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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-28220
MIGRATEC, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 65-0125664
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12801 NORTH STEMMONS FREEWAY, SUITE 710, FARMERS BRANCH, TEXAS 75234
(Address of Principal Executive Offices)
(972) 969-0300
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. YES [X]
NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $905,179.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the closing sale price of such stock as reported on
March 31, 2000 on the over-the-counter bulletin board operated by the National
Association of Securities Dealers, Inc. was approximately $150,962,000.
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As of March 31, 2000, approximately 79,377,000 shares of the
registrant's common stock, no par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, to be filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934 in connection
with the registrant's 2000 annual meeting of shareholders, have been
incorporated by reference in Part III of this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND ITEMS DISCUSSED IN
THIS ANNUAL REPORT ON FORM 10-KSB ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS OF MIGRATEC, INC. MAY DIFFER MATERIALLY
FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS
THAT COULD CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED WITH THE FORWARD-LOOKING
STATEMENTS THROUGHOUT THIS REPORT AND ARE SUMMARIZED IN THIS SECTION AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE."
GENERAL
MigraTEC, Inc. (the "Company" or "MigraTEC") is a developer and
provider of software technology and services which enable businesses to automate
the upgrade or "migration" of their existing software applications to new and
more advanced hardware and software platforms more efficiently than through the
manual migration processes now widely employed. Ordinarily, software upgrade or
migration is a time-consuming and costly process requiring the expertise of
multiple programmers working on various sections of code simultaneously,
normally resulting in inconsistencies and prolonged testing and debugging
cycles.
To address the need for automated migration solutions, MigraTEC has
developed a "Migration Workbench" or suite of software solutions with the
capability of automating software application upgrades and migrations from one
platform or operating system to another. The "Migration Workbench" can be
tailored to automate 32 to 64-bit upgrades, Unix to Unix migrations (including
Linux, Sun Solaris and IBM AIX), and Unix to NT and NT to Unix migrations. In
addition to promoting consistency in the process, which reduces the testing and
debugging cycle and, therefore, project costs, MigraTEC's technology
significantly increases, by as much as 10 to 20 times, the number of lines of
code which can be upgraded per day by a programmer as compared to the typical
manual migration process.
MigraTEC's offices are located in the Dallas, Texas area. Its
wholly-owned operating subsidiary, One Up Corporation, a Texas corporation, was
merged into MigraTEC in February 2000.
MARKET OVERVIEW
As the new millennium starts and the pace of technological change
quickens, management believes that major corporations and software companies
will increasingly be focused on taking advantage of growing e-commerce
opportunities and harnessing the power of the Internet. Management believes that
capitalizing on these opportunities in a cost-effective and efficient way will
require server consolidation as well as the greater power, faster processing and
improved memory allocation of the new 64-bit operating systems and associated
hardware being introduced by companies such as Intel and Sun Microsystems. In
order to take advantage of the vastly improved performance offered by the new
technology, the massive amounts of existing software applications written for
32-bit systems will need to be migrated to a 64-bit format.
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Many major technology solutions providers, such as IBM, Oracle, Sun and
EDS, have formed migration strategies groups to develop or acquire software
technology that will help their customers migrate or upgrade their software
applications to new technology being brought to the market by these companies.
In June 1999 Microsoft and Intel launched a Unix to Windows NT migration
initiative and are currently investing millions of dollars to promote the
migration of older technology to their new technology.
Additionally, management believes the thousands of independent software
vendors (ISVs) who write and distribute 32-bit versions of their software
products will need to upgrade their products for optimal performance on the new
64-bit operating systems in order to remain competitive in the marketplace.
PRODUCTS AND SERVICES
OVERVIEW
MigraTEC's "core" proprietary technology is designed to automate a
significant amount of the upgrade or migration process utilizing a specialized
technique which analyzes the structural relationships contained within computer
program code. MigraTEC's technology then identifies all elements requiring
change, automatically changes certain elements and presents the user with a
decision tree support mechanism for facilitating the migration of the remaining
items.
Management believes that this core technology can serve as the
foundation for many software products. MigraTEC is designing its products so
they can be 1) used by MigraTEC to provide a variety of services directly and 2)
licensed to end users, other service providers and/or systems integrators for
the delivery of technology solutions to their customers. MigraTEC intends to
further develop its technology for advanced "universal migration" software
solutions designed to facilitate the transition between numerous computer
languages and operating platforms.
In June 1998, MigraTEC filed a patent application covering processes
relating to its core software technology. MigraTEC is currently evaluating the
advisability of filing additional patent applications relating to its
technology.
BENEFITS OF AUTOMATED MIGRATION
Management believes that MigraTEC's automated migration solution
produces the following key benefits for companies:
o Maximizes current technology investment by allowing a business to
retain the functionality of current software applications as they are upgraded
or migrated to a new operating system.
o Minimizes or eliminates retraining expense. Much of the productivity
that comes from new technology can be exploited without the corresponding need
to retrain every user of that technology. Migration of the user interface allows
the application to keep the current "look and feel" on the new platform, thereby
eliminating otherwise significant retraining expense.
o Focuses Information Systems staff on application enhancements.
Skilled information systems staff is a precious commodity and should be assigned
to projects with the highest return on investment to the business. By using
MigraTEC's automated technology, such staff will not be burdened with the
time-consuming process of manual migration.
o Significantly reduces the time required for development of new
software versions. Management believes that by using MigraTEC's technology,
businesses can achieve a significant competitive advantage.
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o Extends life of software applications. Due to the frequent and
dramatic changes in computing technology, vendors may abandon a platform.
MigraTEC's technology allows software vendors to offer customers the tactical
alternative of simply migrating their current applications to a new platform.
DESCRIPTION OF PRODUCTS
MigraTEC's products consist of the Migration Workbench and a suite of
complimentary solutions. The Workbench provides the three components that
support the process model: inventory, analysis and remediation. These components
are configurable for specific compilers, languages and run-time libraries, as
well as the task-specific tables for potential problems related to a particular
migration and available solutions for each condition. Each MigraTEC product is a
migration or upgrade path-specific version of the Workbench configured using the
definition tables.
MigraTEC's specific migration products available or under development
are:
o Migration Workbench - 32 64 WIN Upgrade for the Microsoft(R)
Windows(R) operating systems -- Upgrades WIN32(R) C/C++ source code to WIN64tm
and P64 data model.
o Migration Workbench - 32 64 IA64 Upgrade for Intel(R) processor based
Unix(R) operating systems -- Upgrades C/C++ source code to the LP64 data model.
o Migration Workbench - 32 64 RISC Upgrade for RISC processor based
Unix(R) operating systems -- Upgrades C/C++ source code to the LP64 data model.
o Migration Workbench - U/W Migration for migrating non-GUI C/C++
Source Code from Unix(R) systems to Windows NT(R) -- Migrates non-GUI C/C++
application source code from Unix(R) operating systems and compilers to the
Windows NT(R) operating system and Microsoft(R) compiler.
o Migration Workbench - U/S Migration for migrating to the Solaris(R)
operating system -- Migrates C/C++ application source code from other Unix(R)
systems to the Sun(R) Solaris(R) Operating EnvironmentTM and Sun(R) WorkShopTM
compiler.
o Migration Workbench - U/L Migration for migrating to the
Linux(R)operating systems -- Migrates C/C++ application source code from other
Unix(R) systems to the Linux operating system and GCC (Gnu Compiler Collection).
o Custom Workbench for upgrade or migration -- Complete custom upgrade
or migration support for a specific platform or library API, adapted to specific
programming language or compiler using MigraTEC's Migration Workbench.
CUSTOMERS
During 1998 MigraTEC entered into a five-year agreement with
Electronic Data Systems Corporation ("EDS") to license MigraTEC's Y2K software
to EDS. During 1998 and 1999, MigraTEC also licensed its Y2K software or
provided Y2K-related services to Computer Horizons, Corp., Metamor, The Sabre
Group Inc., Reasoning Inc., Sun Professional Services, Federal Express and Ctek,
Ltd. Under the terms of these agreements, MigraTEC received payments for various
set-up and training fees, usage fees based on per line of code for use of
MigraTEC's
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software, fees for sub-contractor services and site license fees. Due to the
completion of Y2K conversions, it is not anticipated that additional revenues
will be produced from these specific agreements.
On August 16, 1999, MigraTEC entered into a Software Evaluation License
Agreement with Intel Corporation pursuant to which MigraTEC provided a beta
version of its 32 to 64-bit upgrade software to Intel for testing and
evaluation. MigraTEC has received feedback from Intel that has been used to
further improve and automate its 32 to 64-bit technology. Prior to the
expiration of this agreement on July 31, 2000, management expects to enter into
another agreement with Intel which will grant Intel a license for internal use
and will provide Intel's assistance in marketing and distribution of MigraTEC's
32 to 64-bit automated upgrade technology.
MigraTEC has also had discussions with both EDS and IBM Global Services
regarding the potential licensing of its 32 to 64-bit technology for use in
providing a "factory" upgrade service for their customers.
SALES AND DISTRIBUTION STRATEGY
MigraTEC's primary sales and distribution strategy is to license its
software tools to end users for their own internal migration projects, and to
systems integrators and large services providers to perform outsourced projects
for their own customers. Management anticipates these licenses to be structured
on a per line of code basis. Additionally, MigraTEC plans to deliver certain
migration services directly to end users.
In order to leverage existing customer bases and sales and marketing
infrastructures, MigraTEC's sales model focuses on developing relationships with
large organizations that provide application development, maintenance,
conversion and upgrade services. Currently, MigraTEC's primary focus is to
partner with technology companies introducing 64-bit operating systems and
hardware for upcoming 64-bit software applications. Management believes that
MigraTEC's partnering strategy will provide:
o partners that can direct development efforts towards emerging markets
and growing customer bases;
o partners with extensive sales and marketing resources and a vested
interest in placing the end product into the market; and
o funding necessary to expand key development efforts.
COMPETITION
Based upon feedback from the technology and services companies with
which MigraTEC has been working to establish distribution relationships,
management is currently unaware of other available technology that is capable of
providing similar automation of the manual software migration process.
MigraTEC's current competitors are providers of traditional, manual migration
and migration services with teams of programmers. However, management views
these competitors as potential customers who may license MigraTEC's technology
for use in providing services to their clients.
EMPLOYEES
As of March 31, 2000, MigraTEC employed approximately 38 full-time
personnel and engaged approximately 3 contract programming consultants for
particular projects. None of these employees are covered by collective
bargaining agreements and management believes its employee relations are good.
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ITEM 2. DESCRIPTION OF PROPERTIES
MigraTEC does not own any real property. MigraTEC's headquarters are
located in Farmers Branch, a suburb of Dallas, Texas. The lease on MigraTEC's
office space expires April 30, 2000, and the current full-service annual
occupancy cost, including rent, is approximately $168,384. Management has
executed a new thirty-nine month lease for another location in Farmers Branch.
The annual occupancy cost, including rent, under the new lease is approximately
$165,954.
ITEM 3. LEGAL PROCEEDINGS
On July 24, 1998, Carroll Independent School District filed suit
against the Company in District Court, Tarrant County, Texas, seeking payment
for unpaid business and personal property taxes (Carroll Independent School
District v. One Up Corporation, Cause No. L-14690). Judgment was entered on
January 27, 2000 for the plaintiff in the amount of $90,056.45, which includes
interest and court costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of MigraTEC's shareholders during
the fourth quarter of the fiscal year ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MigraTEC's common stock is traded on the over-the-counter bulletin
board (the "OTCBB") operated by the Nasdaq Stock Market, Inc. under the trading
symbol "MIGR". The following table sets forth the high and low closing bid
prices for MigraTEC's common stock on the OTCBB for the periods indicated, as
reported by OTC Bulletin Board / Nasdaq Trading and Market Services. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
First Quarter $ 0.5000 $ 0.1150
Second Quarter 0.4200 0.1450
Third Quarter 0.3900 0.0950
Fourth Quarter 0.3200 0.1700
1998
First Quarter 0.7200 0.3400
Second Quarter 0.6000 0.3125
Third Quarter 0.4000 0.1900
Fourth Quarter 0.2800 0.1600
</TABLE>
The approximate number of holders of record of MigraTEC's common stock on March
31, 2000 was 829.
