. Tice includes 750,000
Common Shares which he would receive if he converted his Class B Common
Shares.
(2) Mr. Atkins is a director of TTI. The number of Common Shares listed for Mr.
Atkins includes the 100,000 Common Shares owned by LandOak Securities, LLC
of which Mr. Atkins is a member and a 25% owner.
(3) Mr. Martin is a director of TTI. The number of Common Shares listed for Mr.
Martin includes the 100,000 Common Shares owned by LandOak Securities, LLC
of which Mr. Martin is a member and a 25% owner.
(4) The warrants reflected for Mr. Walker include the warrants held by The
Walker Group, Inc.
(5) The number of Common Shares listed for directors and officers as a group
included the 750,000 Common Shares that Mr. Tice would receive if he
converted his Class B Common Shares and the 100,000 Common Shares owned by
LandOak Securities, LLC over which Mr. Atkins and Mr. Martin have shared
voting and investment power.
Item 13. Certain Relationships and Related Transactions
45
<PAGE>
Management believes that all of the transactions listed below are at least
as fair as a similar transaction with an unaffiliated third party would have
been.
During the last four years, Mr. Tice has loaned the Company money at an
annual interest rate of 10%. The Company currently owes him approximately
$350,000. For fiscal years ending March 31, 1999, 1998 and 1997 he received
interest totaling $50,929, $21,092, and $7,322, respectively. Mr. Tice has
agreed in the letter of intent entered into with The Lanrick Group, Inc. that
the Company will not make any payments of the remaining amounts owed to him
until the debt issued in the private placement is paid in full. Mr. Tice has
also agreed that the debt to him will be subordinated to all other debts of the
Company.
Daisy L. Tice, Mr. Tice's mother, loaned the Company $50,000 at an interest
rate of 10% per annum, renewable in ninety day increments. Interest is payable
monthly.
Mr. West loaned the Company $100,000 at an interest rate of 10% per annum
and converted the principal and interest through April 30, 1999 into 101,151
Common Shares of the Company at a rate of $1.00 per share.
Mr. Atkins and Mr. Martin are members and owners of The Lanrick Group, Inc.
which entered into an agreement with TTI under which they purchased the Common
Shares for $0.40 per share and became directors of TTI. A related party, LandOak
Securities, LLC, also purchased 100,000 Common Shares for $0.40 per share
pursuant to the agreement. Under the agreement, so long as Mr. Atkins, Mr.
Martin, or their representatives own on a fully diluted basis more than 10% of
TTI, Mr. Tice agrees to elect two of their nominees to the Board of Directors of
TTI and so long as the ownership on a fully diluted basis exceeds 5% or the
promissory notes sold in the private placement closed on June 25, 1999 remain
outstanding, Mr. Tice agrees to elect one of their nominees to the Board of
Directors of TTI. They are also entitled to demand registration and piggyback
registration rights. The Lanrick Group, Inc. also agreed to use its best efforts
to sell the securities offered in the private placement for a commission of 10%
of the amount sold and received such commissions when the offering closed. TTI
also reimbursed The Lanrick Group, Inc. $10,000 for legal costs associated with
the transactions described in the letter of intent. TTI also agreed to elect Mr.
West President and Chief Executive Officer of TTI and enter into an employment
agreement with him which it has done. Mr. Tice and Mr. West agreed that they
would not receive any payouts from TTI except the compensation approved by the
Board of Directors.
Mr. Clayton loaned the Company $130,000 at an interest rate of 10% per
annum and converted the principal and interest through December 15, 1996 into
44,990 Common Shares of the Company at a rate of $3.00 per share. Mr. Clayton
also loaned the Company funds at an interest rate of 9.5% per annum and
converted the principal and interest through April 30, 1999 into 217,000 Common
Shares at a rate of $0.90 per Common Share.
46
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements (See Item 8)
(i) Reports of Independent Accountants
(ii) Consolidated Balance Sheets - March 31, 1999 and 1998
(ii) Consolidated Statements of Operations - For the years ended
March 31, 1999, 1998 and 1997.
(iv) Consolidated Statement of Changes in Stockholders' Equity - For
the years ended March 31, 1999, 1998 and 1997
(v) Consolidated Statement of Cash Flow - For the years ended March
31, 1999, 1998 and 1997
(iv) Notes to Financial Statements
(2) None
(3) Exhibits Index
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Exhibit Page
Table Number Number
------------ ------
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
I. Articles of Incorporation and Bylaws 3
- ------------------------------------------------------------------------------------------------
(i) Certificate of Incorporation of Tice Technology, Inc. +
- ------------------------------------------------------------------------------------------------
(ii) Bylaws of Tice Technology, Inc. +
- ------------------------------------------------------------------------------------------------
II. Instruments Defining the Rights of Security Holders 4
- ------------------------------------------------------------------------------------------------
(i) Common Stock Purchase Warrant Agreement Between Tice x
Technology, Inc. and Warrant Agent
- ------------------------------------------------------------------------------------------------
(ii) Form of Promissory Note Issued in Connection with 50
Private Placement Closed on June 25, 1999
- ------------------------------------------------------------------------------------------------
(iii) Warrant Agreement relating to Rights to Purchase up 52
to 100,000 Common Shares of Tice Technology, Inc.
Received by Holders of the Promissory Notes
- ------------------------------------------------------------------------------------------------
(iv) Security Agreement Pledging Patents as Security for 59
Promissory Notes
- ------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
(v) Registration Rights Agreement Giving Purchasers under
the Private Placement Closed on June 25, 1999 Certain
Demand and Piggyback Registration Rights 67
- ------------------------------------------------------------------------------------------------
(vi) Option Agreement Relating to Option to Purchase Up to
50,000 Common Shares of Tice Technology, Inc. Granted to
Finder 80
- ------------------------------------------------------------------------------------------------
III. Material Contracts 10
- ------------------------------------------------------------------------------------------------
(i) Agreement Between Tice Technology, Inc. and Transfer *
Agent
- ------------------------------------------------------------------------------------------------
(ii) Employment Agreement Between William A. Tice and Tice
Technology, Inc. 85
- ------------------------------------------------------------------------------------------------
(iii) Employment Agreement Between Charles R. West and
Tice Technology, Inc. 91
- ------------------------------------------------------------------------------------------------
(iv) Incentive Stock Option Plan and Agreement between
Charles R. West and Tice Technology, Inc. 96
- ------------------------------------------------------------------------------------------------
IV. Subsidiaries of the Registrant 21 *
- ------------------------------------------------------------------------------------------------
V. Financial Data Schedule 27 102
- ------------------------------------------------------------------------------------------------
</TABLE>
* Included in original filing of Registration Statement by Tice Technology,
Inc. effective on August 1, 1997 and incorporated by reference herein.
+ Included in Pre-Effective Amendment No. 1 to the Registration Statement and
incorporated by reference herein.
x Included in Pre-Effective Amendment No. 2 to the Registration Statement and
incorporated by reference herein.
(b) No reports on Form 8-K were filed during the last quarter of the fiscal
year ended on March 31, 1999.
48
<PAGE>
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.
Tice Technology, Inc.
By: /s/ on June 29, 1999
-----------------------------------------------------
Charles R. West, President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ on June 29, 1999
- ----------------------------------------------------------
William A. Tice, Chairman of the Board, Director
/s/ on June 29, 1999
- ----------------------------------------------------------
Charles R. West, President, Chief Executive Officer, Director
/s/ on June 29, 1999
- ----------------------------------------------------------
Karen A. Walton, Chief Financial Officer
/s/ on June 29, 1999
- ----------------------------------------------------------
Michael A. Atkins, Director
/s/ on June 29, 1999
- ----------------------------------------------------------
Patrick L. Martin, Director
<PAGE>
Exhibit 4(ii)
-------------
PROMISSORY NOTE
---------------
$_____________ Knoxville, Tennessee
_______________,____
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order of
____________________ (hereinafter together with any subsequent holder called
"Holder") on or before _____________, in lawful currency of the United States of
America, the principal sum of ____________________________________
($______________), to pay interest (computed on the basis of a 360-day year of
twelve thirty-day months) on the unpaid principal balance from the date of this
Note at the rate of ten percent (10%) per annum, on ___________, ____ and the
first day of January, April, July and October of each year thereafter until
maturity. Principal shall be payable in one lump sum payment at maturity.
Both the principal and interest of this Note shall be paid at
_______________, _______________, ________________, or at such other place as
the Holder may designate in writing. The undersigned shall have the privilege,
at any time, of prepaying, in whole or in part, interest or the then outstanding
principal balance hereunder, together with all accrued interest hereon, without
penalty. All prepayments shall be applied first in reduction of all accrued
interest on the entire outstanding principal balance hereof at the rate stated
herein, and then in reduction of the unpaid principal sum.
If any payment of principal or interest under this Note is not paid when
due, then, at the option of the Holder, upon thirty (30) days written notice to
the undersigned the entire principal amount outstanding hereunder and accrued
interest thereon shall at once become due and payable without further notice.
Failure to exercise such option shall not constitute a waiver of the right to
exercise such option if the undersigned is in default thereunder. The
undersigned shall pay the Holder, upon demand, all expenses and costs,
including, but not being limited to, reasonable attorneys' fees, that the Holder
incurs (i) in collecting or attempting to collect the indebtedness evidenced by
this Note, (ii) in enforcing any deed of trust, mortgage, assignment of rents
and leases, security agreement or other collateral that secures this Note or any
guaranty thereof (herein together "Security Documents"), (iii) in protecting the
collateral encumbered by the Security Documents, (iv) in defining or asserting
the Holder's rights in said collateral, and/or (v) with regard to any
bankruptcy, reorganization or insolvency proceeding involving this Note, the
Security Documents or said collateral.
The undersigned shall pay to the Holder a late charge of five percent (5%)
of any monthly installment not received by the Holder within thirty (30) days
after the installment is due.
Presentment, notice of dishonor, and protest and the benefit of any statute
of limitations are hereby waived by all makers, sureties, guarantors and
endorsers hereof. This Note shall be the joint and several obligation of all
makers, sureties, guarantors and endorsers, and shall be binding upon
<PAGE>
them and their heirs, personal representatives, successors and assigns. All
makers, sureties, guarantors and endorsers hereof expressly agree that this
Note, or any payment hereunder, may be extended from time to time without in any
way affecting the liability of said makers, sureties, guarantors and endorsers
hereunder.
The undersigned hereby waives presentment, demand, notice of dishonor and
protest, and agrees that the Holder may, without releasing liability of the
undersigned, grant extensions or renewals hereof from time to time, successively
or otherwise and for any term or terms, and the Holder shall not be liable for
or prejudiced by failure to collect or for lack of diligence in bringing suit on
this Note or any renewals or extensions hereof.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TENNESSEE.
No delay or omission on the part of the Holder in exercising any right
hereunder shall operate as a waiver of such right or any other right. A waiver
or any one occasion shall not be construed as a bar to, or waiver of, any such
right on any future occasions.
The provisions of this Note are binding upon the heirs, assigns, successors
and legal representatives of the undersigned, as the case may be, and shall
inure to the benefit of the Holder, its heirs, assigns, successors and legal
representatives, as the case may be.
If any one or more of the provisions contained in this Note shall be
invalid, illegal or unenforceable for any reason, such invalidity, illegality or
unenforceability shall not affect any other provision of this Note, which be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
The use of any gender pronoun, adjective or word herein shall be deemed to
include all other genders, and the use of any singular term herein shall be
deemed to include the plural, and vice versa.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date first above written.
TICE TECHNOLOGY, INC.
By:________________________________
Charles R. West, President
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Exhibit 4(iii)
--------------
WARRANT AGREEMENT
-----------------
This Warrant Agreement is made as of June 25, 1999, by Tice Technology,
Inc., a Delaware corporation (the "Company").
WHEREAS, the Company has determined to issue Warrants (the "Warrants")
entitling the holders of the Warrants to purchase an aggregate of 100,000 Common
Shares of the Company;
WHEREAS, the Company desires to provide for the form and provisions of the
Warrants, the terms upon which they will be issued and may be exercised, and the
respective rights, limitations and immunities of the Company and the holders of
the Warrants; and
WHEREAS, all acts and things necessary have been done and performed to make
the Warrants, when executed on behalf of the Company, as provided in this
Agreement, the valid, binding and legal obligation of the Company, and to
authorize the execution and delivery of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
ARTICLE I
Execution and Countersignature of Warrants
1.01 Execution of Warrants. Each Warrant, whenever issued, shall be
dated ____________________________, 1999, shall be substantially in the form of
Exhibit A attached hereto and incorporated herein by reference, and shall be
signed by, or bear the facsimile signature of, the President or a Vice President
and of the Secretary or an Assistant Secretary of the Company. If any officer
whose facsimile signature has been placed upon any Warrant ceases to be that
officer before the Warrant is issued, the Warrant may be issued with the same
effect as if the officer had not ceased to be that officer on the date of
issuance.
ARTICLE II
Warrant Price, Duration and Exercise of Warrants
2.01 Warrant Price. Each Warrant, when issued by the Company, shall
entitle the holder of the Warrant, subject to the provisions of this Agreement,
to purchase from the Company the number of Common Shares stated in the Warrant
at the price of $0.50 per share (the "Warrant Price"), subject to the
adjustments provided in Article III of this Agreement. The Warrant Price as used
herein shall refer to the price per share at which Common Shares may be
purchased at the time a Warrant is exercised.
2.02. Duration of Warrants. Warrants may be exercised only on or before
a date that is 48 months after the date of the Warrants (the "Expiration Date")
as described in Article I of this Agreement. Notwithstanding the foregoing, if
notice has been given as provided in Article III hereof
<PAGE>
in connection with the liquidation, dissolution or winding up of the Company,
the Warrants shall expire at the close of business on the third full business
day before the date specified in the notice as the record date for determining
holders of stock entitled to receive any distribution upon the liquidation,
dissolution or winding up; provided, however, that such date is at least 5
business days after the date of the notice.
2.03. Exercise of Warrants.
(a) A Warrant may be exercised by surrendering it at the
principal office of the Company in Knoxville, Tennessee, prior to the close of
business of the Company on the Expiration Date or such earlier date as may be
applicable, with the exercise form set forth in the Warrant duly completed and
executed, and by paying in full, in lawful money of the United States, the
Warrant Price for each full Common Share as to which the Warrant is exercised,
and any applicable taxes. Notwithstanding the foregoing, (i) no Warrants may be
exercised for fewer than 500 shares at any one time, unless such holder holds
Warrants for fewer than 500 shares in which case such Warrants must be exercised
for all remaining shares; and (ii) the Company is only required to use
reasonable efforts which will permit the purchase and sale of the Common Shares
underlying the Warrants and is not required to register or qualify the Warrants
or the Common Shares underlying the Warrants under the Securities Act of 1933,
as amended (the "Securities Act") or the securities "blue sky" laws of any
state.
(b) As soon as practicable after the exercise of any Warrant, the
Company shall issue to, or upon the order of, the holder or holders of the
Warrant, in whatever name or names the Warrant holder may direct, a certificate
or certificates for the number of full Common Shares to which the holder or
holders are entitled, registered in the name or names specified by the holder or
holders, and, if the Warrant is not exercised in full (except with respect to a
remaining fraction of a share), a new Warrant for the number of shares
(including fractional shares) as to which the Warrant has not been exercised.
All Warrants surrendered shall be canceled by the Company.
(c) If the same holder of one or more Warrants exercises the purchase
rights under the Warrants in the same transaction in a manner that leaves the
right to purchase a fraction of a share unexercised, the Company shall pay a
cash adjustment with respect to that final fraction in an amount equal to the
same fraction of the current market price of one Common Share on the business
day that next precedes the day of exercise reduced by the same fraction of the
Warrant Price of one Common Share on that day. For this purpose, the current
market price shall be the price of one Common Share on the principal stock
exchange on which the Common Shares is traded at the close of the market on the
next preceding business day, or, if the Common Shares are not then listed on a
stock exchange, the average of the reported bid and asked prices on that day in
the over-the-counter market. If no sales take place on the next preceding day,
the price or the average of the bid and asked prices, whichever is applicable,
shall be determined as of the preceding business day on which shares were traded
closest in time to the date of exercise, provided that such day is no more than
5 business days prior to the date of exercise.
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(d) All Common Shares issued upon the exercise of a Warrant
shall be duly and validly issued, fully paid and nonassessable, and the Company
shall pay all taxes in connection with the issuance of such shares. The Company
shall not be required to pay any tax imposed in connection with any transfer
involved in the issuance of a certificate for Common Shares in any name other
than that of the holder or holders of the Warrant surrendered in connection with
the purchase of the shares. In this case the Company shall not be required to
issue or deliver any stock certificate until the tax has been paid.
(e) Each person in whose name any certificate for Common Shares
is issued shall be deemed to have become the holder of record of the shares on
the date on which the Warrant was surrendered and payment of the Warrant Price
and any applicable taxes was made, irrespective of the date of delivery of the
certificate, except that, if the date of surrender and payment is a date when
the stock transfer books of the Company are closed, a person shall be deemed to
have become the holder of shares at the close of business on the next succeeding
date on which the stock transfer books are open. Except as otherwise provided in
Article III, each person holding any shares received upon exercise of Warrants
shall be entitled to receive only dividends or distributions which are payable
to holders of record on or after the date on which the person is deemed to
become the holder of record of such shares.
ARTICLE III
Adjustments
3.01. Stock Dividends - Split-Ups. If after the date of this Agreement,
and subject to the provisions of Section 3.07 hereof, the number of outstanding
Common Shares of the Company is increased by a stock dividend payable in Common
Shares or by a split-up of Common Shares, then, on the day following the date
fixed for the determination of holders of Common Shares entitled to receive the
stock dividend or split-up, the number of shares issuable on exercise of each
Warrant shall be increased in proportion to the increase in outstanding shares
and the then applicable Warrant Price shall be correspondingly decreased.
3.02. Aggregation of Shares. If after the date of this Agreement, and
subject to the provisions of Section 3.07 hereof, the number of outstanding
Common Shares of the Company is decreased by a combination or reclassification
of Common Shares, then, after the effective date of the combination or
reclassification, the number of Common Shares issuable on exercise of each
Warrant shall be decreased in proportion to the decrease in outstanding Common
Shares and the then applicable Warrant Price shall be correspondingly increased.
3.03. Special Stock Dividends. If after the date of this Agreement, and
subject to the provisions of Section 3.07 hereof, shares of any class of stock
of the Company (other than Common Shares) are issued by way of a stock dividend
on outstanding Common Shares, then, commencing with the day following the date
fixed for the determination of holders of Common Shares entitled to receive the
stock dividend, in addition to any Common Shares receivable upon exercise of the
Warrants, the Warrant holders upon exercise of the Warrants shall be entitled to
receive, as nearly as practicable, the same number of shares of dividend stock,
plus any shares issued upon any
3
<PAGE>
subsequent change, replacement, subdivision or combination of the stock
dividend, to which the holders would have been entitled if their Warrants would
have been exercised immediately prior to the stock dividend. No adjustment in
the Warrant Price shall be made merely by virtue of the happening of any event
specified in this Section 3.03.
3.04. Reorganization, Etc. If after the date of this Agreement any
capital reorganization or reclassification of the Common Shares of the Company,
or consolidation or merger of the Company with another corporation, or sale of
all or substantially all of its assets to another corporation is effective,
then, as a condition of the reorganization, reclassification, consolidation,
merger or sale, lawful and fair provision shall be made whereby the Warrant
holders after the transaction shall have the right to purchase and receive, upon
the basis and upon the terms and conditions specified in the Warrants and in
lieu of the Common Shares of the Company purchasable and receivable immediately
prior to the transaction upon the exercise of the rights represented by the
Warrants, the shares of stock, securities or assets that may be issued or
payable with respect to or in exchange for a number of outstanding Common Shares
equal to the number of Common Shares purchasable and receivable immediately
prior to the transaction upon the exercise of the rights represented by the
Warrants if the reorganization, reclassification, consolidation, merger or sale
had not taken place. Appropriate provisions shall be made in connection with a
reorganization, reclassification, consolidation, merger or sale with respect to
the rights and interests of the Warrant holders to the end that the provision of
this Agreement (including, without limitation, provisions for adjustments of the
Warrant Price and of the number of shares purchasable upon exercise of the
Warrants) shall immediately after the transaction be applicable as nearly as
possible to any shares of stock, securities or assets deliverable immediately
after the transaction upon the exercise of the Warrants. The Company shall not
effect any consolidation, merger or sale unless, prior to the consummation of
the transaction, the successor corporation (if other than the Company) resulting
from the consolidation or merger, or the corporation purchasing the assets,
assumes by written instrument executed and delivered to the Warrant Agent the
obligation to deliver to the Warrant holders the shares of stock, securities or
assets in accordance with the foregoing provisions that the holders may be
entitled to purchase.
3.05. Notice of Change in Warrant. Upon any adjustment of the Warrant
Price or the number of shares issuable on exercise of a Warrant, then and in
each case the Company shall give written notice of the adjustment to the holders
of the Warrants mailed to the address of each such holder registered with the
Company. The notice shall state the Warrant Price resulting from the adjustment
and the increase or decrease, if any, in the number of shares purchasable at
that price upon exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which the calculation is based. Failure
to give notice, or any defect in a notice, shall not affect the legality or
validity of the changes or adjustments.
3.06. Other Notices. In case at any time:
(a) the Company pays any dividends payable in stock upon its
Common Shares or makes any distributions (other than regular cash dividends) to
the holders of its Common Shares;
4
<PAGE>
(b) the Company offers for subscription pro rata to the holders
of its Common Shares any additional shares of stock of any class or any other
rights;
(c) there is a capital reorganization, a classification of the
capital stock of the Company or a consolidation or merger of the Company with,
or a sale of all or substantially all of its assets to, another corporation; or
(d) there is a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of these cases, the Company shall give written notice
in the manner set forth in Section 3.05 of this Agreement of the date on which
(i) the books of the Company close or a record is taken for the dividend,
distribution or subscription rights, or (ii) the reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up takes place. The notice also shall specify the date as of which the
holders of record of Common Shares shall participate in dividend, distribution
or subscription rights, or shall be entitled to exchange their Common Shares for
securities or other property deliverable upon the reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up. The notice shall be given at least 20 days prior to the transaction
in question and not less than 20 days prior to the record date or the date on
which the Company's transfer books are closed with respect to the transaction.
Failure to give the notice, or any defect in the notice, shall not affect the
legality or validity of any transaction covered or to be covered in the notice.
3.07. Limitation on Fractions. Notwithstanding anything in Sections
3.01 or 3.02 hereof to the contrary, cumulative adjustments in the number of
shares issuable upon exercise of Warrants shall be made only to the nearest
multiple of one-tenth of a share, i.e., fractions of less than five-hundredths
of a share shall be disregarded and fractions of five-hundredths of a share or
more shall be treated as being one-tenth of a share.
3.08. Form of Warrant. The form of Warrant need not be changed due to
any change pursuant to this article, and Warrants issued after a change may
state the same Warrant Price and the same number of shares as is stated in the
Warrants initially issued pursuant hereto. However, at any time in its sole
discretion, the Company may make any change in the form of Warrant that it may
deem appropriate and that does not affect the substance of the Warrants. Any
Warrant subsequently issued, whether in exchange or substitution for an
outstanding Warrant or otherwise, may be in the form as so changed.
ARTICLE IV
Other Provisions Relating to Rights of Holders of Warrants
4.01. No Rights as Stockholder Conferred by Warrants. A Warrant does
not entitle its holder to any of the rights of a stockholder of the Company.
5
<PAGE>
4.02. Lost, Stolen, Mutilated or Destroyed Warrants. If any Warrant is
lost, stolen, mutilated or destroyed, the Company may issue a new Warrant of
like denomination, tenor and date as the Warrant so lost, stolen, mutilated or
destroyed. Any such issuance of a new Warrant shall be on whatever terms and
conditions with respect to indemnity or otherwise that the Company may in its
sole discretion impose (which shall, in the case of a mutilated Warrant, include
the surrender of the Warrant).
4.03. Reservation of Common Shares. The Company shall at all times
reserve and keep available the number of its authorized but unissued Common
Shares which is sufficient to permit the exercise in full of all outstanding
Warrants. If at any time the number of authorized but unissued Common Shares is
not sufficient for these purposes, the Company shall take such corporate action
as, in the opinion of counsel, may be necessary to increase its authorized but
unissued shares to the number of shares sufficient for these purposes.
ARTICLE V
Ownership and Transfer of Warrants
5.01. Ownership of Warrants. Warrants issued pursuant to this Agreement
shall be treated as owned only by the holder of record as determined by the
Company.
5.02. Transfer of Warrants.
(a) Neither the Warrants nor the Common Shares issuable upon
exercise of the Warrants have been registered or qualified under the Securities
Act or under the securities or "blue sky" laws of any state. Investors have
represented that the Warrants and the underlying Common Shares were acquired for
investment and not with a view to distribution or resale, and may not be made
subject to a security interest, pledged, hypothecated, or otherwise transferred
except pursuant to an effective registration under federal and state laws or
pursuant to exemptions from registration. Certificates representing the Warrants
and any shares issued thereunder will bear a legend reflecting such restrictions
on transfer. Prior to permitting transfer of any Warrants or underlying shares
on its books, the Company may require an opinion of counsel acceptable to it
that any such transfer complies with applicable laws.
(b) For any transfer that meets the criteria described in
paragraph (a) above, one or more Warrants may be surrendered to the Company for
transfer and, upon their cancellation, the Company shall deliver in exchange one
or more new Warrants, as requested by the holder of the canceled Warrant or
Warrants, for purchase of the same aggregate number of shares as were evidenced
by or applicable to the Warrant or Warrants so canceled.
ARTICLE VI
Other Matters
6.01. Payment of Taxes. The Company shall from time to time promptly
pay all taxes and charges that may be imposed upon the Company in connection
with the issuance or delivery of
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<PAGE>
Common Shares upon the exercise of Warrants, but the Company shall not be
required to pay any transfer taxes in connection with the Warrants or shares.
6.02. Modification of Agreement. Without the consent or concurrence of
the holders of the Warrants, the Company may by supplemental agreement or
otherwise make any changes or corrections in this Agreement that it is advised
by counsel (who may be counsel for the Company) are required to cure any
ambiguity or to correct any defective or inconsistent provision or clerical
omission or mistake or manifest error contained herein.