DIVIDENDS
MigraTEC has not paid or declared cash distributions or dividends on
its common stock during the past two fiscal years and does not intend to do so
in the foreseeable future. Management currently intends to retain all earnings,
if any, to finance the development and expansion of MigraTEC's operations. The
declaration of cash dividends in the future will be determined by its board of
directors based upon earnings, financial condition, capital requirements and
other relevant factors.
Pursuant to the shareholders agreement between MigraTEC and certain
shareholders, dated as of January 25, 2000, the Company may not declare or pay
dividends, or make any distribution with respect to, the capital stock of
MigraTEC without the approval of 70% of the members of the board of directors.
MigraTEC's agreement with MJ Capital Partners III, L.P., dated November
16, 1998, restricts the Company's ability to declare or pay any dividends as
long as any obligation under the agreement remains outstanding. MigraTEC is
currently making monthly payments of principal and interest under the agreement,
which is scheduled to be paid in full by December 31, 2000 under the current
payment terms.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1999, MigraTEC sold its unregistered
securities in the transactions described below. Unless stated otherwise below,
for each such transaction, exemption from registration of the sale of these
securities under the applicable federal and state securities laws is claimed by
MigraTEC under Section 4(2)
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of the Securities Act of 1933, as amended (the "Securities Act"), and under
comparable limited offering exemptions under state securities laws, as a
transaction by an issuer which does not involve a public offering.
During the first quarter of 1999, MigraTEC issued an aggregate of
1,843,000 shares of its common stock to fourteen investors at a price of $0.125
per share. In connection with this investment, such investors were issued
two-year warrants to purchase an aggregate of 368,600 shares of MigraTEC's
common stock at a price of $0.20 per share.
Effective January 29, 1999, MigraTEC entered into a short-term loan
agreement with an individual for $30,000 at an interest rate of 16% per annum.
In connection with this loan, MigraTEC issued a two-year warrant to purchase
3,000 shares of its common stock at $0.01 per share. This loan, including fees
and accrued interest, was paid in full on March 15, 1999, and the warrant was
exercised effective February 8, 1999.
Effective February 8, 1999, MigraTEC issued an aggregate of 33,000
shares of its common stock to two investors, as a result of the exercise of
warrants to purchase shares at $0.01 per share, and an aggregate of 50,000
shares of its common stock to an individual investor upon exercise of warrants
previously granted to purchase shares at $0.10 per share.
Pursuant to certain short-term loans made to MigraTEC by nine investors
during the first quarter of 1999, the Company issued warrants to purchase an
aggregate of 635,000 shares of its common stock at an exercise price of $0.01
per share, fully vested at the date of grant. All of these warrants were
exercised prior to March 31, 1999.
During the first quarter of 1999, MigraTEC issued to a former employee
332 shares of its common stock representing the Company's 50% matching of shares
previously purchased by the employee pursuant to the terms of the 1996 Employee
Stock Purchase Plan.
On March 30 and 31, 1999, MigraTEC issued an aggregate of 112,500
shares of its common stock to four investors as a result of the exercise of
warrants to purchase shares at $0.20 per share.
During the second quarter of 1999, MigraTEC issued an aggregate of
3,687,000 shares of its common stock to three investors at a price of $0.125 per
share. In connection with this investment, such investors were issued two-year
warrants to purchase an aggregate of 737,500 shares of MigraTEC's common stock
at a price of $0.20 per share.
During April and May of 1999, MigraTEC issued an aggregate of 200,000
shares of its common stock to two consultants upon exercise of warrants
previously granted to purchase shares at $0.12 per share.
During the third quarter of 1999, MigraTEC issued an aggregate of
4,174,000 shares of its common stock to twenty-seven investors at a price of
$0.125 per share. In connection with this investment, such investors were issued
two-year warrants to purchase an aggregate of 834,800 shares of MigraTEC's
common stock at a price of $0.20 per share.
Effective July 1, 1999, MigraTEC issued to a former employee 348 shares
of its common stock representing its 50% matching of shares previously purchased
by the employee pursuant to the terms of MigraTEC's 1996 Employee Stock Purchase
Plan.
On July 1, 1999, MigraTEC was unable to meet its obligation to repay
senior secured promissory notes in the principal amount of $1,112,500 plus
accrued interest. Pursuant to a settlement agreement with the holders of such
notes, MigraTEC reduced the exercise price of warrants to purchase an aggregate
of 3,178,591 shares of its common stock issued in connection with the notes from
$0.35 to $0.20 per share. MigraTEC also agreed to
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convert the principal amount of the notes plus any accrued interest into shares
of its common stock at per share prices of (i) $0.125 through November 30, 1999,
(ii) $0.20 from December 1, 1999, through February 29, 2000, and (iii) $0.35
from March 1, 2000, through May 31, 2000. As of March 31, 2000, MigraTEC has
issued 9,059,605 shares of its common stock to the senior secured note holders,
who have converted notes in the principal amount of $1,112,500 plus accrued
interest of $19,949.
Effective July 1, 1999, pursuant to a two-year service agreement
between MigraTEC and a consultant, MigraTEC issued to the consultant a warrant
to purchase up to an aggregate of 180,000 shares of its common stock at $0.20
per share. The warrant vested at a rate of 7,500 shares per month beginning July
1, 1999. The agreement was terminated effective February 29, 2000, at which
point 60,000 shares were vested under the agreement and exercisable through
February 28, 2002.
Effective July 29, 1999, pursuant to a short-term loan made to MigraTEC
by one investor, MigraTEC issued a two-year warrant to purchase up to an
aggregate of 10,000 shares of its common stock at $0.01 per share, fully vested
and immediately exercisable upon the date of grant. Effective September 1, 1999,
pursuant to an agreement to extend the due date of the loan, MigraTEC agreed to
issue a two-year warrant to purchase up to an aggregate of 10,000 additional
shares of its common stock at $0.01 per share upon each monthly renewal, fully
vested and immediately exercisable upon the date of grant. In connection with
this agreement, on December 29, 1999, MigraTEC issued 50,000 shares of its
common stock pursuant to the exercise of warrants to purchase up to an aggregate
of 50,000 shares of common stock at $0.01 per share. The loan was repaid in
January 2000.
Effective August 1, 1999, pursuant to a marketing services agreement
between MigraTEC and a consultant, MigraTEC issued to the consultant a two-year
warrant to purchase up to an aggregate of 25,000 shares of its common stock at
$0.20 per share, fully vested and immediately exercisable upon the date of
grant.
Effective August 9, 1999 and August 31, 1999, MigraTEC issued to one
investor an aggregate of 1,333,333 shares of its common stock at $0.075 per
share, pursuant to a stock option agreement which grants an option to purchase
up to an aggregate of 5,903,614 shares of its common stock. The remaining
4,570,281 shares exercisable under the option may be purchased as follows: (1)
570,281 shares may be purchased at $0.075 per share, and such option expires 30
days after registration of the shares, (2) 2,000,000 shares may be purchased at
the greater of (i) $0.20 or (ii) 50% of the previous five-day average closing
bid price per share, and such option expires six months after registration of
the shares, and (3) 2,000,000 shares may be purchased at the greater of (i)
$0.20 or (ii) 50% of the previous five-day average closing bid price per share,
and such option expires 12 months after registration of the shares. The
agreement requires MigraTEC to file a shelf registration statement with the
Securities and Exchange Commission no later than August 31, 2000, in order to
register the 5,903,614 shares underlying the option. In the event MigraTEC fails
to file the registration statement by August 31, 2000, the investors will be
entitled to purchase an additional 600,000 shares of MigraTEC's common stock at
the greater of (i) $0.50 or (ii) 50% of the previous five-day average closing
bid price per share, and such option shall be fully vested and exercisable from
September 1, 2000, through August 31, 2001.
Effective September 8, 1999, pursuant to a consulting services
agreement and short-term loan made to MigraTEC by an individual, MigraTEC issued
20,000 shares of its common stock upon exercise of a compensatory warrant issued
on August 31, 1999, to purchase shares at $0.01 per share.
During the fourth quarter of 1999, MigraTEC issued 1,975,000 shares of
its common stock to seven investors at a price of $0.125 per share. Such
investors received two-year warrants to purchase an aggregate of 395,000 shares
of common stock at a price of $0.20 per share.
On October 1, 1999, pursuant to a four-month loan made to MigraTEC by a
consultant, MigraTEC issued a two-year warrant to purchase up to an aggregate of
6,150 shares of its common stock at $0.01 per share.
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Effective October 13, 1999, MigraTEC issued 200,000 shares of its
common stock to one investor upon the exercise of an outstanding warrant to
purchase shares at $0.01 per share.
Effective October 13, 1999, MigraTEC issued 704,878 shares of its
common stock to a consultant at a reduced exercise price of $0.125 per share
upon the exercise of outstanding warrants to purchase shares at prices which
originally ranged from $0.40 to $0.25625 per share.
Effective October 31, 1999, pursuant to an agreement with an investor
to modify and extend the payment terms of an existing debt owed by the Company,
MigraTEC issued a two-year warrant to purchase up to an aggregate of 100,000
shares of its common stock at $0.01 per share and a two-year warrant to purchase
up to an aggregate of 100,000 shares of its common stock at $0.20 per share.
On December 13, 1999, pursuant to a short-term loan made to MigraTEC by
an investor, MigraTEC issued a two-year warrant to purchase up to an aggregate
of 10,000 shares of its common stock at $0.01 per share. MigraTEC issued 10,000
shares of its common stock to the investor on December 29, 1999 pursuant to the
exercise of the warrant at a price of $0.01 per share.
On December 31, 1999, pursuant to a consulting services agreement,
MigraTEC issued a two-year warrant to purchase up to an aggregate of 10,000
shares of its common stock at $0.01 per share to an individual consultant.
On December 31, 1999, MigraTEC issued a two-year compensatory warrant
to purchase up to an aggregate of 3,500 shares of its common stock at $0.01 per
share to an individual pursuant to a short-term loan and services agreement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The purpose of the following discussion and analysis is to explain the
major factors affecting MigraTEC's results of operations and variance of results
between periods. The following discussion of MigraTEC's financial condition and
results of operations should be read along with the financial statements and
notes to the financial statements included in Item 7.
Management believes that the net loss for the year ended December 31,
1999 was primarily due to the Company's focus on development activities which
were not revenue producing but which nevertheless allowed MigraTEC to complete
principal development of its upgraded 32 to 64-bit migration technology as well
as enhancement of other automated migration tools. Management believes that this
development activity has positioned the Company for the introduction of its
technology into the market during 2000.
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YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
During 1999, the Company's revenues decreased by approximately 38% to
$905,179, compared to $1,454,150 for 1998. This decrease is attributable to the
Company shifting its strategic focus from selling Y2K products to development of
its new technology.
OPERATING EXPENSES
MigraTEC's total operating expenses decreased by approximately 12% to
$4,178,175 during 1999, compared to $4,741,330 for 1998. Salaries and benefits
decreased by approximately 15% to $2,030,324 during 1999, compared to $2,395,000
for 1998 as a result of workforce reduction associated with the shift in the
Company's business focus. Contract labor costs decreased approximately 43% to
$685,974 during 1999, compared to $1,201,502 for 1998 as a result of the
workforce reduction previously described. General and administrative expenses
decreased approximately 38% to $648,032 during 1999, compared to $1,038,247 for
1998, primarily due to a reduction in legal and professional fees of
approximately 74% to $107,682 during 1999, compared to $409,206 for 1998. During
1998, the Company incurred significant legal fees and costs associated with a
settlement with its former CEO.