6.03. Notices and Demands to Company and Warrant Agent. Any notice or
demand to be given or made by the Company or by the holder of any Warrant shall
be sufficiently given or made if sent by certified or registered mail, postage
prepaid, addressed to the Company at its principal office or to the holder of
any Warrant at the address registered with the Company.
6.04. Applicable Law. The validity, interpretation and performance of
this Agreement and of the Warrants shall be governed by the laws of the State of
Delaware, without regard to the principles or provisions thereof regarding
conflicts of laws.
6.05. Persons Having Rights Under This Agreement. Nothing expressed in
this Agreement and nothing that may be implied from any of the provisions hereof
is intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the Company and the holders of the Warrants any right,
remedy or claim under or by reason of this Agreement or of any covenant,
conditions, stipulation, promise or agreement contained herein, and all
covenants, conditions, stipulations, promises and agreements contained herein
shall be for the sole and exclusive benefit of the Company and its successors
and assigns and of the holders of the Warrants.
6.06. Examination of Agreement. A copy of this Agreement shall be
available at all reasonable times at the office of the Company for inspection by
the holder of any Warrant. The Company may require the holder seeking inspection
to submit the Warrant for inspection by it.
6.07. Effect of Headings. The article and section headings in this
Agreement are for convenience only and are not part of this Agreement and shall
not affect the interpretation hereof.
WITNESS the signature of an authorized representative of the Company as of
the day first above written.
Tice Technology, Inc.
By: /s/
-------------------------------
Title:
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7
<PAGE>
Exhibit 4(iv)
-------------
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Security Agreement") is made and entered into
on this 25th day of June, 1999, by Tice Engineering & Sales, Inc., a Tennessee
corporation with principal office and place of business in Knoxville, Tennessee
("TES"), in favor of those persons who purchased notes from Tice Technology,
Inc. (the "Debtor") in a private placement and who are listed on Exhibit A
attached hereto and made a part hereof (the "Secured Parties").
P R E L I M I N A R Y S T A T E M E N T:
----------------------------------------
A. Pursuant to an offering described in the Private Placement Memorandum
dated May 21, 1999, the Secured Parties have made term loans in the total
principal amount of One Million Dollars ($1,000,000) to the Debtor (the
"Loans").
B. The obligation of the Debtor to repay to the Secured Parties the Loans
together with accrued interest thereon are evidenced by Promissory Notes of even
date herewith, made by the Debtor, each payable to the order of one or more of
the Secured Parties, and which together have a total principal amount of One
Million Dollars ($1,000,000.00) (collectively, the "Notes").
C. The Debtor owns all of the issued and outstanding stock of TES. The
obligation of the Secured Parties to make the Loans to the Debtor is expressly
subject to the condition, among others, that TES execute and deliver this
Security Agreement in favor of the Secured Parties and, pursuant hereto, grant
to the Secured Parties a first priority security interest in the property
described below to secure the payment of all of the obligations described below.
In order to induce the Secured Parties to make the Loans, TES has agreed to
grant a security interest in certain of its assets which are described below.
NOW, THEREFORE, in consideration of the Secured Parties making the Loans to
the Debtor and for other good and valuable consideration, the mutuality, receipt
and sufficiency of which are hereby acknowledged, TES and the Secured Parties
hereby agree as follows:
1. Security Interest. To secure the payment of the Notes together with
all of the other indebtedness described in Section 2 hereof, TES hereby grants
to the Secured Parties a first priority security interest in and lien on the
patents on the electronic gearing components for sewing machines, namely patent
#5,458,075 issued on October 17, 1995 and patent #5,839,382 issued on November
24, 1998 (the "Collateral"), and the Proceeds therefrom. This security interest
is expressly subject to licensing and related rights which TES has granted and
which it may grant in the future.
As used herein, the term "Proceeds" means: (a) whatever is received upon
any collection, exchange, sale, rental, lease or other disposition of any of the
Collateral, and any property into which any of the Collateral is converted,
whether cash or non-cash proceeds, (b) any and all proceeds of
1
<PAGE>
any insurance, indemnity, warranty or guaranty payable to TES from time to time
with respect to any of the Collateral, (c) any and all payments (in any form
whatsoever) made or due and payable to TES from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority, bureau or agency (or
any person acting under color or governmental authority), (d) any claim of TES
against third parties for past, present or future infringement of or dilution of
any patent, and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
2. Secured Obligations. TES has executed and delivered this Security
Agreement, and has granted to the Secured Parties a security interest in the
Collateral, to secure (a) the payment when due, whether at stated maturity, by
acceleration or otherwise, of the entire unpaid principal balance of and all
interest now accrued or hereafter to accrue on the Notes and (b) the payment of
all costs and expenses, including, without limitation, reasonable attorneys'
fees, now or hereafter incurred by the Secured Parties in collecting or
enforcing the Notes or this Security Agreement, all as set forth therein (the
Notes and all of the other obligations described in this Section 2 are
hereinafter collectively referred to as the "Secured Obligations").
3. Affirmative Covenants. TES hereby covenants and agrees with the
Secured Parties that TES will observe and perform all of the following
provisions until all of the Secured Obligations have been paid in full to the
Secured Parties and this Security Agreement has been terminated:
3.1 Defend the Collateral. TES shall, at its own expense, defend the
Collateral against the claims and demands of all persons and entities, and shall
take or cause to be taken all actions necessary or appropriate to preserve,
protect and maintain good right and title to all of the Collateral at all times.
3.2 Use and Inspection of Collateral. TES shall use the Collateral in
complete compliance with all applicable laws, rules and regulations governing
the use thereof. TES shall permit LandOak Securities, LLC, or any person
substituted for LandOak Securities, LLC by a majority in interest of the Secured
Parties with notice of such substitution to TES, as the representative of the
Secured Parties, to inspect its books and records pertaining to the Collateral
at all reasonable times and from time to time. TES shall forthwith deliver to
the Secured Parties such information concerning the Collateral that the
Representative may from time to time reasonably request.
3.3 Change of Name or Location. TES shall advise the Representative,
in writing, at least thirty (30) days in advance, of any proposed change in its
principal place of business or registered office or the proposed opening of any
new place of business or any new location where any of the records concerning
the Collateral may be located, or any proposed change in its name or its
proposed adoption of a trade name, assumed name or fictitious name. TES shall at
all times maintain all of its books and records with respect to the Collateral
at its principal executive office.
3.4 Further Assurances. TES, at its own expense, shall execute and
deliver such Uniform Commercial Code Financing Statements, Uniform Commercial
Code Amendments, Uniform Commercial Code Continuation Statements and such other
documents and instruments and shall take such further actions as may be
necessary or as may be reasonably requested by the
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<PAGE>
Representative to carry out the purposes of this Security Agreement and to
perfect and to continue the perfected status of the security interest in the
Collateral granted to the Secured Parties pursuant hereto.
3.5 Maintenance of Priority Security Interest. TES shall pay and
discharge all other encumbrances upon the Collateral the lien of which could be
held prior to the security interest granted to the Secured Parties pursuant to
this Security Agreement, other than liens and security interests expressly
permitted hereunder.
4. Negative Covenants. TES hereby covenants and agrees with the Secured
Parties that it will observe and perform, or all of the following provisions
until all of the Secured Obligations have been paid in full to the Secured
Parties and this Security Agreement has been terminated:
4.1 Levies. TES shall not permit any of the Collateral to be levied
upon under any legal process.
4.2 Sale or Encumbrance of the Collateral. TES shall not, without the
prior written consent of the Secured Parties, sell, transfer, dispose of or
further encumber any of the Collateral, except for the grant of licenses
relating to the Collateral in the ordinary course of business.
4.3 Location of the Collateral. TES shall not, without at least
thirty (30) days prior written notice to the Representative, change the location
of its books and records maintained with respect to the Collateral if such
change of location would require the Secured Parties to file any additional
documents to continue the Secured Parties' perfection of their security interest
in the Collateral.
5. Representations and Warranties. TES represents and warrants to the
Secured Parties as follows, which representations and warranties shall be deemed
to be continuing representations and warranties and shall survive the execution
and delivery of this Security Agreement:
5.1 Location of the Collateral. The Collateral is used or will be
used for business purposes, and the Collateral and all books and records
concerning the Collateral are currently located at 6711 Maynardville Highway,
Knoxville, Tennessee 37918.
5.2 Places of Business; Names. TES currently has no place of business
other than as set forth in Section 5.3 hereof, nor has TES done business under
any name other than Tice Engineering & Sales, Inc.
5.3 Registered Office, Principal Office. The registered office of TES
is located at 6711 Maynardville Highway, Knoxville, Tennessee 37918. The
principal office and place of business of TES is located at 6711 Maynardville
Highway, Knoxville, Tennessee 37918.
6. Events of Default. The following shall each constitute an "Event of
Default" hereunder:
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<PAGE>
6.1 Default Under This Security Agreement. If TES shall breach,
violate or fail to perform or observe any covenant, obligation, agreement,
condition or other provision contained in this Security Agreement, and the same
is not cured to the reasonable satisfaction of the Representative within thirty
(30) days after the Secured Parties has specified such default in a written
notice delivered to TES.
6.2 Event of Default Under the Notes. The occurrence and continuation
of any Event of Default under and as defined in any of the Notes, to the extent
the same is not cured in accordance with the terms and provisions thereof.
7. Rights of the Secured Parties. Upon the occurrence and during the
continuation of any Event of Default, the Representative may declare all of the
Secured Obligations to be immediately due and payable on behalf of the Secured
Parties and may exercise all available rights and remedies of a secured party
under the Code or under any other applicable law, including, without limitation,
the right to take possession of the Collateral and, in addition thereto, the
right to enter upon any premises on which the Collateral or any part thereof may
be situated and remove the same therefrom. Unless the Collateral threatens to
decline speedily in value, the Representative will give the Debtor and TES at
least ten (10) days' prior written notice of the time and place of any public
sale thereof or of the time after which any private sale or any other intended
disposition thereof is to be made. Any such notice shall be deemed to meet any
requirement hereunder or under any applicable law that reasonable notification
be given of the time and place of such sale or other disposition. After
deducting all costs and expenses of collection, custody, sale or other
disposition and delivery of the Collateral, including reasonable legal costs and
attorneys' fees and all other charges against the Collateral, the residue of the
proceeds of any such sale or disposition shall be applied to the payment of the
Secured Obligations prorata among the Secured Parties in such order as the
Secured Parties may select, and any surplus after payment of the Secured
Obligations in full to the Secured Parties shall be returned to TES or to any
person or party lawfully entitled thereto. In the event the proceeds of any
sale, lease or other disposition of the Collateral hereunder are insufficient to
pay all of the Secured Obligations in full to the Secured Parties, the Debtor
will be liable for the deficiency thereof together with interest thereon at the
default rate, set forth in the Notes and the costs and expenses of collection of
such deficiency, including, to the extent permitted by law, reasonable legal
costs and attorneys' fees, expenses and disbursements.
8. Rights of Secured Parties to Use the Collateral. Upon any taking of
possession of the Collateral, as provided by Section 7 hereof, the Secured
Parties shall have the right to manage and control the Collateral and to carry
on the business and to exercise all rights and powers of TES in respect thereto
as the Secured Parties shall deem best, including, without limitation, the right
to enter into any and all such agreements with respect to the licensing of the
Collateral or any part thereof, subject to the rights of existing licensees, as
the Secured Parties may see fit; and the Secured Parties shall be entitled to
collect and receive all royalties, issues, profits, fees, revenues and other
income of the same and every part thereof. Such royalties, issues, profits,
fees, revenues and other income shall be applied to pay the expenses of holding
and operating the Collateral and of conducting the business thereof, and to make
all payments which the Secured Parties may be required or may elect to make, if
any, for taxes, assessments, insurance and other charges upon the Collateral or
any part thereof, and all other payments which the Secured Parties may be
required or authorized to make under any provision of this Security Agreement
including reasonable legal costs and attorneys' fees.
-4-
<PAGE>
The remainder of such royalties, issues, profits, fees, revenues and other
income shall be applied to the payment of the Secured Obligations, prorata to
the Secured Parties, in such order as the Secured Parties may select and, unless
otherwise provided by law or by a court of competent jurisdiction, any surplus
shall be returned to TES or to any person or party lawfully entitled thereto.
Without limiting the generality of the foregoing, the Representative shall have
the right to apply for and have a receiver appointed by a court of competent
jurisdiction in any action taken by the Secured Parties to enforce their rights
and remedies hereunder in order to manage, protect and preserve the Collateral
and to collect all royalties, issues, profits, fees, revenues and other income
thereof and apply the same to the payment of all expenses and other charges of
such receivership, including, without limitation, the compensation of the
receiver, and to the payment of the Secured Obligations as aforesaid until a
sale or other disposition of such Collateral shall be finally made and
consummated.
9. Waivers, Consents. TES consents to and waives notice of the granting
of renewals, extensions of time for payment or other indulgences to the Debtor,
or the substitution, release or surrender of any Collateral, the addition or
release of persons primarily or secondarily liable on any Secured Obligation or
other Collateral, and the acceptance of partial payments on any Secured
Obligation or the settlement or compromise thereof. No delay or omission on the
part of the Secured Parties in exercising any right hereunder shall operate as a
waiver of such right or of any other right hereunder. No waiver by the Secured
Parties or by any other holder of the Secured Obligations of any default
hereunder shall be effective unless in writing nor operate as a waiver of any
other default or of the same default on a future occasion. Any waiver of any
such right on any one occasion shall not be construed as a bar to or waiver of
the exercise of any such right on any future occasion.
10. Termination; Assignment. This Security Agreement and the security
interest in the Collateral created hereby shall terminate when all of the
Secured Obligations have been paid to the Secured Parties and finally discharged
in full. In the event of a sale or assignment by the Secured Parties of all or
any of the Secured Obligations, the Secured Parties may assign or transfer its
rights and interest under this Security Agreement in whole or in part to the
purchaser or purchasers of such Secured Obligations, whereupon such purchaser or
purchasers shall become vested with all of the powers and rights of the Secured
Parties hereunder.
11. Reinstatement. This Security Agreement shall continue in effect, or be
reinstated, as the case may be, at any time any amount received by the Secured
Parties in respect of the Secured Obligations is rescinded or must otherwise be
restored or returned by the Secured Parties upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Debtor or TES or upon the
appointment of an intervenor or conservator of, or trustee or similar official
for, the Debtor, TES or any substantial part of either of their properties, or
otherwise, all as though such payments had not been made.
12. Governing Law. This Security Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee.
13. Cumulative Rights and Remedies. All rights and remedies of the Secured
Parties as set forth in this Security Agreement shall, to the fullest extent
permitted by applicable law, be cumulative, and the exercise by the Secured
Parties of any right or remedy shall not be deemed to
-5-
<PAGE>
be an election of that right or remedy to the exclusion of any other right or
remedy of the Secured Parties.
14. Payment of Costs, Attorneys' Fees and Expenses. TES covenants and
agrees to pay any and all reasonable costs, attorneys' fees and other expenses
of whatever kind incurred by the Secured Parties in connection with (a)
enforcing this Security Agreement, (b) obtaining possession of the Collateral,
(c) the protection and preservation of the Collateral, (d) the collection of the
Secured Obligations or any part thereof, and (e) any litigation involving the
Collateral, any benefit accruing to the Secured Parties by virtue of the
provisions hereof or the rights of the Secured Parties hereunder.
15. Irrevocable Attorney-in-Fact. TES hereby irrevocably appoints the
Representative as TES's attorney-in-fact (a) to do all acts and things which the
Secured Parties may deem necessary or appropriate to perfect and to continue the
perfected status of the security interest created by this Security Agreement and
to protect the Collateral, including, without limitation, the execution in TES's
name, as its irrevocable attorney-in-fact, of Uniform Commercial Code Financing
Statements, Uniform Commercial Code Amendments and Uniform Commercial Code
Continuation Statements and other forms of the U.S. Patent and Trademark Office
covering the Collateral and the filing and recordation of the same, and (b)
following the occurrence of an Event of Default hereunder and during the
continuation thereof, to endorse, in the name of TES, all checks, drafts and
other instruments in payment of amounts owed in connection with the Collateral,
to give notices and receipts in TES's name, to collect and to bring suit to
collect or to compromise or to settle any such accounts, and to perform such
other acts in connection with the Collateral as the Representative determines to
be necessary or appropriate to effectuate the purposes of this Security
Agreement.
16. Reimbursement of Advances. TES shall reimburse the Secured Parties for
all reasonable payments made by the Secured Parties in performing any actions on
behalf of TES allowed hereunder, including, without limitation, all amounts paid
by the Secured Parties to discharge taxes, levies and liens against the
Collateral or to maintain, operate and preserve the Collateral. All such
advances made by the Secured Parties shall bear interest at the default rate set
forth in the Notes, and all such advances and all interest thereon shall
constitute part of the Secured Obligations, shall be secured by all of the
Collateral with the same priority as the Notes to the fullest extent permitted
by applicable law, and shall be due and payable in full to the Secured Parties
upon demand made therefor by the Secured Parties at any time in its sole and
absolute discretion.
17. Notices. All notices required or permitted to be given hereunder shall
be given in writing and shall be personally delivered or sent by an express
courier service or by registered or certified United States mail, return receipt
requested, postage prepaid, addressed as follows (or to such other address as to
which any party hereto shall have given the other written notice):
If to TES: Tice Engineering & Sales, Inc.
6711 Maynardville Highway
Knoxville, Tennessee 37918
Attn: Charles R. West
-6-
<PAGE>
If to the Secured Parties: LandOak Securities, LLC
10267 Kingston Pike
Knoxville, Tennessee 37922
Attn:
All notices hereunder shall be deemed given upon actual receipt in accordance
with the foregoing.
18. Severability of Provisions; Tense. If any term or provision of this
Security Agreement is held to be invalid or unenforceable in any jurisdiction,
the other terms and provisions hereof shall remain in full force and effect in
such jurisdiction and the invalid or unenforceable provision shall remain in
full force and effect in all other jurisdictions. As used herein, the singular
includes the plural, and vice versa.
19. Successors and Assigns. This Security Agreement shall bind TES and its
successors and assigns and shall inure to the benefit of the Secured Parties and
their permitted successors and assigns.
20. Captions. The section headings have been inserted in this Security
Agreement for convenience of reference only and shall not affect the
interpretation of the substantive provisions hereof.
21. No Third Party Rights. Nothing contained in this Security Agreement
shall operate for the benefit of, or shall be construed to create or confer any
rights in favor of, any individuals, corporations, partnerships or other
entities not a party to this Security Agreement (excluding the respective
permitted successors and assigns of TES and the Secured Parties).
IN WITNESS WHEREOF, this Security Agreement has been executed by a duly
authorized officer of Tice Engineering & Sales, Inc. as of the date first above
written.
Tice Engineering & Sales, Inc.
By: /s/
--------------------------
Charles R. West, President
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<PAGE>
EXHIBIT A
---------
Secured Parties
[list of note holders]
-8-
<PAGE>
Exhibit 4(v)
------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of June 25,
1999 by and among TICE TECHNOLOGY, INC., a Delaware corporation (the
"Company"), MICHAEL A. ATKINS, a resident of the State of Tennessee ("Atkins"),
PATRICK L. MARTIN, a resident of the State of Tennessee ("Martin"), LANDOAK
SECURITIES, LLC, a Tennessee limited liability company ("LandOak") (Atkins,
Martin and LandOak are collectively referred to herein as the "Initial
Investors"), such other persons that may become parties to this Agreement from
time to time (the "Investors") pursuant to the Company's offering of its
securities (the "Offering") upon the terms set forth in that certain private
placement memorandum dated May 21, 1999 (the "Memorandum") (Atkins, Martin,
LandOak and the Investors are collectively referred to herein as the
"Purchasers"), and such other persons that may become parties to this Agreement
from time to time by reason of the transfer of rights pursuant to Section 9
hereof (collectively the "Transferees").
WITNESSETH:
WHEREAS, the Initial Investors have executed and delivered to the Company
that certain Letter Agreement dated April 26, 1999 (the "Purchase Agreement")
pursuant to which they agreed to purchase shares of the Company's common stock
(the "Common Stock");
WHEREAS, the Company is conducting the Offering to the Investors upon the
terms set forth in the Memorandum;
WHEREAS, as an inducement to and condition of Atkins, Martin and LandOak
consummating the acquisition contemplated in the Purchase Agreement (the
"Acquisition") and the Investors participation in the Offering, the Company
agreed to provide the Purchasers and certain transferees certain rights to cause
the registration under the Securities Act of 1933 of offers and sales of Common
Stock held by such persons.
NOW, THEREFORE, in consideration of the recitals made above and the mutual
covenants and agreements stated herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Acquisition" shall have the meaning set forth in the recitals above,
(b) "Best Efforts" means the taking of all commercially reasonable steps
to cause or prevent any event or condition which would have been taken in
similar circumstances by a reasonably prudent business person engaged in a
similar business for the advancement or
<PAGE>
protection of his own economic interest in light of the consequences of failure
to cause or prevent the occurrence of such event or condition.
(c) "Closing" means the closing of the Acquisition pursuant to the
Purchase Agreement.
(d) "Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(e) "Common Stock" means the shares of Common Stock of the Company,
no par value per share.
(f) "Company" shall have the meaning set forth in the preface hereof.
(g) "Form S-3" means a registration statement on Form S-3 adopted by
the Commission under the Securities Act or any substantially similar form from
time to time in effect.
(h) "Holder" means any holder of outstanding Registrable Securities
which have not been sold to the public, but only if such holder is the Purchaser
or lawful Transferee.
(i) "Material Adverse Event" means an occurrence having a consequence
that either (a) is materially adverse as to the business, properties, prospects
or financial condition or the market for the securities of the Company or (b)
is reasonably foreseeable, has a reasonable likelihood of occurring, and if it
were to occur might materially adversely affect the business, properties,
prospects or financial condition of the Company.
(j) "Purchase Agreement" has the meaning set forth in recitals above.
(k) "Purchasers" has the meaning set forth in the preface above.
(l) "Register," "Registered" and "Registration" refer to a
registration of the offer and sale of securities pursuant to the Securities Act
effected by preparing and filing a Registration Statement (hereinbelow defined)
in compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(m) "Registrable Securities" means the shares of Common Stock held by
the Purchasers, or acquired by or issued to any Transferee, including shares of
Common Stock or shares or units of other securities issued pursuant to any
stock split, stock dividend, reorganization, recapitalization, reclassification,
or other distribution or change in respect of the shares of Common Stock of the
Company.
(n) "Registration Expenses" means all expenses excluding Selling
Expenses incurred by the Company in effecting any Registration pursuant to this
Agreement and in complying with Section 2, Section 3 and Section 4 of this
Agreement, including, without limitation, all
2
<PAGE>
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company and reasonable fees and
disbursements of a single special counsel for the Holders (if different from the
Company's counsel), blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company).
(o) "Registration Statement" means a registration statement on a
form prescribed by the Commission for use in registering the offer and sale of
securities under the Securities Act.
(p) "Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(q) "Selling Expenses" means all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities pursuant to this Agreement.
(r) "Transferee" has the meaning set forth in the preface above.
(s) "Underwritten Offering" means a registered public offering of
Registrable Securities pursuant to an underwriting agreement with an investment
banking firm reasonably acceptable to the Company.
2. Demand Registration.
2.1 Request for Registration.
(a) Subject to exceptions and limitations as hereinafter provided, at
any time after the Closing, any Holder or group of Holders holding, in the
aggregate, at least fifty-one percent (51%) of the Registrable Securities at the
time of any Demand may make a single, one time written request (a "Demand") that
the Company file with the Commission a Registration Statement in respect of all,
but not less than all, Registrable Securities then held by such Holder(s) at the
time of such Demand. Upon receipt of a Demand, the Company shall as soon as
practicable cause a Registration Statement to be filed with the Commission on
Form S-3, if available, or, if Form S-3 is not available for the Registration of
the Registrable Securities, on such form as may be prescribed by the Commission.
If the Registration is not in connection with an Underwritten Offering pursuant
to Section 2.4 below, then such Registration Statement shall contain all
appropriate undertakings necessary to comply with Rule 415 under the Securities
Act pertaining to "shelf registration" or delayed offerings of securities. The
Company shall use its Best Efforts to cause the Commission to declare such
Registration Statement effective and, if a Registration subject to Rule 415, to
maintain the effectiveness of such Registration Statement for a period of one
(1) year. Should any Holder or group of Holders holding, in the aggregate, at
least fifty-one percent (51%) of the Registrable Securities make a Demand within
one (1) year of the Closing, such Holder or Holders shall bear all costs
associated with such Registration.
3
<PAGE>
(b) Upon receipt of any Demand, the Company shall immediately give notice
to all other Holders that such Demand has been received. Upon receipt of such
notice, the Piggyback Registration Rights of such Holders described in Section 3
hereof shall vest and be exercisable, subject to the exceptions and limitations
expressed herein.
2.2 Registration of Other Securities in Demand Registration. Any
Registration Statement filed pursuant to the Demand of a Holder pursuant to
Section 2.1 above may, subject to the provisions hereof, including, without
limitation, Section 3.2 include securities of the Company other than Registrable
Securities whether held by the Holders or other Shareholders.
2.3 Blue Sky in Demand Registration. In the event of any Registration
pursuant to this Section 2, the Company shall use its Best Efforts to register
and/or qualify the securities covered by the Registration Statement under such
other securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders and as may be reasonably appropriate for the
distribution of such securities, provided, however, the Company shall not be
required to register and/or qualify such securities in more than three (3) such
jurisdictions that require filing.
2.4 Underwritten Offering Pursuant to Demand Registration. The Holder(s)
making a Demand shall be entitled to engage an underwriter reasonably acceptable
to the Company to offer and sell in an Underwritten Offering the Registrable
Securities included in any Registration Statement filed pursuant to Section 2.1
hereof. In such event, the Company and each participating Holder shall enter
into an underwriting agreement with such underwriter(s), in customary form
reasonably acceptable to the Company and the Holders, providing for, among other
things, the sale of the Registrable Securities included in such Registration
Statement by the Holders thereof to the underwriter(s), and containing such
representations, warranties and covenants of the Company, including the
procurement of opinions of counsel and accountants' "comfort letters" and the
delivery of such certificates of executive officers of the Company, as shall be
customary in Underwritten Offerings.