Decreases in expenses in 1999 were partially offset by an expense of
$706,500 incurred in 1999 from a settlement with EAI Partners, Inc. ("EAI"). In
August, 1999, MigraTEC entered into a new stock option agreement which entitles
EAI to purchase the Company's common stock. The new agreement was in settlement
and replacement of a prior stock option agreement entered into by the Company
and EAI during November, 1996.
In 1999, the Company charged off two accounts receivable, totaling
$43,303, the majority of which related to a Y2K contract for a foreign entity.
Additionally, the Company's majority owned foreign subsidiary, One Up Computer
Services, Ltd. ("One Up, Ltd.") ceased operations in 1997, and a $36,808 reserve
for the assets of One Up, Ltd. was provided for in 1999.
Selling and marketing expenses decreased approximately 74% to $27,234
during 1999, compared to $104,856 for 1998. This decrease is a result of the
Company's change in focus from selling and servicing its Y2K product to
developing its migration technology.
INTEREST AND FINANCING EXPENSE
The Company's interest and financing expense increased by approximately
11% to $415,292 during 1999, compared to $374,317 for 1998. The two components
of this expense are interest expense and financing fees. Interest expense
remained relatively constant between 1999 and 1998 ($228,299 and $234,534,
respectively), but financing fees increased approximately 34% to $186,993 during
1999, compared to $139,783 for 1998. This increase in financing fees is due to
the Company issuing significantly more warrants and decreasing the exercise
price of those warrants to obtain short-term financing for its operations.
OTHER INCOME AND EXPENSE
Other income and expense in 1999 was a net income of $279, as compared
to a net expense of $79,577 in 1998. The Company incurred a loss in 1998 of
$93,486 from the disposal and abandonment of certain furniture and equipment.
11
<PAGE> 13
PROVISION FOR INCOME TAXES
As a result of operating losses for 1999 and 1998, the Company has not
had a federal income tax obligation. During the year ended December 31, 1999,
the Company incurred a net operating loss for federal tax purposes of
approximately $4,043,000. No tax benefit has been recorded due to the
uncertainty that we will generate sufficient taxable income during the carry
forward period to realize the benefit of the net deferred tax asset. The net
operating loss carryover for the year ended December 31, 1999, will expire in
2014. The Company has aggregate net operating loss carry-forwards for federal
tax purposes totaling approximately $10,968,000, which will expire between 2010
and 2014.
EXTRAORDINARY ITEMS
In 1999, the Company incurred a loss of $496,069 related to the
restructure of the Company's senior secured promissory notes. These notes were
in default at maturity in 1999. The Company successfully restructured this debt
with conversions of this debt into common stock of the Company. This was
accomplished by converting the notes into common stock at $0.125 per share.
Additionally, the exercise price for warrants associated with this debt was
reduced from $0.35 per share to $0.20 per share, and the expiration date was
extended one year to July 2001.
The Company recognized a gain of $282,999 in 1998 related to the
forgiveness of debt. This gain relates to reduction in amounts due to various
vendors through renegotiations of terms.
NET LOSS
For the year ended December 31, 1999, the Company incurred a net loss
of $4,184,078 or $0.079 per share, as compared with a net loss of $3,458,075 or
$0.086 per share for the year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $2,339,753 for 1999, which
resulted from the operating loss, decreased by net changes in assets and
liabilities and non-cash expenses and income of $1,844,325. This compares
to net cash used by operating activities of $3,611,131 for 1998, which resulted
from the operating loss increased by net changes in assets and liabilities and
non-cash expenses and income of $153,056.
At December 31, 1999, the Company had a net working capital deficit of
$1,394,471, compared to a net working capital deficit of $1,491,000 at December
31, 1998.
At December 31, 1999, the Company had cash of $1,417 and $160,700 in
outstanding accounts receivable.
At December 31, 1999, the Company's outstanding debt obligations
included (i) $273,341 in short-term loans (net of $19,159 unamortized discount)
(ii) $56,165 in other notes payable relating to settlements with a vendor and a
former employee, (iii) $532,545 in advances from outside investors, (iv) $61,503
due to consultant for services and (v) $58,362 (net of $1,638 unamortized
discount) in advances from a director and officer.
During 1999, the Company received proceeds of $2,423,435 from financing
activities. The Company received (i) $1,738,197 in connection with the issuance
of common stock, and (ii) $923,206 in proceeds from short-term loans from
various investors, directors and an officer. The cash proceeds were offset by
$237,968 expended for the repayment of principal of short-term loans from
various investors, directors, an officer and obligations under a capital lease.
12
<PAGE> 14
The Company had substantial operating losses during 1999 and the prior
three years. The Company began active operations in January, 1991, and while the
Company has experienced certain periods of profitability since inception, it has
sustained substantial losses in recent years. For the years ended December 31,
1999, 1998 and 1997, the Company incurred net losses of $4,184,078, $3,458,075
and $2,517,606, respectively. At December 31, 1999, the Company had an
accumulated deficit of $11,638,187.
In January, 2000 the Company entered into a private placement agreement
that may provide the Company up to $3,750,000, of which $2,500,000 has been
received through March 31, 2000. Management believes that the proceeds of this
private placement and anticipated operating revenues will meet working capital
requirements for 2000. If operating revenues fall short of management's
projections, or if the remaining $1,250,000 of the private placement is not
funded, management anticipates seeking additional funds through private
offerings. Results of operations in the future will be influenced by numerous
factors including, but not limited to:
o technological developments;
o further development of the Company's proprietary software products and
services;
o expansion of the Company's marketing program and market acceptance of its
products and services;
o capacity to further identify the Company as a migrations solutions
provider;
o the Company's ability to control increases in expenses associated with
sales growth and other costs;
o the availability of substantial additional funding; and
o the Company's ability to attract and maintain a skilled and cohesive
management group.
FORWARD LOOKING STATEMENTS
The foregoing discussion may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are intended to be covered by the safe harbors created by such provisions. All
statements, other than statements of historical fact, included in or
incorporated by reference into this Form 10-KSB, are forward-looking statements.
The forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of MigraTEC.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, then actual results may vary materially
from those anticipated, estimated or projected. Although management believes
that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove to have
been correct. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by MigraTEC, management or any other
person that the objectives of MigraTEC will be achieved.
13
<PAGE> 15
Key factors that could cause MigraTEC's actual results to differ
materially from expectations, estimates of costs, projected results or
anticipated results include, but are not limited to, the following risks:
o MigraTEC may not be able to generate sufficient cash flows to fund
operations or to obtain additional financing on favorable terms;
o MigraTEC may not be able to effectively penetrate its target markets for
migration products and sales;
o MigraTEC may not be able to successfully develop and/or protect its
technology;
o MigraTEC may not be able to effectively control increases in expenses
associated with sales growth and other costs;
o Management may not be able to successfully implement the business plan and
sales strategy;
o MigraTEC may not be able to attract and retain a skilled and cohesive
management group; and
o Unfavorable changes in economic and industry conditions and regulatory
requirements may develop.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required to be filed under this Item are
enclosed as pages F-1 to F-26 elsewhere in this report. See "Index to
Consolidated Financial Statements" on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item regarding MigraTEC's directors
and executive officers will be included in MigraTEC's definitive Proxy Statement
to be filed pursuant to Regulation 14A in connection with MigraTEC's 2000 annual
meeting of stockholders and is incorporated herein by reference thereto.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item will be included in MigraTEC's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with MigraTEC's 2000 annual meeting of stockholders and is incorporated herein
by reference thereto.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in MigraTEC's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with MigraTEC's 2000 annual meeting of stockholders and is incorporated herein
by reference thereto.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this will be included in MigraTEC's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with MigraTEC's 2000 annual meeting of stockholders and is incorporated herein
by reference thereto.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required to be furnished pursuant to Item 13(a) are listed
in the Exhibit Index filed herewith, which Exhibit Index is hereby
incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the
quarterly period ended December 31, 1999.
15
<PAGE> 17
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on this 14th day of April, 2000.
MIGRATEC, INC.
By: /s/ W. CURTIS OVERSTREET
-------------------------------
W. Curtis Overstreet, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant, and in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
By: /s/ W. CURTIS OVERSTREET President, Chief Executive Officer Dated: April 14, 2000
------------------------ and Director
W. Curtis Overstreet
By: /s/ KEVIN C. HOWE Chairman of the Board Dated: April 14, 2000
------------------------
Kevin C. Howe
By: /s/ T. ULRICH BRECHBUHL Chief Financial Officer, Secretary Dated: April 14, 2000
------------------------
T. Ulrich Brechbuhl
By: /s/ RICHARD A. GRAY, JR. Director Dated: April 14, 2000
------------------------
Richard A. Gray, Jr.
By: /s/ DREW R. JOHNSON Director Dated: April 14, 2000
------------------------
Drew R. Johnson
By: /s/ DEANE C. WATSON, JR. Director Dated: April 14, 2000
------------------------
Deane C. Watson, Jr.
</TABLE>
16
<PAGE> 18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT AUDITORS F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Deficit F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MigraTEC, Inc.
We have audited the accompanying consolidated balance sheet of MigraTEC, Inc.
and subsidiary (the "Company") as of December 31, 1999, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year ended December 31, 1999. The consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MigraTEC, Inc. and
subsidiary at December 31, 1999, and the consolidated results of their
operations and their cash flows for year ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company's recurring losses, negative cash flows from operations,
and net capital deficiency, raise substantial doubts about the Company's ability
to continue as a going concern. Management's plans as to these matters are also
described in Note 2. The financial statements do not include any adjustments
relating to the recoverability and classification of assets or the amounts and
classifications of liabilities that might result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Dallas, Texas
April 12, 2000
F-2
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACOUNTANTS
Board of Directors
MigraTEC, Inc.
We have audited the accompanying consolidated balance sheet of MigraTEC, Inc.
and Subsidiary as of December 31, 1998 and the related consolidated statements
of operations, stockholders' deficit, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MigraTEC, Inc. and
Subsidiary as of December 31, 1998 and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company's losses in 1998, net capital
deficiency, amounts due in the short term under notes payable, and the
outstanding contingencies raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of assets or the
amounts and classifications of liabilities that might result from the outcome of
the uncertainty.
KING GRIFFIN & ADAMSON, P.C.
Dallas, Texas
April 19, 1999
F-3
<PAGE> 21
MIGRATEC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,417 $ 17,389
Accounts receivable - billed 160,700 279,268
Accounts receivable - unbilled -- 10,000
Shareholder advance -- 3,766
Other current assets 28,216 29,624
------------ -----------
Total current assets 190,333
340,047
PROPERTY AND EQUIPMENT, NET 73,365 198,702
OTHER ASSETS
Deferred financing costs 30,000 33,794
Capitalized software cost, net of amortization of $37,500 in 1999 52,500 --
Other assets 21,548 21,548
------------ -----------
Total other assets 104,048 55,342
------------ -----------
Total Assets $ 367,746 $ 594,091
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable, net of unamortized discount of $20,797 and $25,359 in 1999 and
1998, respectively $ 953,151 $ 1,297,579
Accounts payable 449,750 347,294
Accrued expenses 158,590 159,069
Deferred income 12,000 --
Obligation under capital lease 11,313 27,105
------------ -----------
Total current liabilities 1,584,804 1,831,047
LONG-TERM LIABILITIES
Long-term portion of notes payable 28,765 56,165
Long-term portion of obligation under capital lease -- 14,283
------------ -----------
Total long-term liabilities
28,765 70,448
------------ -----------
Total liabilities 1,613,569 1,901,495
MINORITY INTEREST (3,752) (3,752)
COMMITMENTS AND CONTINGENCIES
Redeemable convertible 12% preferred stock; $1,000 par value; 1,000,000 shares
authorized; redeemable at par value plus cumulative dividends; none issued
or outstanding -- --
STOCKHOLDERS' DEFICIT
Common stock; no par value; 200,000,000 shares authorized;
78,660,189 and 54,421,618 shares outstanding in 1999 and 1998, respectively 9,912,535 7,041,890
Additional paid-in capital 2,261,472 886,458
Treasury stock, at cost (9,864,449 shares in 1999 and 1998) (1,777,891) (1,777,891)
Accumulated deficit (11,638,187) (7,454,109)
------------ -----------
Total stockholders' deficit (1,242,071) (1,303,652)
------------ -----------
Total Liabilities and Stockholders' Deficit $ 367,746 $ 594,091
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 22
MIGRATEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 905,179 $ 1,454,150
Operating Expenses
Salaries and benefits 2,030,324 2,395,000
Contract labor 685,974 1,201,502
General and administrative 648,032 1,038,247
EAI settlement 706,500 --
Provision for doubtful accounts 43,303 1,725
Reserve for foreign subsidiary assets 36,808 --
Selling and marketing 27, 234 104,856
------------ ------------
Total Operating Expenses 4,178,175 4,741,330
------------ ------------
Loss from Operations (3,272,996) (3,287,180)
Interest and financing expense (415,292) (374,317)
Other income (expense), net 279 (79,577)
------------ ------------
Loss before extraordinary item (3,688,009) (3,741,074)
Extraordinary income for forgiveness of debt (expense for restructure of debt) (496,069) 282,999
------------ ------------
Net loss $ (4,184,078) $ (3,458,075)
============ ============
Loss before extraordinary items per common share (basic and diluted) $ (0.070) $ (0.093)
============ ============
Extraordinary (charge) income per common share (basic and diluted) $ (0.009) $ 0.007
============ ============
Net loss per common share (basic and diluted) $ (0.079) $ (0.086)
============ ============
Weighted average common shares and common equivalents outstanding
(basic and diluted) 53,216,891 40,220,420
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 23
MIGRATEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Year Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
COMMON COMMON TREASURY TREASURY ADDITIONAL
STOCK STOCK STOCK STOCK PAID-IN ACCUMULATED
(SHARES) AMOUNT (SHARES) AMOUNT CAPITAL DEFICIT TOTAL
---------- ---------- ---------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 30,199,154 $2,197,640 (854,903) $(1,068,629) $ 796,263 $ (3,996,034) $(2,070,760)
Issuance of stock in connection with
private placements for cash 22,790,000 4,558,000 -- -- -- -- 4,558,000
Issuance of stock in connection with
conversion of debt to equity 1,375,000 275,000 -- -- -- -- 275,000
Issuance of stock in connection with the
exercise of options and warrants for cash 54,000 11,250 -- -- -- -- 11,250
Treasury stock received in exchange for
cash -- -- (9,400,000) (740,000) -- -- (740,000)
Issuance of stock for services rendered -- -- 390,454 30,738 -- -- 30,738
Issuance of warrants for computer
consulting services rendered -- -- -- -- 18,000 -- 18,000
Issuance of warrants for financing fees -- -- -- -- 72,195 -- 72,195
Issuance of stock to employees under the
Employee Stock Purchase Plan - shares
matched by employer 3,464 -- -- -- -- -- --
Net loss -- -- -- -- -- (3,458,075) (3,458,075)
---------- ---------- ---------- ----------- ---------- ------------ -----------
Balance at December 31, 1998 54,421,618 7,041,890 (9,864,449) (1,777,891) 886,458 (7,454,109) (1,303,652)
Issuance of stock in connection with
private placements for cash 11,679,500 1,459,937 -- -- -- -- 1,459,937
Issuance of stock in connection with
conversion of debt to equity 9,059,605 1,132,448 -- -- 496,069 -- 1,628,517
Issuance of stock in connection with the
exercise of options and warrants for cash 3,498,786 278,260 -- -- -- -- 278,260
Issuance of stock for services rendered -- -- -- -- 8,450 -- 8,450
Issuance of warrants for financing fees -- -- -- -- 163,995 -- 163,995
Issuance of options - settlement with
EAI Partners, Inc. -- -- -- -- 706,500 -- 706,500
Issuance of stock to employees under the
Employee Stock Purchase Plan - shares
matched by employer 680 -- -- -- -- -- --
Net loss -- -- -- -- -- (4,184,078) (4,184,078)
---------- ---------- ---------- ----------- ---------- ------------ -----------
Balance at December 31, 1999 78,660,189 $9,912,535 (9,864,449) $(1,777,891) $2,261,472 $(11,638,187) $(1,242,071)
========== ========== ========== =========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 24
MIGRATEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,184,078) $(3,458,075)
Adjustments to reconcile net loss to net cash used by operating activities:
Extraordinary item 496,069 (282,999)
Depreciation and amortization 172,491 156,167
(Gain) loss on sale and disposal of assets -- 93,486
Provision for doubtful accounts 43,303 1,725
Provision for foreign subsidiary assets 36,808 --
Change in assets and liabilities:
(Increase) decrease in accounts receivable - billed 44,179 113,762
(Increase) decrease in accounts receivable - unbilled 10,000 (10,000)
(Increase) decrease in restricted cash -- 28,150
(Increase) decrease in deferred financing costs 3,794 --
(Increase) decrease in other current assets (120) (13,024)
Increase (decrease) in accounts payable 102,455 (149,611)
Increase (decrease) in accrued expenses (907) (158,586)
Increase (decrease) in deferred income 12,000 --
(Decrease) in customer deposits in excess of unbilled receivables -- (171,365)
Financing fees -- 67,588
Warrants issued for financing fees 163,995 72,195
Amortization of discount on notes payable 25,359 50,718
Common stock options and warrants issued for goods and services 8,450 48,738
Conversion of debt to common stock 19,949 --
Issuance of options - settlement with EAI Partners, Inc. 706,500 --
----------- -----------
Total adjustments 1,844,325 (153,056)
----------- -----------
Net cash used by operating activities (2,339,753) (3,611,131)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,654) --
Sales of property and equipment -- 4,200
(Increase) decrease in capitalized software costs (90,000) --
----------- -----------
Net cash provided by (used in) in investing activities (99,654) 4,200
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft -- (112,963)
Proceeds from notes payable 923,206 854,000
Proceeds from (repayment of) transfer of accounts receivable with recourse -- (187,500)
Proceeds from issuance of common stock 1,738,197 4,569,250
Purchase of treasury stock -- (740,000)
Payments under obligations of capital lease (30,075) (25,267)
Proceeds from (repayment of) shareholder advances -- (33,276)
Repayment of notes payable (207,893) (704,000)
----------- -----------
Net cash provided by financing activities 2,423,435 3,620,244
----------- -----------
Net increase (decrease) in cash (15,972) 13,313
Cash - beginning 17,389 4,076
----------- -----------
Cash - ending $ 1,417 $ 17,389
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 228,393 $ 192,067
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of stock upon conversion of debt to equity $ 1,132,448 $ 275,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 25
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
MigraTEC, Inc. (the "Company"), a Florida corporation, is a developer and
provider of software technology that automates the process of upgrading or
migrating software, enabling it to operate on increasingly advanced operating
systems.
The Company, in 1999, completed the shift of its strategic focus from selling
software products aimed at Y2K solutions to developing proprietary technology
designed to automate a significant amount of the manual upgrade or migration
process from 32 bit to 64 bit operating systems and associated hardware. The
majority of the Company's efforts in 1999 and 1998 are related to research and
development activities.
The Company intends to license its software solutions to "end users" for their
own internal migration projects, and to systems integrators and large services
providers to perform outsourced projects for their own customers. Additionally
the Company may sell migration services to certain customers.
The Company is the parent of a majority owned foreign subsidiary, One Up, Ltd.
Computer Services, Ltd. ("One Up, Ltd."), incorporated under the laws of the
Province of Ontario, Canada. One Up ceased its operations in 1997. In 1999, a
reserve has been provided for all of the assets of One Up, Ltd. in the amount of
$36,808, which the Company does not expect to be realizable. Liabilities of One
Up of $45,736 will remain until the obligations are resolved.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and One Up, Ltd.,
collectively referred to as the Company. Intercompany transactions and balances
have been eliminated in consolidation.
INDUSTRY SEGMENT
The Company operates in a single industry segment, the developer and provider
of software technology that automates the process of upgrading or migrating
software.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and
amortization. The Company provides for depreciation on the straight-line basis
over the estimated useful life of 5 years for the related assets. Leasehold
improvements are amortized over the life of the improvements or the lease term
if shorter on a straight-line basis.
Major repairs or replacements of property and equipment are capitalized.
Maintenance, repairs and minor replacements are expensed as incurred.
DEFERRED FINANCING COSTS
Deferred financing costs relate to costs incurred in the placement of the
Company's debt and are amortized using the effective interest method over the
term of the related debt.
F-8
<PAGE> 26
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
CAPITALIZED SOFTWARE
The cost of purchased software is capitalized and amortized on a straight-line
basis over the estimated useful life, which has been estimated to be 3 years.
Amortization expense in 1999 and 1998 was $37,500 and $0, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable and accounts
payable, for which the carrying amounts approximate fair value. Based on
prevailing interest rates, management believes that the fair value of notes
payable approximates book value.
COSTS OF SOFTWARE DEVELOPED FOR SALE
The Company expenses or capitalizes development costs of software to be sold in
accordance with SFAS 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed." These development costs are expensed as
incurred until technological feasibility has been established, at which time
such costs are capitalized until the product is available for general release
to customers.
INCOME TAXES
The provision for income taxes is based on pretax income as reported for
financial statement purposes. Deferred income taxes are provided in accordance
with the liability method of accounting for income taxes to recognize the tax
effects of temporary differences between financial statement and income tax
accounting. Valuation allowances are established when necessary to reduce tax
assets to the amount expected to be realized.
REVENUE RECOGNITION
The Company's revenues consist of software license revenues, consulting
services revenues and maintenance and support revenues.
Revenues are recognized in accordance with American Institute of Certified
Public Accountant's Statement of Position (SOP) 97-2 "Software Revenue
Recognition".
The Company licenses software under license agreements. License fee revenues
are recognized when an agreement is in force, the product has been delivered,
the license fee is fixed or determinable, no significant production
modification or customization of the software is required and collectibility is
reasonably assured. License fee revenue for certain application development and
data access tools is recognized upon direct shipment to the end user. If
collectibility is not considered probable, revenue is recognized when the fee
is collected.
Maintenance and support revenues are recognized ratably over the term of the
related agreements, which in most cases is one year. Revenues from consulting
services under time and materials contracts and for training are recognized as
services are performed.
F-9
<PAGE> 27
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
CASH EQUIVALENTS
Cash equivalents include time deposits, certificates of deposits, and all
highly liquid debt instruments with original maturities of three months or less
when purchased.
LOSS PER SHARE
Basic earnings per share is computed only on the weighted average number of
common shares outstanding during the respective periods, and the dilutive
effect of stock options and warrants is excluded. Diluted earnings per share is
computed using the additional dilutive effect, if any, of stock options and
warrants using the treasury stock method based on the average market price of
the stock during the respective periods.
The effect of stock options and warrants that aggregated 23,131,381 and
23,939,911 shares as of December 31, 1999 and 1998, respectively, would be
anti-dilutive due to the Company's losses in 1999 and 1998 and, accordingly,
are not included in the computation of diluted earnings per share for the
respective periods.
Subsequent to December 31, 1999, stock options, which aggregate 5,534,800
shares, were granted to Directors, Officers and employees. Additionally, if the
private financing discussed in Note 16 is fully funded, the warrants are
exercised and the related convertible secured promissory notes are converted
into the Company's common stock, an additional 36,000,000 shares of the
Company's common stock would be outstanding.
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from estimates used.
STOCK-BASED COMPENSATION
The Company has elected to account for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" (APB 25)
and related Interpretations. Accordingly, compensation for stock options is
measured as the excess, if any, of the fair market value of the Company's stock
at the date of the grant over the amount an employee must pay to acquire the
stock. See Note 14 regarding the pro forma net loss per common share
information as required by the alternative fair value accounting provided for
under Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation", (SFAS No. 123).