2.5 Limitation of Number of Shares or Securities in Underwritten Offering.
In the event the representative of the underwriters in any Underwritten Offering
pursuant to Section 2.4 shall advise the Holder making the Demand pursuant to
Section 2.1 in writing that marketing or other factors (including, without
limitation, the aggregate number of shares or securities requested to be
included in the Underwritten Offering, the general condition of the market, and
the status of the persons proposing to sell securities in such Underwritten
Offering) require a limitation of the number of shares to be offered and sold in
the Underwritten Offering, then the securities to be excluded from the
Underwritten Offering shall be determined in the following order: (i) first,
securities held by persons who are not contractually entitled to include
securities in the Registration; (ii) second, securities included in the
Registration by the Company for initial offering and issuance; (iii) third,
securities included in the Registration pursuant to the exercise of Piggyback
Registration Rights pursuant to Section 3 hereof; and (iv) finally, securities
included in the Registration pursuant to this Section 2. Any partial reduction
in the number of shares or securities included in the Underwritten Offering
affecting any of the four (4) classes set forth in the immediately preceding
sentence shall be allocated among the persons in any such
4
<PAGE>
class pro rata, as nearly as practicable, based on the number of shares or
securities held by each person in such class and included in the Registration as
a percentage of the aggregate shares or securities held by all persons in such
class and included in the Registration.
2.6 Other Obligations in Connection with Underwritten 0ffering. In
connection with such Underwritten Offering, the Company shall (i) provide to a
single counsel for the Holders whose Registrable Securities are included in
such underwritten offering, for such counsel's review and comment, drafts of the
registration statement; (ii) provide such counsel with a reasonable number of
executed copies of the registration statement and all amendments thereto, as
filed, as well as a reasonable number of preliminary prospectuses used by the
underwriters in such underwritten offering; (iii) give prompt notice to such
counsel of the effectiveness of such registration statement and of any stop
order issued by the Commission or proceeding, or threat of such a proceeding, by
the Commission for the purpose of issuing a stop order or otherwise suspending
the effectiveness of any registration statement; (iv) provide to the Holders a
reasonable number of final prospectuses delivered to purchasers under the
Securities Act; and (v) for such period for which prospectuses are required to
be delivered by dealers, provide such dealers with an adequate number of final
prospectuses in order to permit the dealers to comply with their obligations
under the Securities Act. In all other regards, the Company agrees to comply
with the requirements of the Securities Act in connection with any underwritten
offering.
3. Piggyback Registration.
3.1 Notice of Piggyback Registration. Subject to the exceptions and
limitations contained herein, if, at any time or from time to time, the Company
shall Register any of its securities, either for its own account or the account
of a security holder or holders other than (i) a Registration relating solely to
employee benefit or stock option plans, or (ii) a Registration relating solely
to a transaction described in Rule 145 under the Securities Act, the Company
will: (i) promptly give to each Holder written notice thereof (which notice
shall include a list of jurisdictions in which the Company intends to attempt to
qualify such securities under applicable Blue Sky or other state securities
laws), and (ii) include in such Registration (and any related registration
and/or qualification under the applicable Blue Sky or other state securities
laws), and in any Underwritten Offering pursuant to such Registration, all
Registrable Securities specified in a written request or requests delivered to
the Company by any Holder within twenty (20) days after receipt of such written
notice from the Company by such Holder.
5
<PAGE>
3.2 Piggyback Registration in Underwritten Offerings.
(a) Notice of Underwritten Offering. If the Registration of which the
Company gives notice is for an Underwritten Offering commenced at the election
of the Company (and not pursuant to the exercise of rights pursuant to Section 2
hereof), the Company shall so advise the Holders as a part of the written notice
given pursuant to Section 2.1(b). In such event, the right of any Holder to
Registration shall be conditioned upon there being an Underwritten Offering, and
the inclusion of such Holder's Registrable Securities in such Registration and
Underwritten Offering to the extent provided in and in compliance with this
Section 3. All Holders proposing to distribute their securities through such
Underwritten Offering shall (together with the Company and any other holders
distributing securities through such underwriting) enter into an underwriting
agreement described in Section 2.4. The Holders shall have no right to
participate in the selection of underwriters for an offering pursuant to this
Section.
(b) Marketing Limitation in Piggyback Registration. In the event the
representative of the underwriters in any Underwritten Offering advises the
Holders seeking Registration of Registrable Securities pursuant to this Section
3 in writing that market factors (including, without limitation, the aggregate
number of shares of Common Stock requested to be Registered, the general
condition of the market, and the status of the persons proposing to sell
securities in the Underwritten Offering) require a limitation of the shares to
be offered and sold in the Underwritten Offering, then the number of shares to
be excluded from the Underwritten Offering shall be determined in the manner
provided in Section 2.5, except that securities included in the Registration by
the Company for initial offering and issuance and securities included in the
Registration by the Holders pursuant to this Section 3 shall be excluded
together on a pro rata basis.
(c) Withdrawal in Piggyback Registration. If any Holder who shall exercise
piggyback registration rights pursuant to this Section 3 shall disapprove of the
proposed terms of any Underwritten Offering, he may elect to withdraw therefrom
by written notice to the Company and the underwriters delivered no more than two
(2) days after the receipt of the final terms and price of the Registration
Statement by such Holder. Any Registrable Securities or other securities
excluded or withdrawn from such Underwritten Offering shall be withdrawn from
such Registration.
3.3 Blue Sky in Piggyback Registration. In the event of any Registration
of Registrable Securities pursuant to Section 3, the Company will use its best
efforts to register and/or qualify the securities covered by the Registration
Statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably appropriate for the distribution of such securities;
provided, however, that notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, the Holders shall pay their pro rata share of such expenses.
6
<PAGE>
3.4 Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any Registration initiated by it that triggers piggyback
registration rights pursuant to this Section 3, whether or not any Holder has
elected to include securities in such registration.
4. Limitations on Subsequent Registration Rights. From and after the date
of this Agreement, the Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities without the prior written consent of a
majority of the Registrable Securities then outstanding (on a Common Stock
equivalent basis) unless such new registration rights, including standoff
obligations, are subordinate to the registration rights granted the Holders
hereunder and would not have the effect of reducing the amount of Registrable
Securities which are included in any Registration for which the Holders hold
registration rights pursuant to this Agreement. If the Holders of a majority of
the Registrable Securities do not object to such new registration rights within
seven (7) days of delivery of written notice of such new registration rights to
such Holders, such new registration rights shall be approved.
5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Section 2 and Section 3 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by the Company, provided that
the Company shall not be required to pay the Holders' counsel fees in respect of
any Registration begun pursuant to Section 2.1, the request of which has been
subsequently withdrawn by the Holders making the Demand for such Registration.
Notwithstanding the foregoing, however, if at the time of the withdrawal, the
Holders have learned of a Material Adverse Event with respect to the Company
since the time of their Demand, of which the Company had knowledge at the time
of the Demand, then the Company shall pay the fees of such single counsel. All
Selling Expenses shall be allocated among the persons participating in any
Registration based, in an Underwritten Offering, on the relative gross proceeds
allocable to each such person and, in a non-Underwritten Offering, based on the
Selling Expenses actually incurred with respect to the sale of Registrable
Securities of each person whose shares were included in the Registration.
Notwithstanding the foregoing, all Registration Expenses incurred in connection
with any registration pursuant to Section 2 on or before May 1, 2000 shall be
borne by the Holders.
6. Registration Procedures. The Company will keep each Holder whose
Registrable Securities are included in any Registration pursuant to this
Agreement advised in writing as to the initiation and completion of such
registration. The Company shall cause any registration statement filed pursuant
to Section 2.1 hereof to comply with the requirements of Rule 415 (unless such
registration statement relates to an Underwritten Offering pursuant to Section
2.4 hereof) and shall use its best efforts to comply with the undertakings
required thereby to qualify the registration as a "shelf registration" pursuant
to Rule 415. At its expense, the Company shall: (a) use its best efforts to keep
such Registration Statement effective for the lesser of one (1) year or so long
as Holders who are not affiliates of the Company whose Registrable Securities
are included in the Registration Statement are subject to the volume or manner
of resale restrictions set forth in Rule 144 under the Securities Act or until
the Holder or Holders have completed the distribution described in the
Registration Statement relating thereto,
7
<PAGE>
whichever first occurs; (b) furnish such number of prospectuses (including
preliminary prospectuses) and other documents as a Holder from time to time
reasonably may request; (c) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement; (d) notify each seller of
Registrable Securities covered by such registration statement at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing, and at the request of any such
seller, prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing; (e)
cause all such Registrable Securities registered pursuant hereunder to be listed
on each securities exchange or automated quotation service (including the
National Market of The NASDAQ Stock Market) on which similar securities issued
by the Company are then listed; (f) provide a transfer agent and registrar for
all Registrable Securities registered pursuant to such registration statement
and a CUSIP number for all such Registrable Securities, in each case not later
than the effective date of such registration; and (g) otherwise use its best
efforts to comply with all applicable rules and regulations of the Commission,
and make available to its security holders, as soon as reasonably practicably,
an earnings statement covering the period of at least twelve months, but not
more than eighteen months, beginning with the first month after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
7. Information Furnished by Holder. It shall be a condition precedent to
the Company's obligations under this Agreement that each Holder of Registrable
Securities included in any Registration timely furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
or Holders as the Company may reasonably request in writing and as shall be
reasonably required.
8
<PAGE>
8. Indemnification.
8.1 Company's Indemnification of Holders. The Company shall indemnify and
hold harmless each Holder, each of its agents, legal counsel and accountants and
each (i) person controlling such Holder within the meaning of Section 15 of the
Securities Act ("Controlling Person"); and (ii) each underwriter and each
Controlling Person of such underwriter, with respect to which Registration,
qualification or compliance of Registrable Securities has been effected pursuant
to this Agreement against all claims, losses, damages, expenses or liabilities
(or actions in respect thereof) to the extent such claims, losses, damages,
expenses or liabilities (or actions, proceedings or settlements in respect
thereto) arise out of or are based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus or other document
(including any related Registration Statement notification or the like) incident
to any such Registration, qualification or compliance, are based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
Registration, qualification or compliance; and the Company will reimburse each
such indemnified party and each Controlling Person, for any legal and any other
expenses reasonably incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity contained in this Section 6.1 shall not apply to amounts paid
in settlement of any such claim, loss, damage, liability or action if settlement
is effected without the consent of the Company; and provided, further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based upon any untrue
statement or omission based upon written information furnished to the Company by
such Underwriter, Holder or Controlling Person of such Underwriter or Holder and
stated to be specifically for use therein, in which case such Underwriter,
Holder or Controlling Person of such Underwriter or Holder shall likewise
indemnify the Company, its Controlling Persons and each of its agents, legal
counsel and accountants.
8.2 Indemnification Procedure. Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof and generally summarize such action. The
indemnifying party shall have the right to participate in and to assume the
defense of such claim; provided, however, that the indemnifying party shall be
entitled to select counsel for the defense of such claim with the approval of
any parties entitled to indemnification, which approval shall not be
unreasonably withheld; provided further, however, that if either party
reasonably determines that there may be a conflict between the position of the
Company and the Holders in conducting the defense of such action, suit or
proceeding by reason of recognized claims for indemnity under this Section 8,
then counsel for such party shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interest of such party. The failure to notify an indemnifying party promptly of
the commencement of any such action, if prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying party,
to the extent so prejudiced, of any
9
<PAGE>
liability to the indemnified party under this Section 8, but the omission so to
notify the indemnifying party will not relieve such party of any liability that
such party may have to any indemnified party otherwise other than under this
Section 8.
9. Transfer of Rights. The rights granted to Holders pursuant to this
Agreement to cause the Company to Register the Registrable Securities may be
transferred or assigned by the Holder to a transferee or assignee of such
Holder's Registrable Securities.
10. Market Stand-off.
10.1 Restrictions on Holders. In consideration of the granting to the
Purchasers of the registration rights pursuant to this Agreement, each of them
agrees that, for so long as such Holder holds Common Stock, except as permitted
by Section 2 and Section 3 hereof, such Holder will not sell, transfer or
otherwise dispose of, including, without limitation, through the use of any put
or call option, short sale or other derivative arrangement, shares of Common
Stock in the ten days prior to the effectiveness of any Registration Statement
(other than a registration statement on Form S-8 or Form S-4, or any successor
form) with respect to shares of Common Stock pursuant to which such Common Stock
will be offered for sale to the public, and for up to 90 days following the
effectiveness of such Registration Statement, provided that (i) the underwriters
of any such offering shall reasonably request that the Stockholders be bound by
such restrictions and (ii) all directors, executive officers and holders of more
than five percent of the outstanding shares of Common Stock agree to
restrictions that are at least as burdensome as those imposed on such Holders.
10.2 Restrictions on the Company. Except for offers to sell and sales of
Common Stock pursuant to a Registration Statement on Form S-8 or Form S-4, the
Company shall not offer to sell or sell any shares of capital stock or any
security convertible into shares of Common Stock during the 90-day period
immediately following commencement of an Underwritten Offering of Registrable
Securities pursuant to Section 2.4 hereof.
11. Miscellaneous.
11.1 Assignment. Except as otherwise provided in this Agreement, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties to this Agreement.
11.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
11.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Tennessee in the United States of America without
giving effect to the conflicts of laws principles thereof.