The Company accounts for stock-based awards issued to non-employees in
accordance with the fair value method of SFAS 123 and Emerging Issues Task
Force Issue No. 96-18. Accordingly, the Company measures the cost of such
awards based on the fair market value of the options using the Black-Scholes
method option-pricing model.
F-10
<PAGE> 28
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 - "Reporting Comprehensive
Income" - was adopted by the Company as of January 1, 1998. The new rules
require the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Company's net
loss, stockholders' deficit, or the Company's disclosures.
EXTRAORDINARY ITEMS
For the year ended December 31, 1999, an extraordinary expense of $496,069 was
recorded as the result of a debt restructuring which is more fully discussed in
Note 5.
For the year ended December 31, 1998, extraordinary income of $282,999 was
recorded as the result of re-negotiation of terms with various accounts payable
vendors.
NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 is effective beginning in
2000. The adoption of SFAS 133 is not expected to have a material impact on the
financial position or results of operations of the Company.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. It is effective for the first
fiscal quarter beginning after December 15, 1999. The Company does not expect
the adoption of SAB No. 101 will have a material effect on its results of
operations or financial condition.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior year to conform to the
current classification.
NOTE 2. GOING CONCERN UNCERTAINTY
As reflected in the accompanying financial statements, the Company incurred a
loss of $4,184,078 and used operating cash of $ 2,339,753 for the year ended
December 31, 1999. In addition, at December 31, 1999, the Company's current
liabilities exceed current assets by $1,394,471. The Company's continued
existence and plans for future growth are dependent in part upon its ability to
obtain the capital necessary to operate, primarily through the issuance of
additional debt or equity, and on its ability to effectively penetrate the
market for software migration services and related products. If the Company is
not able to achieve break-even, obtain additional or alternative funding, or
generate sufficient revenues and cash flows in the near term, the Company will
be unable to continue as a going concern.
F-11
<PAGE> 29
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 2. GOING CONCERN UNCERTAINTY, (CONTINUED)
During 1999, the Company was actively seeking a larger investor in order to
assist in funding the Company's working capital requirements. In January, 2000
the Company entered into a private placement agreement that may provide the
Company up to $3,750,000 (See Note 16), of which $2,500,000 has been received.
Management believes that the proceeds of this private placement and anticipated
operating revenues will meet working capital requirements for 2000. If operating
revenues fall short of management's projections, or if the remaining $1,250,000
of the private placement is not funded, management anticipates seeking
additional funds through private offerings. While the Company was seeking
capital for its working capital requirements, it was developing relationships
with industry leaders in order to market and sell its products in 2000.
The Company anticipates that in 2000, its efforts to build relationships with
industry leaders and obtain financing of its working capital needs will lead to
revenues sufficient to return the Company to profitability. However, there can
be no assurance that the Company will successfully penetrate the market for
software migration services or that full funding of the January 2000 private
placement agreement will be received.
The financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or classification of
liabilities which may result from the inability of the Company to continue as a
going concern.
NOTE 3. OTHER CURRENT ASSETS
Other current assets consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Officer and employee receivables $ 12,188 $ 2,864
Prepaid expenses 16,028 22,524
Other -- 4,236
------------ ------------
$ 28,216 $ 29,624
============ ============
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Furniture and equipment $ 706,966 $ 697,312
Equipment under capital lease 101,379 101,379
Leasehold improvements 30,746 30,746
------------- ------------
839,091 829,437
Less accumulated depreciation and amortization (765,726) (630,735)
------------- ------------
$ 73,365 $ 198,702
============= ============
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998, was
$99,397 and $120,573, respectively. Amortization expense for equipment under
capital lease and leasehold improvements was $35,594 for each of the years
ended December 31, 1999 and 1998.
F-12
<PAGE> 30
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 5. NOTES PAYABLE
Notes payable at December 31, 1999 and 1998, include the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Notes payable to an officer, dated November 12 and 15, 1999, bearing interest
at 10% per annum, due upon demand, paid January, 2000. The note holder was
granted a two-year warrant to purchase 3,500 shares of common stock at $0.01
per share. $ 35,000 $ --
Note payable to an officer, dated November 27, 1998, bearing interest at 16%
per annum, due December 31, 1999. The note holder was granted a two-year
warrant to purchase 3,000 shares of common stock at $0.01 per share. -- 30,000
Note payable to a Director of the Company, net of unamortized discount of
$1,638, bearing interest at 10% per annum, due and paid in February 2000. The
note holder was granted a two-year warrant to purchase 50,000 shares of common
stock at $0.01 per share. 23,362 --
----------- -----------
Subtotal notes payable to related parties 58,362 30,000
Senior Secured Promissory Notes, net of unamortized discount of $25,359 at
December 31, 1998, bearing interest at 10% per annum, collateralized by
accounts receivable, equipment, and intellectual property, due July 1, 1999
Holders of the Senior Secured Promissory Notes were granted warrants to
purchase 3,178,591 shares of common stock. -- 1,087,141
Various one -year notes payable, net of unamortized discount of $19,159,
bearing interest at 10% per annum, due in February and March 2000, paid in
February 2000. Note holders were granted two-year warrants to purchase an
aggregate of 585,000 shares of common stock at $0.01 per share. 273,341 --
Notes payable to an outside investor, dated December 4 and December 28, 1998,
bearing interest at 16% per annum, collateralized by all assets owned or
thereafter acquired. Modified, extended and renewed October 31, 1999 bearing
interest at 16% per annum, repayable with monthly installments of principal and
interest totaling $21,100 with a final maturity of December 31, 2000. In
connection with the modification, the note holder was granted two-year warrants
to purchase 100,000 shares of common stock at $0.01 per share and 100,000
shares of common stock at $0.20 per share. 232,545 150,000
Note payable to an outside investor, dated December 23, 1999, bearing
interest at 16% per annum, due January 23, 2000, paid in January, 2000. 100,000 --
Note payable to an outside investor, dated December 13, 1999, bearing interest
at 16% per annum, due December 31, 1999, paid in January, 2000. The note holder
was granted a two-year warrant to purchase 10,000 shares of common stock at
$0.01 per share. 100,000 --
</TABLE>
F-13
<PAGE> 31
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 5. NOTES PAYABLE, (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable to an outside investor, dated July 29, 1999, bearing interest at
16% per annum, due upon demand with an option to renew monthly with payment of
interest, monthly commitment fee of $2,000 and beginning in September, 1999
granting upon each renewal warrants exercisable within two years to purchase
10,000 shares of the Company's stock at $0.01 per share, paid January, 2000. 100,000 --
Note payable to a former employee, dated March 3, 1998, bearing interest at 14%,
payable in monthly installments of $1,000, due December 10, 2003. 36,165 42,603
Note payable to a third party, as settlement of suit, dated October 28, 1998,
payable in monthly installments of $2,000 with a final maturity of October 1,
2000. 20,000 44,000
Note payable to a consultant for services, dated October 1, 1999, bearing
interest at 16% per annum, due and paid January 31, 2000. The note holder was granted
a two-year warrant to purchase 6,150 shares of common stock at $0.01 per share. 61,503 --
----------- -----------
Subtotal to third parties 923,554 1,323,744
----------- -----------
Total outstanding, net of unamortized discounts 981,916 1,353,744
Less current portion (953,151) (1,297,579)
----------- -----------
Long-term portion $ 28,765 $ 56,165
=========== ===========
</TABLE>
A summary of future maturities follows:
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C>
2000 $ 953,151
2001 8,885
2002 9,926
2003 9,954
2004 -
---------
$ 981,916
=========
</TABLE>
During the year ended December 31, 1999 and 1998, loan origination fees of
$1,300 and $4,600, respectively, were paid to Directors and Officers of the
Company who granted loans to the Company.
The Company was unable to repay the $1,112,500 of Senior Secured Promissory
Notes at maturity on July 1, 1999. In an effort to reach a settlement agreement
on mutually acceptable terms, on July 31, 1999, the Company paid the
semi-annual interest due to all of the note holders, and subsequently submitted
a proposal to modify the terms of the notes. Under terms of our proposal, (1)
the annual interest rate on the notes would remain at ten percent, (2) the next
semi-annual interest payment would remain payable on January 31, 2000, with the
final interest payment being due on July 1, 2000, (3) the exercise price of the
related warrants to purchase an aggregate
F-14
<PAGE> 32
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 5. NOTES PAYABLE, (CONTINUED)
of 3,178,591 shares of the Company's common stock would be reduced from $0.35 to
$0.20 per share, (4) the expiration date of the warrants would be extended from
July 1, 2000 to July 1, 2001, and (5) the principal amount of the notes plus any
accrued interest, combined, would be convertible into shares of the Company's
common stock at per share prices of (i) $0.125 through November 30, 1999, (ii)
$0.20 from December 1, 1999, through February 29, 2000, and (iii) $0.35 from
March 1, 2000 through May 31, 2000.
During the period September 2, 1999 to November 30, 1999, all of the holders of
the Senior Secured Promissory Notes elected to convert the $1,112,500 plus
$19,949 of accrued interest into 9,059,605 shares of common stock at $0.125 per
share. In connection with the conversion of the Senior Secured Notes to equity
and extension of the term of the related warrants, the Company recognized an
extraordinary item of $496,069.
NOTE 6. CAPITAL LEASE
The Company acquired certain office equipment under the provisions of a
long-term capital lease. For financial reporting purposes, minimum lease
payments have been capitalized. The lease expires in June, 2000.
Future minimum lease payments under the capital lease and the net present value
of the future minimum lease payments at December 31, 1999, were $16,063 and
$11,313, respectively.
NOTE 7. ACCRUED EXPENSES
Accrued expenses consist of the following as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Interest $ 46,540 $ 46,634
Legal and professional 41,050 --
Salaries and employee benefits 55,008 63,192
Contract labor 14,760 25,933
Commissions -- 13,122
Printing -- 6,092
Other 1,232 4,096
---------- ----------
$ 158,590 $ 159,069
========== ==========
</TABLE>
NOTE 8. INTEREST AND FINANCING EXPENSE
In connection with financing Company operations, certain debt transactions
included issuance of warrants to purchase Company common stock at prices
ranging from $0.01 to $0.20 per share. The Company has recorded financing
expense equal to the fair value of the warrants.
F-15
<PAGE> 33
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 9. OTHER INCOME (EXPENSE)
Other income (expense) for the years ended December 31, 1999 and 1998 were
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Interest income $ 269 $ 9,102
Miscellaneous income 10 4,807
Loss on sale of assets -- (93,486)
---------- ----------
$ 279 $ (79,577)
========== ==========
</TABLE>
NOTE 10. INCOME TAXES
Deferred tax assets and liabilities at December 31, 1999 and 1998, consist of
the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current deferred tax asset $ 46,929 $ 24,600
Current deferred tax liability -- (22,745)
Valuation allowance (46,929) (1,855)
------------ ------------
Total current deferred tax asset (liabilities) $ -- $ --
============ ============
Non-current deferred tax asset $ 3,791,353 $ 2,400,559
Valuation allowance (3,791,353) (2,400,559)
------------ ------------
Net non-current deferred tax asset (liability) $ -- $ --
============ ============
</TABLE>
The current deferred tax asset results primarily from accrued salaries, the
provision for doubtful accounts, and other expenses not currently deductible
for tax purposes. The current deferred tax liability results from an adjustment
for the change from the cash to the accrual method of accounting for Federal
income tax purposes in a prior year. The non-current deferred tax asset results
primarily from differences in depreciation rates for financial reporting and
Federal income tax purposes and the benefit of net operating losses. The net
current and non-current deferred tax assets have been fully reserved due to the
uncertainty of generating future taxable income during the carry forward
period. The valuation allowance increased by $1,419,932 from December 31, 1998
to December 31, 1999.
The Company's income tax expense (benefit) for the years ended December 31,
1999 and 1998, differed from the statutory Federal tax rate as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Statutory rate applied to loss before income taxes $ (1,422,587) $ (1,175,745)
Increase in valuation allowance 1,419,932 1,179,678
Other 2,655 (3,933)
------------ ------------
Income tax expense (benefit) $ -- $ --
============ ============
</TABLE>
Net operating losses generated through December 31, 1999, eligible to be
carried forward to future years of approximately $ 10,968,000 will expire
between 2010 and 2014.
F-16
<PAGE> 34
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 11. RELATED PARTY TRANSACTIONS
In January 1999, the Company entered into a short-term note payable agreement
with an officer of the Company. This $30,000 loan was repaid in February 1999
with interest at 16%. The officer was granted a warrant for the purchase of
3,000 shares of common stock at $0.01 per share in connection with this loan.
In August 1999, the Company entered into a short-term note payable agreement
with a Director of the Company. This $100,000 loan was repaid in September 1999
with interest at 10%. The officer was granted a warrant for the purchase of
20,000 shares of common stock at $0.01 per share in connection with this loan.
In January and February, 1998, the Company was extended an aggregate of
$254,000 of short-term notes by three Directors of the Company. Interest rates
varied from 10% to 12% and were convertible into the Company's common stock at
$0.20 per share. Warrants to purchase 175,000 shares of the Company's common
stock at prices ranging from $0.01 to $0.20 per share were granted to these
Directors in connection with the funding of these notes. During March, 1998,
$200,000 of the principal of these notes was converted into 1,000,000 shares of
common stock. Accrued interest and the balance of the notes was paid in April,
1998. In March, 1999, the Company issued 75,000 shares of its common stock to
two directors as a result of exercise of these warrants.
Effective March 25, 1998, the Company reached an agreement with its former
principal executive officer, Mr. Richard Dews, regarding actions of Mr. Dews as
Chairman and CEO, efforts by Mr. Dews to sell shares of the Company's Common
Stock, originally acquired and restructured pursuant to Rule 144 of the Act,
and claims made against the company by Mr. Dews totaling approximately
$640,000. Pursuant to the agreement, which was finalized on March 31, 1998, (1)
the Company acquired from Mr. Dews 9,400,000 shares of the Company's Common
Stock for $740,000, (2) the Company agreed to file a registration statement or
take other appropriate steps to allow free trading of the remaining shares
owned by Mr. Dews, (3) the Company issued to Mr. Dews a transferable warrant to
purchase up to 600,000 shares of the Company's unregistered and free trading
Common Stock, subject to Section 144 rules and regulations, at $0.25 per share,
(4) the Company paid to Mr. Dews $60,000 in full satisfaction, including
principal and accrued interest, of amounts previously loaned to the Company by
Mr. Dews, (5) the Company released Mr. Dews from all claims arising from or
relating to the employment of Mr. Dews or the promissory note from the Company
to Mr. Dews, (6) Mr. Dews released the Company from all claims, estimated by
Mr. Dews to total approximately $640,000, arising from or relating to the
employment of Mr. Dews or the promissory note from the Company to Mr. Dews,
including back wages relating to accrued but unused vacation pay, and (7)
pursuant to a promissory note dated March 25, 1998, no stated interest, the
Company agreed to pay to Marilyn Johnson the amount of $68,250 in installments
of $1,000 for 68 months on the tenth of each month beginning April 10, 1998,
with the final payment of $250 being due on December 10, 2003. Attorney fees
paid by the Company as a result of negotiating the settlement with Mr. Dews
were comprised of (1) the transfer of 390,454 shares of the Company's Common
Stock and (2) $210,523 paid in cash. One-half of the attorney fees paid related
to this settlement were paid to a director of the Company, acting in the
capacity of the Company's legal counsel.
In July, 1998, three Directors of the Company were granted warrants for
1,683,250 shares of the Company's common stock at an exercise price of $0.20
per share, with an expiration date of July 1, 2001. These warrants were granted
in exchange for Placement Agent fees and consulting services related to the
Company's private stock offerings in 1998.
F-17
<PAGE> 35
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 11. RELATED PARTY TRANSACTIONS
A Company Director purchased in 1998, 500,000 and 100,000 common shares of the
Company at $0.20 per share. These purchases were part of 1998 private
placements. The 100,000 common shares also included warrants to purchase an
additional 100,000 shares at $0.10 per share exercisable until September, 2001.
A Director of the Company was paid legal fees of $1,350 and $37,637 in 1999 and
1998 respectively. During 1998, the Company paid fees totaling $24,584 to four
Directors in their capacity as directors. No fees were paid or payable to
directors in 1999.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company leases its office facility under a non-cancelable operating lease,
with a monthly base rent of $10,650, which expires in April, 2000. Total rent
expense in 1999 and 1998 was $139,499 and $127,800, respectively.
Each of the four officers of the Company has an employment agreement, which
renews annually, subject to a 30-day written notice of termination. The
agreements include provisions for bonuses, commissions and stock options. In
1999 and 1998 the four officers were paid an aggregate of $477,500 and
$464,173, respectively, under the terms of these agreements.
The Company is party to a personal property tax claim arising in the ordinary
course of business. A payable which in the opinion of management, is sufficient
to reserve for this claim has been recorded as of December 31, 1999 and 1998.
NOTE 13. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments, which potentially expose the Company to concentrations
of credit risk, consist primarily of trade accounts receivable. Accounts
receivable in the aggregate of $160,700 have been collected through March 31,
2000. The Company's accounts receivables are unsecured.
For the years ended December 31, 1999 and 1998, significant customers accounted
for the percentages of the Company's total revenues as indicated below. These
revenues were associated with the Company's Y2K product which is no longer
being marketed.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Ctek, Ltd. 24% --%
Sun Professional Services 18 --
Federal Express 17 --
EDS 14 --
Reasoning, Inc. 11 25
Bell Sygma -- 46
The Sabre Group, Inc. -- 13
---- ----
84% 84%
==== ====
</TABLE>
F-18
<PAGE> 36
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14. CAPITAL STOCK, WARRANTS AND OPTIONS
CAPITAL STRUCTURE
The Company is authorized to issue 200,000,000 shares of no par common stock,
of which 78,660,189 and 54,421,618 shares were issued and outstanding at
December 31, 1999 and 1998, respectively. The Company is also authorized to
issue 1,000,000 shares of convertible 12% preferred stock, $1,000 par value,
redeemable at par value plus cumulative dividends. At December 31, 1999 and
1998, no convertible preferred stock was issued or outstanding.
ISSUANCES OF COMMON STOCK
PRIVATE PLACEMENTS
During 1999, the Company completed private placements of 11,679,500 shares of
unregistered common stock, plus two-year warrants to purchase a total of
2,335,900 unregistered shares of common stock at $0.20 per share, at a price of
$0.125 per common share yielding proceeds of $1,459,937. Both the unregistered
common shares sold and issuable upon exercise of the underlying warrants
contain piggyback registration rights.
During March and September 1998, the Company completed private placements of
22,790,000 shares of common stock at $0.20 per common share yielding proceeds
of $4,558,000. In connection with the March 1998 offering, the Company issued
warrants to various individuals who had either acted as placement agents or
furnished consulting services to the Company for the purchase of 2,147,750
shares of common stock at $0.20 per share. In connection with the September
1998 offering, purchasers of common stock also received warrants to purchase
1,000,000 shares of common stock at $0.10 per share.
CONVERSION OF DEBT TO EQUITY
During the period September 2, 1999 to November 30, 1999, the Company issued
9,059,605 shares of common stock in settlement of principal and accrued
interest related to the Senior Secured Notes which became due July 1, 1999 (See
Note 5).
During 1998, the Company issued 1,375,000 shares of common stock in settlement
of $275,000 of notes payable, including $175,000 of amounts due to directors of
the Company.
EXERCISE OF OPTIONS AND WARRANTS
During 1999 and 1998, the Company issued 3,498,786 and 54,000 shares of common
stock, respectively, upon exercise of options and warrants yielding proceeds of
$278,260 and $11,250, respectively.
TREASURY STOCK
During 1998, the Company repurchased 9,009,546 shares of common stock, net of
390,454 of shares issued for services in connection with the repurchase (See
Note 11).
F-19
<PAGE> 37
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14. CAPITAL STOCK, WARRANTS AND OPTIONS, (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
During 1999 and 1998, the Company issued 680 and 3,464 shares of common stock,
respectively, representing the employers match of shares purchased by employees
under the Company's Employee Stock Purchase Plan .
WARRANTS
A summary of warrants outstanding as of December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Warrants for purchase of 2,335,900 shares at $0.20 per share, issued in
connection with private placements of unregistered common stock in 1999,
expiring between March and December 2001 2,335,900 --
Warrants for purchase of 1,000,000 shares at $0.10 per share, issued in
connection with the September 1998 private placement of unregistered common
stock, expiring September 2001 950,000 1,000,000
Warrants for purchase of 2,147,750 shares of common stock at $0.20 per share,
issued in connection with March 1998 private placement of common stock,
expiring July 2001 2,147,750 2,147,750
Warrants issued for purchase of 704,878 shares at $0.2563 to $0.40 per share,
issued in connection with placement of debt in 1996. In 1998, the exercise
price for 500,000 shares was decreased from $0.50 to $0.40 per share. In
October 1999, the Company agreed to reduce the exercise price to $.125 in -- 704,878
exchange for immediate exercise
Warrants for purchase of 3,178,591 shares of common stock at $0.20 per share,
issued in connection with Senior Secured Promissory Notes, expiring July 2001,
as modified in 1999 (See Note 5) 3,178,591 3,178,591
Warrants for purchase of 927,650 shares of common stock at $0.01 to $0.20 per
share, issued in connection with short term borrowings in 1999, expiring
between October and December 2001 (See Note 5) 209,650 --
Warrants issued for purchase of 468,000 shares of common stock at $0.01 to
$0.20 per share, issued in connection with notes payable dated in 1998 (See 100,000 445,500
Note 5)
Warrants issued for purchase of 10,000 shares of common stock at $0.35 per
share, issued in connection with note payable dated in 1997, expiring June 2000 10,000 10,000
---------- ----------
Total 8,931,891 7,486,719
========== ==========
</TABLE>
Warrant activity is summarized as follows:
<TABLE>
<CAPTION>
WARRANT PRICE
--------------------------
WARRANTS WEIGHTED TOTAL
AVERAGE
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1997 3,893,469 $ 0.3643 $ 1,418,507
Granted 4,115,750 0.1836 755,605
Canceled (500,000) (0.50) (250,000)
Exercised (22,500) (0.01) (225)
----------- ----------- -----------
Outstanding at December 31, 1998 7,486,719 0.2570 1,923,887
Granted 3,263,550 0.1518 495,457
Exercised (1,818,378) (0.0688) (125,120)
Exercise price modification -- (0.1651) (641,179)
----------- ----------- -----------
Outstanding at December 31, 1999 8,931,891 $ 0.1851 $ 1,653,045
=========== =========== ===========
</TABLE>
F-20
<PAGE> 38
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14. CAPITAL STOCK, WARRANTS AND OPTIONS, (CONTINUED)
STOCK OPTIONS GRANTED TO NON-EMPLOYEES
A summary of stock options granted to non-employees outstanding as of December
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Granted August 1999 to EAI Partners, Inc. to purchase 5,902,614 shares of
common stock, expiring September 2000 to September 2001 (See below) 4,570,281 --
Granted March 1998 to former CEO, exercisable at $0.25 per share, expiring
March 2000 (See Note 11) 600,000 600,000
Granted October 1998 in exchange for software, exercisable at $0.12 per share -- 200,000
Granted September 1997 for services rendered, exercisable at $.70 per share,
expiring December 2002 240,000 240,000
Granted July 1997 for services rendered, exercisable at $.50 per share,
expiring July 2000 35,000 35,000
Granted June 1997 to a Director for services rendered, exercisable at $.35 per
share, expiring June 2000 25,000 25,000
Granted July 1999 for services to be rendered, exercisable at $0.20 per share
vesting at rate of 7,500 per month through July 2001, expiring July 2002;
Agreement canceled February, 2000 at which time 60,000 shares were vested 180,000 --
Granted August 1999 for prior services rendered, exercisable at $0.20 per
share, immediately vested, expiring July 2001 25,000 --
Granted December 1999 for services rendered, exercisable at $0.01 per share
immediately vested, expiring December 2001 10,000 --
---------- ----------
Total 5,685,281 1,100,000
========== ==========
</TABLE>
In August, 1999, the Company entered into a Stock Option Agreement with EAI
Partners, Inc. ("EAI") which replaced a November, 1996 stock option agreement,
covering 6,000,000 shares of the Company's common stock, between EAI and the
Company's former CEO, pursuant to which the Company was required to register
the shares under the options. As a part of the Company's settlement agreement
with the Company's former CEO, the Company agreed to indemnify the former CEO
against any liability arising from the Company's failure to register the EAI
options as required by the November, 1996 stock option agreement. The August,
1999 Agreement granted EAI an option to purchase 5,903,614 shares of the
Company's common stock. The first 1,903,614 option shares are exercisable at a
price of $0.075 per share with the final 4,000,000 option shares being
exercisable at the greater of $.20 or 50% of the average closing bid prices per
share of the Company's common stock for the five business days immediately
prior to the date EAI exercises the final 4,000,000 stock options. The Company
has agreed to file a registration statement covering the option shares no later
than August 31, 2000. As of December 31, 1999, EAI has exercised 1,333,333 of
the first 1,903,614 stock options. In the event the Company fails to file a
registration statement by August 31, 2000, EAI will be entitled to an option to
acquire an additional 600,000 shares at the greater of $0.50 or 50% of the
closing price for the five-days preceding exercise, expiring September 1, 2001.