10
<PAGE>
11.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.5 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be given by registered or
certified mail, return receipt requested, postage prepaid, by telecopier or by
national overnight delivery service, and addressed to the intended recipient as
set forth below:
If to the Company:
Tice Technology, Inc.
c/o Charles R. West
6711 Maynardville Highway
Knoxville, TN 37918
Facsimile: (423) 922-3134
If to Purchaser:
LandOak Securities LLC
c/o Patrick L. Martin
10267 Kingston Pike
Knoxville, TN 37922
Facsimile: (423) 531-7911
Any notice given in the manner aforesaid shall be deemed to have been served,
and shall be effective for all purposes hereof if sent by registered or
certified mail, on the earlier of the second day following the day on which it
is posted or the date of its receipt by the party to be notified, if sent by
telecopier, the day actually received as evidenced by a written receipt of
transmission and if sent by overnight delivery service, the day after such
notice has been delivered by the party to said service. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in the manner
herein set forth
11.6 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
11.7 Amendment and Waiver. Any provision of this Agreement may be amended
or waived with the written consent of the Company and the Holders of at least a
majority of the outstanding shares of the Registrable Securities, so long
as the effect is to treat all Holders equally, provided, however, that the
consent of the Initial Investors is required for any such amendment or waiver,
which consent shall not be unreasonably withheld. Any amendment or waiver of
this Agreement shall require the written consent of any Holder who is
11
<PAGE>
disproportionately adversely affected by such amendment or waiver. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder of Registrable Securities and the Company. In addition, the Company may
waive performance of any obligation owing to it, as to some or all of the
Holders of Registrable Securities, or agree to accept alternatives to such
performance, without obtaining the consent of any Holder of Registrable
Securities. In the event that an underwriting agreement is entered into between
the Company and any Holder, and such underwriting agreement contains terms
differing from this Agreement, as to any such Holder the terms of such
underwriting agreement shall govern.
11.8 Effect of Amendment or Waiver. The Purchasers and their successors
and assigns acknowledge that by the operation of Section 3.7 of this Agreement
the holders of a majority of the outstanding Registrable Securities, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights or increase any or all obligations pursuant to this
Agreement.
11.9 Rights of Holders. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
11.10 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TICE TECHNOLOGY, INC.
By: /s/
--------------------------------
Charles R. West, President
/s/
-----------------------------------
Michael A. Atkins
/s/
-----------------------------------
Patrick L. Martin
LANDOAK SECURITIES, LLC
By: /s/
--------------------------------
Patrick L. Martin, Chief Manager
13
<PAGE>
Exhibit 4(vi)
-------------
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (the "Agreement") is entered into as of this
25th day of June, 1999, by and between Tice Technology, Inc., a Delaware
corporation ("Tice"), and Bill Arant ("Option Holder").
WHEREAS, Option Holder has acted as a finder for Tice and has located
financing which has resulted in a closed transaction; and
WHEREAS, as a portion of the finder's fee, Tice has agreed to grant Option
Holder options to purchase up to 50,000 Common Shares of Tice upon the terms and
conditions described below;
NOW, THEREFORE, for the consideration described above, Tice hereby grants
options to purchase its Common Shares to Option Holder upon the following terms
and conditions:
1. Grant of Options. Tice hereby grants to Option Holder options (the
"Options") to purchase 50,000 Common Shares of Tice. The Options do not entitle
Option Holder to any of the rights of a stockholder of Tice. Tice shall at all
times reserve and keep available the number of its authorized but unissued
Common Shares which is sufficient to permit the exercise in full of the Options.
2. Nonassignability. The Options shall not be assignable or transferable.
3. Exercise. The Options may be exercised from the date of grant to the
close of business five years from such date, in whole or in part, provided that
the Options are exercised for no fewer than 5,000 shares at any one time (unless
fewer than 5,000 shares remain, in which case the option must be exercised for
all remaining shares). Option Holder shall be deemed to have become the holder
of record of the shares on the date on which payment of the exercise price and
any applicable taxes was made, irrespective of the date of notice of exercise,
except that, if the date of payment is a date when Tice's stock transfer books
are closed, Option Holder shall be deemed to have become the holder of shares at
the close of business on the next succeeding date on which the stock transfer
books are open. Except as otherwise provided herein, Option Holder shall be
entitled to receive only dividends or distributions which are payable to holders
of record on or after the date on which he is deemed to become the holder of
record of such shares.
4. Exercise Price. The price at which the shares may be purchased
pursuant to the Options during the option period is $1.00 per share, subject to
adjustment as provided below.
5. Adjustments.
(a) If after the date of this Agreement, and subject to the
provisions of Section 5(e) hereof, the number of outstanding Tice Common Shares
is increased by a stock dividend payable in Common Shares or by a split-up of
Common Shares, then, on the day following the date fixed for the determination
of holders of Common Shares entitled to receive the stock dividend or split-up,
<PAGE>
the number of shares issuable on exercise of the Options shall be increased in
proportion to the increase in outstanding shares and the then applicable
exercise price shall be correspondingly decreased.
(b) If after the date of this Agreement, and subject to the
provisions of Section 5(e) hereof, the number of outstanding Tice Common Shares
is decreased by a combination or reclassification of Common Shares, then, after
the effective date of the combination or reclassification, the number of Common
Shares issuable on exercise of the Options shall be decreased in proportion to
the decrease in outstanding Common Shares and the then applicable exercise price
shall be correspondingly increased.
(c) If after the date of this Agreement, and subject to the
provisions of Section 5(e) hereof, shares of any class of stock of Tice (other
than Common Shares) are issued by way of a stock dividend on outstanding Common
Shares, then, commencing with the day following the date fixed for the
determination of holders of Common Shares entitled to receive the stock
dividend, in addition to any Common Shares receivable upon exercise of the
Options, Option Holder, upon exercise of the Options, shall be entitled to
receive, as nearly as practicable, the same number of shares of dividend stock,
plus any shares issued upon any subsequent change, replacement, subdivision or
combination of the stock dividend, to which Option Holder would have been
entitled if his Options would have been exercised immediately prior to the stock
dividend. No adjustment in the exercise price shall be made merely by virtue of
the happening of any event specified in this Section 5(c).
(d) If after the date of this Agreement any capital reorganization or
reclassification of the Tice Common Shares, or consolidation or merger of Tice
with another corporation, or sale of all or substantially all of its assets to
another corporation is effective, then, as a condition of the reorganization,
reclassification, consolidation, merger or sale, lawful and fair provision shall
be made whereby Option Holder after the transaction shall have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Agreement and in lieu of the Tice Common Shares purchasable and
receivable immediately prior to the transaction upon the exercise of the rights
represented by the Options, the shares of stock, securities or assets that may
be issued or payable with respect to or in exchange for a number of outstanding
Common Shares equal to the number of Common Shares purchasable and receivable
immediately prior to the transaction upon the exercise of the rights represented
by the Options if the reorganization, reclassification, consolidation, merger or
sale had not taken place. Appropriate provisions shall be made in connection
with a reorganization, reclassification, consolidation, merger or sale with
respect to the rights and interests of Option Holder to the end that the
provision of this Agreement (including, without limitation, provisions for
adjustments of the exercise price and of the number of shares purchasable upon
exercise of the Options) shall immediately after the transaction be applicable
as nearly as possible to any shares of stock, securities or assets deliverable
immediately after the transaction upon the exercise of the Options. Tice shall
not effect any consolidation, merger or sale unless, prior to the consummation
of the transaction, the successor corporation (if other than Tice) resulting
from the consolidation or merger, or the corporation purchasing the assets,
assumes by written instrument executed the obligation to deliver to Option
Holder the shares of stock, securities or assets in accordance with the
foregoing provisions that Option Holder may be entitled to purchase.
<PAGE>
(e) Notwithstanding anything herein to the contrary, cumulative
adjustments in the number of shares issuable upon exercise of the Options shall
be made only to the nearest multiple of one-tenth of a share, i.e., fractions of
less than five-hundredths of a share shall be disregarded and fractions of five-
hundredths of a share or more shall be treated as being one-tenth of a share.
(f) Upon any adjustment of the exercise price or the number of shares
issuable on exercise of the Options, Tice shall give written notice of the
adjustment to Option Holder mailed to the address set forth above or such
changed address as Option Holder shall have notified Tice in writing. The notice
shall state the exercise price resulting from the adjustment and the increase or
decrease, if any, in the number of shares purchasable at that price upon
exercise of the Options, setting forth in reasonable detail the method of
calculation and the facts upon which the calculation is based. Failure to give
notice, or any defect in a notice, shall not affect the legality or validity of
the changes or adjustments.
6. Securities Requirements. Neither the Options granted hereunder nor the
shares to be issued pursuant to such Options will be registered under the
Securities Act of 1933, as amended (the "Act") or registered or qualified under
any state securities laws. The Options and the underlying shares will be issued
to Option Holder pursuant to exemptions from registration contained in the Act
and in applicable state securities laws. As a condition to receiving any shares
pursuant to the Options, Option Holder, prior to receiving said shares, shall
execute a subscription agreement and such other documents as Tice may reasonably
require. In addition, Option Holder hereby represents, warrants and acknowledges
to Tice that:
(a) he is receiving the Options and the underlying shares for
investment only, for his own account, and not with a view to the sale or
distribution thereof;
(b) he is aware that: neither the Options nor the underlying shares
will be registered or qualified under the Act or any state securities laws (nor
does Tice have an obligation to register or qualify either the Options or the
shares); neither the Options nor the shares may be sold or otherwise transferred
unless they are registered and/or qualified under the Act or other laws or
unless exemptions from registration or qualification are available; and the
certificates for the shares will bear a legend setting forth the restrictions on
transferability of the shares; and
(c) he is an "accredited investor" as such term is defined in
Regulation D promulgated under the Act and either: (i) will have an individual
net worth, or joint net worth with his spouse, at the time of issue of the
shares which exceeds $1,000,000; or (ii) had an individual income in excess of
$200,000 in each of the two most recent years, or joint income with his spouse
in excess of $300,000 in each of those years, and has a reasonable expectation
of reaching the same income level in the current year.
7. Benefit. This Agreement and the covenants and conditions herein
contained shall inure to the benefit of and be binding upon the parties hereto
and their successors and permitted assigns.
<PAGE>
8. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
9. Headings. The paragraph headings contained in this Agreement are
inserted as a matter of convenience and for reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
WITNESS the signatures of the parties as of the day first above written.
Tice Technology, Inc.
By: /s/
--------------------------
Title:
-----------------------
/s/
-----------------------------
Bill Arent
4
<PAGE>
Exhibit 10(ii)
--------------
Agreement
Effective as of the 1/st/ Day of May, 1999
By and between
Tice Technology, Inc
A Delaware Corporation
With its principal place of business at
6711 Maynardville Highway
Knoxville, Tennessee 37918
(the "Company")
and
William A. Tice
7610 Breckenridge Lane
Knoxville, TN 37938
(the "Employee")
WITNESSETH
----------
Whereas, the Company and Employee mutually desire to enter into this
Agreement with respect to Employee's employment with the Company;
Now, therefore, in consideration of the mutual covenants hereinafter
contained, the Company and Employee agree as follows:
1. Employment and Term. The Company agrees to employ the Employee and the
Employee agrees to serve the Company as the Executive Vice President of the
Company for a term beginning May 1, 1999 and ending April 30, 2002, unless
sooner terminated in accordance with Section 9. This agreement shall be
automatically extended for twelve-month periods after April 30, 2002 unless
otherwise terminated as provided herein or unless either party shall have
given to the other written notice of termination 3 months prior to the
start of any extension period.
2. Duties. Employee agrees to serve the Company faithfully and to the best of
his ability; to devote his entire time, energy and skill during regular
business hours to such employment; to use his best efforts, skill and
ability to promote its interest; and to perform such duties as from time to
time may be assigned to him by the Board of Directors.
3. Responsibilities. Employee's area of responsibility shall be that of
Executive Vice President of the Company and during the term of this
Agreement the duties assigned to Employee shall
<PAGE>
not be inconsistent therewith and further, Employee shall at all times have
executive powers and authority as shall be reasonably required to enable
him to discharge such duties in an efficient manner, together with such
facilities and services as are suitable or customary to his position.
4. Compensation. The Company agrees to pay Employee as compensation for all
duties performed by him in any capacity during the period of his employment
under this Agreement:
(a) base salary of $150,000 per annum payable in at least equal monthly
installments or such higher base salary as may be established in
annual reviews of performance and compensation by the Board of
Directors; and
(b) beginning in fiscal year ending March 31, 2001, a target bonus of up
to 50% of base salary payable in accordance with goals and objectives
set forth annually for the Company by the Board of Directors.
5. Severance Pay. In the event the Employee is terminated without cause (cause
is as defined in Section 9), the Company will provide the Employee with
severance pay equal to one year of his then current base salary plus target
incentive of 50% of base pay. This amount will be paid in a lump sum within
15 days of termination. In the event this severance payment is made to the
Employee, compensation payments as provided in Section 4 will cease and no
further compensation payments will be earned or payable under this
agreement. Benefits and perquisites will be furnished for a one-year period
following termination.