The Company has recognized a loss in the amount of $706,500 as a result of the
August, 1999 Agreement.
F-21
<PAGE> 39
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14. CAPITAL STOCK, WARRANTS AND OPTIONS, (CONTINUED)
Stock options granted to non-employees is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE
--------------------------
WEIGHTED
OPTIONS AVERAGE TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1997 440,000 $ 0.6034 $ 265,500
Granted 800,000 0.2175 174,000
Canceled (140,000) (0.5089) (71,250)
Exercised -- -- --
----------- ----------- -----------
Outstanding at December 31, 1998 1,100,000 0.3348 368,250
Granted 6,118,614 0.1608 983,871
Exercised (1,533,333) (0.0809) (124,000)
----------- ----------- -----------
Outstanding at December 31, 1999 5,685,281 $ 0.2160 $ 1,228,121
=========== =========== ===========
</TABLE>
STOCK OPTIONS GRANTED TO EMPLOYEES, OFFICERS AND DIRECTORS
In 1997, the Company established a stock option plan ("1997 Plan"); however,
the 1997 Plan was not approved by the Company's stockholders within the time
specified and was terminated in 1999. Outstanding options issued pursuant to
the 1997 Plan were canceled in 1999.
The Company adopted a new stock option plan, the 1999 Stock Option Plan ("1999
Plan"). Under the terms of the 1999 Plan, the Company could grant up to
2,000,000 shares of the Company's common stock. The 1999 Plan was not approved
by the Company's stockholders within one year of adoption by the Company's
Board of Directors, thereby converting options, granted under the 1999 Plan to
non-qualified options for Federal income tax purposes. All terms of the options
remained unchanged.
In January, 2000, the Company's Board of Directors approved, subject to
stockholders' approval a long-term incentive plan, which provides for granting
up to a maximum of 7,000,000 shares of the Company's common stock in the form
of stock options, dividend equivalent rights or restricted share awards to
Company Directors, officers, employees and consultants. The name of this plan
is MigraTEC, Inc. Long-Term Incentive Plan ("2000 Plan").
The Company has issued stock options to employees, officers and directors as
summarized in the table below.
<TABLE>
<CAPTION>
OFFICERS OPTION PRICE
AND ---------------------------
EMPLOYEES DIRECTORS TOTAL WEIGHTED TOTAL
AVERAGE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1997 613,406 4,109,855 4,723,261 $ 0.3788 $ 1,789,156
Granted 1,676,492 13,900,000 15,576,492 0.2144 3,339,447
Canceled (805,206) (4,109,855) (4,915,061) (0.3930) (1,931,684)
Exercised (31,500) -- (31,500) (0.3500) (11,025)
----------- ----------- ----------- ----------- -----------
Outstanding at December 31, 1998 1,453,192 13,900,000 15,353,192 0.2075 3,185,894
Granted 2,421,904 -- 2,421,904 0.1985 480,706
Canceled (2,163,812) (6,950,000) (9,113,812) 0.2117 (1,929,681)
Exercised (22,075) (125,000) (147,075) 0.1981 (29,139)
----------- ----------- ----------- ----------- -----------
Outstanding at December 31, 1999 1,689,209 6,825,000 8,514,209 $ 0.2006 $ 1,707,780
=========== =========== =========== =========== ===========
</TABLE>
F-22
<PAGE> 40
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14. CAPITAL STOCK, WARRANTS AND OPTIONS, (CONTINUED)
Effective September 7, 1999, the Company officers and four directors agreed to
modify options previously granted for services provided as follows (a) the
number of shares underlying each option was voluntarily reduced by 50%, (b) the
remaining 50% of the shares underlying each option remained fully vested as of
the date of the modification, (c) for officers, the expiration date was
re-defined to be four years after the date of termination of employment, (d)
for directors the expiration date was re-defined to be four years after the
date of the modification. The exercise price for the modified options was
unchanged at $0.20 per share. There was no impact on the financial statements
as a result of this modification.
Options in the aggregate of 1,689,209 expire from April, 2001, through
December, 2004. The remaining options, which aggregate 6,825,000, have been
granted to officers and directors and expire 48 months after termination of
employment or 48 months from date of the modification for Directors.
COMPENSATION EXPENSE FOR OPTIONS AND WARRANTS GRANTED TO EMPLOYEES, OFFICERS
AND DIRECTORS
Substantially all options issued to directors, officers and employees were
issued with exercise prices equal to fair value. Fair value for all options
issued is generally the trading price at the date of issuance. Had compensation
cost for the Company's stock options been determined consistent with SFAS 123,
the Company's net loss per share would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Net income (loss)
As reported $ (4,184,078) $ (3,458,075)
=============== ===============
Pro forma $ (4,263,881) $ (5,081,264)
=============== ===============
Income (loss) per common share (basic and diluted)
As reported $ (0.079) $ (0.086)
=============== ===============
Pro forma $ (0.080) $ (0.126)
=============== ===============
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plan.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes method option-pricing model. The following assumptions were used
for grants in 1999: dividend yield of 0%, volatility range of 104% to 120%,
risk free interest rate estimated as 5% with an expected life of 2 to 4 years.
The following assumptions were used for grants in 1998: dividend yield of 0%,
volatility of 86%, risk free interest rate estimated as 5% with an expected
life of 1 to 5 years.
The fair value of each option grant given to both employees and non-employees
is estimated on the date of grant using the Black-Scholes option pricing model.
The weighted average fair value of the option granted under this model when
fair value equaled the exercise price and when the fair value was greater than
the exercise price was $0.13 and $0.09 per option, respectively, for the
years ended December 31, 1999 and 1998.
The model is based on historical stock prices and volatility which, due to the
low volume of transactions, may not be representative of future price
variances.
F-23
<PAGE> 41
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14. CAPITAL STOCK, WARRANTS AND OPTIONS, (CONTINUED)
The following summarizes information about options granted to employees,
officers and directors and non-employees outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------- ------------------------------
WEIGHTED AVG. WEIGHTED WEIGHTED AVG.
RANGE OF NUMBER REMAINING AVG. NUMBER EXERCISABLE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Employees
$0.1719 to $ 0.3906 1,689,209 3.73 years $ 0.2035 534,140 $ 0.2983
Officers and Directors
$ 0.20 6,825,000 N/A $ 0.20 6,825,000 $ 0.20
Non-Employees
$ 0.01 to $0.70 5,685,281 1.34 years $ 0.22 5,542,781 $ 0.22
</TABLE>
TOTAL OPTIONS AND WARRANTS OUTSTANDING AT DECEMBER 31, 1999
At December 31, 1999, the Company had options and warrants for the purchase of
common shares as follows:
<TABLE>
<S> <C>
Warrants 8,931,891
Stock Options:
Non-Employees 5,685,281
Directors, Officers and Employees 8,514,209
----------
Total 23,131,381
==========
</TABLE>
COMPENSATION EXPENSE FOR OPTIONS AND WARRANTS GRANTED TO NON EMPLOYEES
The Company has recorded compensation expense in 1999 and 1998 for all options
and warrants issued to non-employees. Such compensation expense was determined
using the Black-Scholes method option-pricing model, using assumptions
consistent with those noted above.
NOTE 15. EMPLOYEE SAVINGS PLAN
Effective January 1, 1994, the Company adopted a discretionary 401(k) savings
plan ("Plan") for its employees. This Plan is available to all employees
meeting certain eligibility requirements, as further described in the Plan
documents. No discretionary employer contributions were made for the years
ended December 31, 1999 and 1998. Participants are 100% vested in the portion
of the Plan representing employee contributions. Participants vest 20% in
employer contributions after two years of service (as defined by the Plan
document) and 20% each year thereafter.
NOTE 16. SUBSEQUENT EVENTS
During January 2000, the Company completed private placement of 2,451,000
shares of common stock at $0.125 per share yielding proceeds of $306,375.
On January 25, 2000 ("Initial Closing"), the Company closed the first stage of
a potential three-stage private financing of the Company by MT Partners, L.P.,
an affiliate of Cardinal Investment Company, Inc., and Mercury Fund No. 1,
Ltd., an affiliate of Mercury Ventures, Ltd. (collectively, the "Investors").
At the Initial Closing, the Investors entered into a Note and Warrant Purchase
Agreement with the Company (the "Agreement") pursuant to which the Investors
agreed to provide up to $3,750,000 of private financing to the Company,
evidenced by convertible secured promissory notes of the Company (the "Notes").
Pursuant to the Agreement, the Investors have provided an aggregate of
$2,500,000 through March 31, 2000. The Investors may also, at their election,
provide up to $1,250,000 of additional financing to the Company on or before
April 30, 2000.
F-24
<PAGE> 42
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 16. SUBSEQUENT EVENTS, (CONTINUED)
The Notes are convertible at any time, at the election of the Investors, into
shares of the Company's common stock, on the basis of one share of common stock
for each $.125 in principal amount of the Notes outstanding at the time of
conversion. The notes do not accrue interest. The Agreement requires the
Company to use its best efforts to create, as soon as practical and in any
event by June 30, 2000, a new series of preferred stock designated as
Convertible Preferred Stock, Series A, $.01 par value per share (the "Series A
Preferred Stock"), into which the Notes will be convertible. Upon the creation
of the Series A Preferred Stock, the Notes automatically convert into such
Series A Preferred Stock on the basis of one share of Series A Preferred Stock
for each $.125 in principal amount of Notes outstanding at the time of
conversion. Shares of Series A Preferred Stock will be convertible into shares
of common stock at the initial conversion rate of one share of common stock for
each share of Series A Preferred Stock converted. As of March 31, 2000, the
Notes may be converted, at the election of the Investors, into 20,000,000
shares of common stock. If the Investors provide the maximum amount of funding
that may be provided to the Company under the Agreement, the Notes will be
convertible into an aggregate of 30,000,000 shares of common stock.