6. Benefits, Reimbursements of Expenses. Employee shall be entitled:
(a) to participate in all of the benefit programs which are presently or
may hereafter be provided by the Company to its executives and key
employees, including, without limitation, all retirement, health
insurance and life insurance programs;
(b) to reimbursement for all expenses reasonably incurred by him in
connection with the performance of his duties, including, without
limitation, travel and entertainment expenses reasonably related to
the business or interests of the Company, upon submission by him of
written documentation of such expenses;
(c) to an automobile or automobile allowance of $1,000 per month during
the term of his employment. The Company shall afford the Employee the
right to use an automobile on a continuing basis. The Company shall
pay all reasonable expenses associated with the operation of such
automobile in the same manner as is, from time to time, in effect with
respect to executive officers of the Company, including, without
limitation, all reasonable maintenance and insurance expenses. At the
expiration of the term of the Agreement, employee shall promptly
return the automobile to the Company.
<PAGE>
7. Inventions; Confidential Information; Competitors.
(a) All inventions, whether or not patentable, conceived or developed by
the Employee that may reasonably relate to the Company's business,
alone or with others, during his employment by the Company shall be
the property of the Company and shall be promptly and fully disclosed
by the Employee to the Company. Employee shall perform all necessary
actions to vest title fully to any such invention in the Company and
to enable the Company, at its expense, to secure and maintain domestic
and/or foreign patents or any other rights for such inventions.
(b) Without the express prior written consent of the Company, Employee
shall not disclose or make available to anyone outside the Company any
confidential or proprietary information of the Company including,
without limitation, trade secrets, know how, customer lists,
inventions or other information not generally known to any competitor
of the Company. Upon termination of this Agreement, Employee shall
promptly deliver to the Company all documents containing such
confidential or proprietary information without retaining any copies
or extracts thereof.
(c) During the time he is employed by the Company, Employee shall not
serve as officer, director or employee or be associated in any other
capacity with any corporation, partnership or other entity or person
that is a competitor of the Company. During such period Employee shall
have no financial interest in any corporation, partnership or other
entity which is a competitor of the Company, except participation
solely as a stockholder owning not more than 5% of the outstanding
shares of a publicly owned business.
(d) Employee acknowledges that his services are special, unique, unusual
and extraordinary, giving them peculiar value, the loss of which
cannot be reasonably or adequately compensated for by damages and, in
the event of Employee's breach of this Section 7, the Company shall be
entitled to equitable relief by way of injunction or otherwise.
8. Work Situs and Relocation. Except for occasional travel, Employee shall not
be required to perform his duties under this Agreement outside of the
Knoxville, Tennessee area.
9. Termination. This agreement shall terminate prior to the expiration of its
term upon the occurrence of any of the following:
(a) employee's death;
(b) employee's permanent disability;
(c) employee's gross misconduct, material dishonesty or felony conviction
in which event the Company may elect to terminate this Agreement upon
sixty (60) days prior written notice to Employee; or
(d) cessation of all or substantially all business of the Company.
<PAGE>
10. Breach of Agreement. In the event of the breach of any material provision
of this Agreement by the Company, the Employee shall be entitled to receive
the severance pay, benefits and perquisites due him as provided in Section
5. If the Company and Employee become involved in litigation relating to
any alleged breach of this Agreement, and if a judgement in such litigation
is rendered in favor of one of the parties, the party against whom the
judgment is rendered will reimburse the prevailing party for all reasonable
costs (including reasonable fees and disbursements of counsel) incurred by
such party in connection with such litigation upon presentation to the
Company of evidence of such costs.
11. Termination of Prior Agreements. This Agreement expressly supersedes all
employment agreements and understandings between the parties and any such
agreements are terminated as of the date first written above.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective legal representatives and
to any successor of the Company, which successor shall be deemed
substituted for the Company under the terms of this Agreement. As used in
this Agreement, the term "successor" shall included any person, firm,
corporation or other business entity which at a time, whether by merger,
purchase or otherwise, acquires all or substantially all of the assets or
business of the Company.
13. Waiver of Breach. The waiver of a breach of any provision of this Agreement
by a party shall not operate or be construed as a waiver of any subsequent
breach by such party.
14. Notices. All notices, claims, requests, demands and other communications
hereunder will be in writing and will be deemed given if delivered by hand,
if mailed (by registered or certified mail, return receipt requested and
postage prepaid), if sent by reputable overnight courier service for next
business day delivery, or if sent by facsimile transmission, to the
Employee at the most recent address provided by the Employee to the Company
and to the Company at its principle place of business, or to such other
address as the party to whom notice is to be given may have furnished to
the other party in writing in accordance herewith. Any such communication
will be effective (a) if given by facsimile transmission, when transmitted
to the applicable number specified in (or pursuant to) this Section and an
appropriate mechanical or voice confirmation is received, (b) if given by
United States mail, on the earlier of the date of receipt or the fifth day
after deposit in the mails, or (c) if given by any other means, on the date
of receipt.
15. Entire Agreement. This document contains the entire agreement of the
parties and may not be changed except in a written modification signed by
both parties.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, as applied to contracts
executed and performed wholly within the State of Tennessee.
<PAGE>
In Witness Whereof, the parties have executed this Agreement as of the date
below.
TICE TECHNOLOGY, INC.
By: /s/
------------------------
Date:
------------------------
WILLIAM A. TICE
By: /s/
------------------------
Date:
------------------------
<PAGE>
Exhibit 10(iii)
--------------
Agreement
Effective as of the 1st Day of May, 1999
By and between
Tice Technology, Inc
A Delaware Corporation
With its principal place of business at
6711 Maynardville Highway
Knoxville, Tennessee 37918
(the "Company")
and
Charles R. West
3516 Navigator Pointe
Knoxville, TN 37922
(the "Employee")
WITNESSETH
----------
Whereas, the Company and Employee mutually desire to enter into this
Agreement with respect to Employee's employment with the Company;
Now, therefore, in consideration of the mutual covenants hereinafter
contained, the Company and Employee agree as follows:
1. Employment and Term. The Company agrees to employ the Employee and the
Employee agrees to serve the Company as the President and Chief Executive
Officer of the Company for a term beginning May 1, 1999 and ending April
30, 2002, unless sooner terminated in accordance with Section 10. In
addition, Employee will be nominated annually by the Company as a Director
of the Company while this employment agreement is in effect. This agreement
shall be automatically extended for twelve-month periods after April 30,
2002 unless otherwise terminated as provided herein or unless either party
shall have given to the other written notice of termination 3 months prior
to the start of any extension period.
2. Duties. Employee agrees to serve the Company faithfully and to the best of
his ability; to devote his entire time, energy and skill during regular
business hours to such employment; to use his best efforts, skill and
ability to promote its interest; and to perform such duties as from time to
time may be assigned to him by the Board of Directors.
<PAGE>
3. Responsibilities. Employee's area of responsibility shall be that of the
President and Chief Executive Officer of the Company and during the term of
this Agreement the duties assigned to Employee shall not be inconsistent
therewith and further, Employee shall at all times have executive powers
and authority as shall be reasonably required to enable him to discharge
such duties in an efficient manner, together with such facilities and
services as are suitable or customary to his position.
4. Compensation. The Company agrees to pay Employee as compensation for all
duties performed by him in any capacity during the period of his employment
under this Agreement:
(a) base salary of $150,000 per annum payable in at least equal monthly
installments or such higher base salary as may be established in
annual reviews of performance and compensation by the Board of
Directors; and
(b) beginning in fiscal year ending March 31, 2001, a target bonus of up
to 50% of base salary payable in accordance with goals and objectives
set forth annually for the Company by the Board of Directors.
5. Stock Ownership and Stock Options. The Employee has agreed to convert a
current note payable by the Company to him in the amount of $100,000 to
Common Stock at a rate of $1.00 per 1 Common Share. In addition, as an
inducement for the Employee to agree to employment with the Company, he is
granted Stock Options that will bring his cumulative ownership of the
Company to 10% of the fully diluted outstanding Common Stock prior to the
new investment and issuance of new Common Shares contemplated in the First
Quarter of fiscal year ending March 31, 2000. These additional options,
estimated to be options for the purchase of 690,071 shares of Common Stock,
vest to the employee 33.33% at the first anniversary of this Agreement, an
additional 33.33% at the second anniversary of this Agreement and the final
33.33% at the third anniversary of this Agreement. The options that vest at
the first anniversary of this Agreement carry an exercise price of $1.00
per share and expire five years from that date. The options that vest at
the second anniversary of this Agreement carry an exercise price of $3.50
per share and expire five years from that date. The options that vest at
the third anniversary of this Agreement carry an exercise price of $7.00
per share and expire five years from that date. This stock option incentive
will be documented through a written stock option plan document.
6. Severance Pay. In the event the Employee is terminated without cause (cause
is as defined in Section 10), the Company will provide the Employee with
severance pay equal to one year of his then current base salary plus target
incentive of 50% of base pay. This amount will be paid in a lump sum within
15 days of termination. In the event this severance payment is made to the
Employee, compensation payments as provided in Section 4 will cease and no
further compensation payments will be earned or payable under this
agreement. Benefits and perquisites will be furnished for a one-year period
following termination.
7. Benefits, Reimbursements of Expenses. Employee shall be entitled:
<PAGE>
(a) to participate in all of the benefit programs which are presently or
may hereafter be provided by the Company to its executives and key
employees, including, without limitation, all retirement, health
insurance and life insurance programs;
(b) to reimbursement for all expenses reasonably incurred by him in
connection with the performance of his duties, including, without
limitation, travel and entertainment expenses reasonably related to
the business or interests of the Company, upon submission by him of
written documentation of such expenses;
(c) to an automobile or automobile allowance of $1,000 per month during
the term of his employment. The Company shall afford the Employee the
right to use an automobile on a continuing basis. The Company shall
pay all reasonable expenses associated with the operation of such
automobile in the same manner as is, from time to time, in effect with
respect to executive officers of the Company, including, without
limitation, all reasonable maintenance and insurance expenses. At the
expiration of the term of the Agreement, employee shall promptly
return the automobile to the Company.
8. Inventions; Confidential Information; Competitors.
(a) All inventions, whether or not patentable, conceived or developed by
the Employee that may reasonably relate to the Company's business,
alone or with others, during his employment by the Company shall be
the property of the Company and shall be promptly and fully disclosed
by the Employee to the Company. Employee shall perform all necessary
actions to vest title fully to any such invention in the Company and
to enable the Company, at its expense, to secure and maintain domestic
and/or foreign patents or any other rights for such inventions.
(b) Without the express prior written consent of the Company, Employee
shall not disclose or make available to anyone outside the Company any
confidential or proprietary information of the Company including,
without limitation, trade secrets, know how, customer lists,
inventions or other information not generally known to any competitor
of the Company. Upon termination of this Agreement, Employee shall
promptly deliver to the Company all documents containing such
confidential or proprietary information without retaining any copies
or extracts thereof.
(c) During the time he is employed by the Company, Employee shall not
serve as officer, director or employee or be associated in any other
capacity with any corporation, partnership or other entity or person
that is a competitor of the Company. During such period Employee shall
have no financial interest in any corporation, partnership or other
entity which is a competitor of the Company, except participation
solely as a stockholder owning not more than 5% of the outstanding
shares of a publicly owned business.
(d) Employee acknowledges that his services are special, unique, unusual
and extraordinary, giving them peculiar value, the loss of which
cannot be reasonably or adequately compensated for by damages and, in
the event of Employee's breach of
<PAGE>
this Section 8, the Company shall be entitled to equitable relief by
way of injunction or otherwise.
9. Work Situs and Relocation. Except for occasional travel, Employee shall not
be required to perform his duties under this Agreement outside of the
Knoxville, Tennessee area.
10. Termination. This agreement shall terminate prior to the expiration of its
term upon the occurrence of any of the following:
(a) employee's death;
(b) employee's permanent disability;
(c) employee's gross misconduct, material dishonesty or felony conviction
in which event the Company may elect to terminate this Agreement upon
sixty (60) days prior written notice to Employee; or
(d) cessation of all or substantially all business of the Company.
11. Breach of Agreement. In the event of the breach of any material provision
of this Agreement by the Company, the Employee shall be entitled to receive
the severance pay, benefits and perquisites due him as provided in Section
6, plus immediate vesting of all Employee Stock Options described in
Section 5. The term of the stock options vested due a breach of this
Agreement by the Company will be as provided in the Employee Stock Option
Plan and Agreement between the Employee and the Company dated May 1, 1999.
If the Company and Employee become involved in litigation relating to any
alleged breach of this Agreement, and if a judgement in such litigation is
rendered in favor of one of the parties, the party against whom the
judgment is rendered will reimburse the prevailing party for all reasonable
costs (including reasonable fees and disbursements of counsel) incurred by
such party in connection with such litigation upon presentation to the
Company of evidence of such costs.
12. Termination of Prior Agreements. This Agreement expressly supersedes all
employment agreements and understandings between the parties and any such
agreements are terminated as of the date first written above.
13. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective legal representatives and
to any successor of the Company, which successor shall be deemed
substituted for the Company under the terms of this Agreement. As used in
this Agreement, the term "successor" shall included any person, firm,
corporation or other business entity which at a time, whether by merger,
purchase or otherwise, acquires all or substantially all of the assets or
business of the Company.
14. Waiver of Breach. The waiver of a breach of any provision of this Agreement
by a party shall not operate or be construed as a waiver of any subsequent
breach by such party.
<PAGE>
15. Notices. All notices, claims, requests, demands and other communications
hereunder will be in writing and will be deemed given if delivered by hand,
if mailed (by registered or certified mail, return receipt requested and
postage prepaid), if sent by reputable overnight courier service for next
business day delivery, or if sent by facsimile transmission, to the
Employee at the most recent address provided by the Employee to the Company
and to the Company at its principle place of business, or to such other
address as the party to whom notice is to be given may have furnished to
the other party in writing in accordance herewith. Any such communication
will be effective (a) if given by facsimile transmission, when transmitted
to the applicable number specified in (or pursuant to) this Section and an
appropriate mechanical or voice confirmation is received, (b) if given by
United States mail, on the earlier of the date of receipt or the fifth day
after deposit in the mails, or (c) if given by any other means, on the date
of receipt.
16. Entire Agreement. This document and the Employee Stock Option Plan and
Agreement dated May 1, 1999 contain the entire agreement of the parties and
may not be changed except in a written modification signed by both parties.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, as applied to contracts
executed and performed wholly within the State of Tennessee.
In Witness Whereof, the parties have executed this Agreement as of the date
below.
TICE TECHNOLOGY, INC.
By: /s/
-------------------------
Title:
-------------------------
Date:
-------------------------
CHARLES R. WEST
By: /s/
-------------------------
Date:
-------------------------
<PAGE>
Exhibit 10(iv)
--------------
INCENTIVE STOCK OPTION PLAN AND AGREEMENT
-----------------------------------------
THIS INCENTIVE STOCK OPTION PLAN AND AGREEMENT (the "Agreement") dated as
of May 1, 1999 (the "Effective Date") by and between Tice Technology, Inc., with
its principal office at 6711 Maynardville Highway, Knoxville, Tennessee 37918
(the "Company"), and Charles R. West (the "Optionee").
WHEREAS, the Company has adopted this Incentive Stock Option Plan and
Agreement which is designed to comply with Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), to permit grants of options to purchase
Common Shares of Tice Technology, Inc., to the Optionee; and
WHEREAS, the Optionee is an employee of the Company or one of its
subsidiaries and the Company desires to encourage the Optionee to remain in such
employ by granting the Optionee options to acquire shares of the Company thereby
increasing the Optionee's proprietary interest in the Company's success;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements herein set forth, the parties hereby agree as follows:
1. Option Grant. Subject to approval by the shareholders of the Company
within one (1) year of the Effective Date and to the terms and conditions this
Agreement, the Company grants to the Optionee options (the "Options") to
purchase from the Company all or any part of an aggregate number of 690,071 of
the Company's Common Shares (the "Optioned Shares").
2. Vesting Schedule. On the first anniversary of the Effective Date,
options to purchase 230,024 Common Shares will vest and may be exercised in
accordance with the terms of this Agreement. On the second anniversary of the
Effective Date, options to purchase 230,024 Common Shares will vest and may be
exercised in accordance with the terms of this Agreement. On the third
anniversary of the Effective Date, the remaining options to purchase 230,023
Common Shares will vest and may be exercised in accordance with the terms of
this Agreement.
3. Purchase Price. The purchase price of the Optioned Shares which vest
on the first anniversary of the Effective Date shall be one dollar ($1.00) per
share, which price is not less than one hundred percent (100%) of the fair
market value of the Optioned Shares on the Effective Date. The purchase price of
the Optioned Shares which vest on the second anniversary of the Effective Date
shall be three dollars and fifty cents ($3.50) per share and the purchase price
of the Optioned Shares which vest on the third anniversary of the Effective Date
shall be seven dollars ($7.00) per share. If it is determined by a subsequent
Internal Revenue Service audit that the fair market value of the stock at the
time the Options were granted exceeded the value established under this
Agreement, then the price shall be adjusted to comply with the Internal Revenue
Service's determined fair market value, and such adjusted price shall apply to
any and all subsequent exercise of the Options.
<PAGE>
4. Option Period. Subject to the terms and conditions of this Agreement,
the Optionee may purchase Optioned Shares pursuant to this Agreement at any
time, and from time to time, commencing on the date an Option vests and
continuing for a period of five (5) years from such date. All Options must be
exercised within five (5) years of vesting, and in accordance with this
Agreement, and if not exercised within such period, will expire.
5. Exercise of Options. The Optionee and only the Optionee (except in
the event of the Optionee's death) may exercise an Option by giving thirty (30)
days written notice of exercise, delivered or mailed by postpaid registered or
certified mail addressed to the Secretary of the Company at its principal
offices, on the attached form or in a document containing the information
specified in the attached form. Options must be exercised in increments of at
least five hundred (500), unless the Optionee holds fewer than five hundred
(500) Options, in which case all remaining Options held by the Optionee must be
exercised. After the death of the Optionee, an Option may be exercised by the
Optionee's personal representative or other person entitled by law to the
Optionee's rights under the Option to the extent that the Optionee was entitled
to exercise the Option at death for the period described in paragraph 6(b) of
this Agreement. The notice must be accompanied by payment in full of the Option
price in cash or by certified or cashier's check. The Company will cause the
certificate representing purchased shares to be delivered to the Optionee as
soon as practicable after payment in full of the exercise price.
6. Termination of Employment.
(a) If the Optionee ceases to be an employee of the Company or any of
its subsidiaries for any reason other than (i) death or (ii) disability, all
Options which have vested shall expire on the date which is the earlier of three
(3) months after termination and the expiration date of the Options.
(b) If the Optionee ceases to be an employee of the Company or any
subsidiary of the Company by reason of death, all Options which have vested
shall expire on their expiration date.
(c) If the Optionee ceases to be an employee of the Company or any
subsidiary of the Company by reason of disability within the meaning of Section
22(e)(3) of the Code, all Options which have vested shall expire on a date which
is the earlier of one (1) year following the date of disability and the
expiration date of the Options.
(d) In the event there is an involuntary (i.e. not as a result of
resignation or with the agreement of the Employee) termination of employment of
the Employee which is not (i) "for cause" as defined in the Employment Agreement
between the Employee and the Company dated as of May 1, 1999 or (ii) a result of
the death or disability of the Employee, all Options which have not vested,
shall vest upon such termination of employment. Except as otherwise provided in
this Agreement, Options which have not vested shall expire on the date of
termination of employment.
2
<PAGE>
7. Early Disposition. Disposition of the Optioned Shares prior to the
later of two (2) years from date of grant of the Options or one (1) year from
the date the Optioned Shares are transferred to the Optionee may be a
disqualifying disposition requiring the Optionee to recognize any gain on
disposition as compensation income.
8. Withholding Taxes. The Company shall have the right upon issuance of
any Optioned Shares to require the Optionee to remit to the Company an amount
sufficient to satisfy any Federal, state or local withholding tax requirements
prior to delivery of any certificate for Optioned Shares.
9. Maximum Value Per Optionee. The aggregate fair market value, as
determined at the time of grant, of the shares for which options are exercisable
for the first time by the Optionee in any one (1) calendar year pursuant to
options granted under this Agreement and any other plans of the Company or its
affiliates shall not exceed one hundred thousand dollars ($100,000). For
purposes of this provision, options are taken into account in the order in which
they were granted. If the fair market value of shares on the date of grant with
respect to which options are exercisable for the first time by the Optionee
exceeds such amount, then the options for the first one hundred thousand dollars
($100,000) worth of shares to become exercisable in such calendar year will be
incentive stock options and the options for amount in excess of one hundred
thousand dollars ($100,000) will be nonqualified stock options. In the event
that the Code or the regulations promulgated thereunder are amended after the
Effective Date to provide for a different limit on the fair market value of the
shares permitted to be subject to incentive stock options, such different limit
will be automatically incorporated herein and will apply to any options granted
after such date.
10. Transfer of the Options. The Options shall not be transferable by the
Optionee otherwise than by will or the laws of descent and distribution. Any
attempted transfer, assignment, pledge or other disposition or levy of
attachment or similar process not specifically permitted herein shall be null
and void and without effect.
11. Adjustment in the Event of Change of Stock. In the event of any
change in the outstanding stock of the Company by reason of stock dividend,
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, change in capital or business structure without
consideration, and the like, the number and kind of shares which may be issued
under the Options and the purchase price per share thereof shall be
approximately adjusted consistent with such change subject to any required
action by the Board or shareholders of the Company and compliance with
applicable securities laws. Fractional shares will not be issued but will either
be replaced by a cash payment equal to the fair market value of such fraction of
a share or will be rounded up to the nearest whole share as determined by the
Board.
12. Corporate Transactions. In the event of (a) a dissolution or
liquidation of the Company, (b) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
3
<PAGE>
the shareholders of the Company or their relative stock holdings and the Options
are assumed, converted or replaced by the successor corporation, which
assumption will be binding on the Optionee), (c) a merger in which the Company
is the surviving corporation but after which the shareholders of the Company
immediately prior to such merger (other than any shareholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (d)
the sale of substantially all of the assets of the Company, or (e) the
acquisition, sale or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, the outstanding Options will
vest and will become exercisable in full prior to, or concurrent with, the
consummation of such event at such price and terms as if the Options had vested
as scheduled. If such options are not exercised prior to, or concurrent with,
the consummation of the corporate transaction, they shall terminate. If the
Options are not exercised and the successor corporation (if any) so agrees, the
Options may be assumed, converted or replaced by such successor corporation,
which assumption, conversion or replacement will be binding on the Optionee. In
the alternative, if the Options are not exercised, the successor corporation may
substitute equivalent options or provide substantially similar consideration to
the Optionee as was provided to shareholders (after taking into account the
existing provisions of the Options). Subject to any greater rights granted to
the Optionee under the foregoing provisions of this paragraph 12, in the event
of the occurrence of any transaction described in this paragraph 12, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation or sale of assets.
13. Representations of the Optionee. The Optionee agrees and understands
that:
(a) the Optionee has asked questions and received all answers that
the Optionee considers pertinent to form a knowledgeable opinion about the
Options and the underlying Common Shares;
(b) the Optionee will not be deemed for any purpose to be a
shareholder of the Company with respect to any of the Optioned Shares, until
such time as, and except to the extent that, the Options have been exercised and
the exercise price for the Optioned Shares has been paid in full;
(c) the Optionee has no obligation to exercise the Options;
(d) the existence of the Options will not affect in any way the right
or power of the Company or its subsidiaries to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in capital
structure or business, or any merger or consolidation of the Company or its
subsidiaries, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Shares or the rights thereof, or
dissolution or liquidation of the Company or its subsidiaries or any sale or
transfer of all or any part of their assets or business or any other corporate
act or proceeding, whether of a similar character or otherwise;
4
<PAGE>
(e) this Agreement does not confer any right with respect to
continuance of employment by the Company or its related corporations and this
Agreement will not interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time subject to any
employment agreement between the Optionee and the Company; and
(f) notwithstanding anything to the contrary contained in this
Agreement, the Board in its discretion may delay issuance of shares upon
exercise of any Options for such time period as is necessary to enable the
Company to comply with any federal or state securities laws and certificates for
shares will be subject to such transfer orders, legends or other restrictions as
the Board may deem necessary or advisable.
14. Administration. This plan shall be administered by the Board which has
also approved the grant of the Option pursuant to this Agreement in advance of
issuance. No member of the Board shall be liable for any action taken, or
determination made, hereunder in good faith. The Board is authorized, subject to
the provisions of the Agreement, to establish such rules and regulations as they
may deem appropriate for the proper administration of this Agreement, and to
make such determinations under, and such interpretations of, and to take such
steps in connection with, this Agreement or the Options as they may deem
necessary or advisable.
15. Choice of Law. This Agreement shall be governed and interpreted by the
laws of the State of Tennessee.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the Options, and no change or modification
shall be valid unless made in writing and signed by the party against whom such
change or modification is sought to be enforced.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its duly authorized officer, and the Optionee has executed this Agreement as
of the day and year first above written.
Tice Technology, Inc.
By: /s/
----------------------------------
Title:
--------------------------------
/s/
---------------------------------------
Charles R. West
5
<PAGE>
Exercise of Options
-------------------
The undersigned hereby irrevocably elects to exercise the right,
represented by an Incentive Stock Option Agreement, to purchase ____________
Common Shares and herewith tenders in payment for such shares cash or a
certified or official bank check payable to the order of Tice Technology, Inc.
in the amount of $______________. The undersigned requests that a certificate
for such shares be registered in the undersigned's name and that such
certificate be delivered to the undersigned at ___________________.
Dated:_________________________
_____________________________________
Charles R. West
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Financial Statements of Tice Technology, Inc. for the fiscal year ended 3/31/99
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 24,155
<SECURITIES> 0
<RECEIVABLES> 65,245
<ALLOWANCES> 0
<INVENTORY> 387,654
<CURRENT-ASSETS> 485,151
<PP&E> 774,005
<DEPRECIATION> 596,364
<TOTAL-ASSETS> 845,945
<CURRENT-LIABILITIES> 755,316
<BONDS> 629,906
0
0
<COMMON> 80,934
<OTHER-SE> (620,211)
<TOTAL-LIABILITY-AND-EQUITY> 845,945
<SALES> 586,186
<TOTAL-REVENUES> 730,937
<CGS> 473,678
<TOTAL-COSTS> 1,206,277
<OTHER-EXPENSES> 732,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,747
<INCOME-PRETAX> (565,378)
<INCOME-TAX> 14,174
<INCOME-CONTINUING> (475,340)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (579,552)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