Pursuant to the Agreement, the Company also agreed to issue to the Investors
warrants to purchase shares of common stock. At the Initial Closing, the
Company issued to the Investors warrants to purchase up to an aggregate of
2,000,000 shares of common stock. On March 31, 2000, the Company issued to the
Investors additional warrants to purchase up to an additional 2,000,000 shares
of common stock. If the Investors provide the maximum amount of funding that
may be provided to the Company under the Agreement, the Investors will receive
warrants to purchase a total of 6,000,000 shares of common stock. All of such
warrants are exercisable for a period of 5 years from the date of issuance and
have an exercise price of $0.20 per share.
Simultaneous with the Initial Closing of the Agreement, the Board of Directors
of the Company elected a representative of each of the Investors as new members
to the Company's Board of Directors.
Subsequent to December 31, 1999, certain officers and employees were granted,
under the 2000 Plan, options to purchase common stock of the Company, the terms
of which are summarized below:
<TABLE>
<CAPTION>
OPTION PRICE
-----------------------
NUMBER WEIGHTED
RANGE OF EXERCISE PRICES GRANTED AVERAGE TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Granted at Market Value
Officers and Directors
$0.75 1,150,000 0.75 $ 862,500
Employees
$0.74 to $2.87 644,800 1.057 681,360
Granted below Market Value
Officers and Directors
$0.20 to $0.75 3,500,000 0.294 1,030,000
Employees
$0.75 240,000 0.75 180,000
---------- ---------- ----------
5,534,800 $ 0.498 $2,753,860
========== ========== ==========
</TABLE>
The Company recorded total deferred compensation of $2,855,000 related to the
stock options granted at less than market value. Such amount will be amortized
as compensation expense over the respective vesting periods, which are
principally 36 months. The expense related to the year ending December 31, 2000
will be $1,114,000.
F-25
<PAGE> 43
MIGRATEC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 16. SUBSEQUENT EVENTS, (CONTINUED)
The following summarizes common stock options and warrants exercised and common
stock purchases during the period from January 1, 2000 through March 31, 2000:
<TABLE>
<CAPTION>
SHARES
----------
<S> <C>
Common Stock Private Placement Sales 2,451,000
Aggregate warrants and stock options exercised 8,130,198
----------
10,581,198
==========
</TABLE>
Subsequent to December 31, 1999, the Company fully repaid notes payable
aggregating approximately $714,000.
On April 12, 2000, the Company executed a non-cancelable operating lease for
its office facility for a term of 39 months beginning May 1, 2000. The lease
provides for a monthly base rent of $14,982 with three months of free rent,
with the first rental payment due August 1, 2000. Below is a summary of the
base rents for the next five years:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
2000 $ 74,910
2001 179,784
2002 179,784
2003 104,874
2004 -
Thereafter -
------------
$ 539,352
============
</TABLE>
F-26
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- - -------------- -----------------------
<S> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Warrant to M.T. Partners, L.P. and Mercury Fund No. 1,
Ltd. (2)
10.1 Commercial Lease Agreement between the Company and TDC Dallas
Partners No. 2 Ltd. dated April 7, 1997 (1)
10.2 Employment Agreement between the Company and W. Curtis
Overstreet dated April 10, 1997 (1)
10.3 Employment Agreement between the Company and Joseph B.
Meredith dated June 1, 1997 (1)
10.4 Employment Agreement between the Company and Rick J. Johnson
dated July 1, 1997 (1)
10.5 Agreement between the Company and Electronic Data Systems
Corporationdated as of September 1, 1998 (1)
10.6 MigraTEC, Inc. Long-Term Incentive Plan (2)
10.7 Form of Incentive Stock Option Agreement pursuant to the
MigraTEC, Inc. Long-Term Incentive Plan (2)
10.8 Form of Non-Qualified Stock Option Agreement pursuant to the
MigraTEC, Inc. Long-Term Incentive Plan (2)
10.9 Warrant Agreement between MigraTEC, Inc. and M.T. Partners,
L.P. and Mercury Fund No. 1, Ltd., dated as of
January 25, 2000 (2)
10.10 $1,975,000 Convertible Secured Promissory Note by MigraTEC,
Inc. to M.T. Partners, L.P., dated as of January 25, 2000 (2)
10.11 $1,775,000 Convertible Secured Promissory Note by MigraTEC,
Inc. to Mercury Fund No. 1, Ltd., dated as of January 25, 2000
(2)
10.12 Security Agreement between MigraTEC, Inc. and M.T. Partners,
L.P. and Mercury Fund No. 1, Ltd., dated as of January 25,
2000 (2)
10.13 Shareholders Agreement between MigraTEC, Inc. and certain
shareholders, dated as of January 25, 2000 (2)
10.14 Registration Rights Agreement between MigraTEC, Inc. and
certain shareholders, dated as of January 25, 2000 (2)
</TABLE>
<PAGE> 45
<TABLE>
<S> <C>
10.15 Form of Director Indemnification Agreement between MigraTEC,
Inc. and Kevin C. Howe and Drew R. Johnson, dated as of
January 25, 2000 (2)
10.16 Office Lease Agreement between MigraTEC, Inc. and Charter
Crown Plaza Partners, L.P., dated as of April 12, 2000. (2)
11.1 Statement re: Computations of Net Loss per Share (2)
21.1 Subsidiary of MigraTEC, Inc. (2)
27.1 Financial Data Schedule (2)
- - ----------------------------------------
</TABLE>
(1) Incorporated by reference from Post-Effective
Amendment No. 1 to MigraTEC's Registration Statement
on Form SB-2 filed May 7, 1999, File No. 333-65093.
(2) Filed herewith.
<PAGE> 1
EXHIBIT 4.2
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
COMMON STOCK PURCHASE WARRANT
March 31, 2000
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
MigraTEC, Inc., a Florida corporation (the "Company"), does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), _____________________,
its successor, and assigns ("Holder"), hereby is entitled to purchase from the
Company, during the term set forth in Section 1 hereof, up to an aggregate
amount of ___________shares (the "Exercise Quantity") of duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock of the
Company (the "Common Stock"), all upon the terms and provisions and subject to
adjustment of such Exercise Quantity provided in the Warrant Agreement and this
Common Stock Purchase Warrant (the "Warrant"). The exercise price per share of
Common Stock for which this Warrant is exercisable shall be $0.20, as adjusted
from time to time pursuant to the terms of this Warrant and the Warrant
Agreement (the "Exercise Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Central time, on March 31, 2005.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this
Warrant at any time during the term hereof, in whole or in part, from time to
time (but not for fractional shares, unless this Warrant is exercised in whole),
by presentation and surrender of this Warrant to the Company, together with the
annexed Exercise Form duly completed and executed and payment
1
<PAGE> 2
in the aggregate amount equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased. At the option of Holder, payment of the
Exercise Price may be made either by (i) certified check payable to the order of
the Company, (ii) surrender of certificates then held representing, or deduction
from the number of shares issuable upon exercise of this Warrant, of that number
of shares which has an aggregate Fair Value determined in accordance with the
Warrant Agreement on the date of exercise equal to the aggregate Exercise Price
for all shares to be purchased pursuant to this Warrant, or (iii) by any
combination of the foregoing methods. Within five business days of the Company's
receipt of this Warrant, the completed and signed Exercise Form and the
requisite payment (if any), the Company shall issue and deliver (or cause to be
delivered) to the exercising Holder stock certificates aggregating the number of
shares of Warrant Securities purchased.
(b) This Warrant may be exercised by the Holder of this
Warrant at any time in accordance with Section 2(a) hereof (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, together with the annexed Exercise
Form duly completed and executed and payment in the aggregate amount equal to
the Exercise Price multiplied by the number of shares of Common Stock being
purchased. At the option of Holder, payment of the Exercise Price may be made
either by (i) certified check payable to the order of the Company, (ii)
surrender of certificates then held representing, or deduction from the number
of shares issuable upon exercise of this Warrant, of that number of shares which
has an aggregate Fair Value determined in accordance with this Agreement on the
date of exercise equal to the aggregate Exercise Price for all shares to be
purchased pursuant to this Warrant, or (iii) by a combination of the foregoing
methods. Within five business days of the Company's receipt of this Warrant, the
completed and signed Exercise Form and the requisite payment (if any), the
Company shall issue and deliver (or cause to be delivered) to the exercising
Holder stock certificates aggregating the number of shares of Warrant Securities
purchased.
(c) In the event the Holder of this Warrant desires that any
or all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(d) Upon the due exercise by the Holder of this Warrant,
whether in whole or in part, the Holder (or any other person to whom a stock
certificate is to be so issued) shall be deemed for all purposes to have become
the Holder of record of the shares of Common Stock for which this Warrant has
been so exercised, effective immediately prior to the close of business on the
date this Warrant, the completed and signed Exercise Form and the requisite
payment were duly delivered to the Company, irrespective of the date of actual
delivery of certificates representing such shares of Common Stock so issued.
2
<PAGE> 3
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant shall be made to the Company during normal business hours on a business
day (unless the Company otherwise permits) at the executive offices of the
Company or to such other office or duly authorized representative of the Company
as from time to time may be designated by the Company by written notice given to
the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within five business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form and the requisite payment.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices an open register for all Warrants, in which the Company shall
record the name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable hereunder and the corresponding purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with
the provisions of Article VII of the Warrant Agreement, in whole or in part, by
the Holder or any duly authorized representative of such Holder. A transfer may
be registered with the Company by submission to it of this Warrant, together
with the annexed Assignment Form duly completed and executed, and if the
transfer is not a registered transfer, evidence reasonably satisfactory to the
Company that such transfer is in compliance with federal and state securities
laws. Within five business days after the Company's receipt of this Warrant and
the Assignment Form so completed and executed, the Company will issue and
deliver to the transferee a new Warrant representing the
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<PAGE> 4
portion of the Exercise Quantity transferred at the same Exercise Price per
share and otherwise having the same terms and provisions as this Warrant, which
the Company will register in the new Holder's name.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it, or (b)
in the case of mutilation, upon surrender and cancellation thereof, the Company,
at its expense, will execute, register and deliver, in lieu thereof, a new
certificate or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer
of this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company
and the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet, President
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MigraTEC, Inc.
EXERCISE FORM
MigraTEC, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ______ shares of common stock of the Company (the "Warrant
Securities"), and requests that certificates for the Warrant Securities be
issued in the name of:
---------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
---------------------------------------------------------------
---------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
------------------
Name of Holder
or Assignee:
----------------------------
(Please Print)
Address:
----------------------------
----------------------------
Signature:
----------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
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<PAGE> 7
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase ______ shares of common stock represented by the within
Warrant Certificate unto, and requests that a certificate for such Warrant be
issued in the name of:
-------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------------------------------
-------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints
________________________ Attorney to transfer said Warrant on the books of the
Company, with full power of substitution in the premises and, if said number of
shares of common stock shall not be all of the common stock purchasable under
the within Warrant Certificate, that a new Warrant Certificate for the balance
of the common stock purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder and delivered to such Holder's
address as then set forth on the Company's books.
Dated:
------------------ -----------------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
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<PAGE> 1
EXHIBIT 10.6
MIGRATEC, INC.
LONG-TERM INCENTIVE PLAN
MIGRATEC, INC., a Florida corporation, (together with its predecessors,
successors and assigns, the "Company"), hereby establishes and adopts the
following Long-Term Incentive Plan (the "Plan").
RECITALS:
WHEREAS, the Company desires to encourage high levels of performance by
those individuals who are key to the success of the Company, to attract new
individuals who are highly motivated and who will contribute to the success of
the Company and to encourage such individuals to remain as directors,
consultants, officers and/or employees of the Company by increasing their
proprietary interest in the Company's growth and success; and
WHEREAS, to further these goals, the Company has formulated the Plan to
authorize the granting of incentive awards through grants of stock options
("Options"), Restricted Share Awards and Dividend Equivalent Rights (as such
terms are hereinafter defined) to those individuals whose judgment, initiative
and efforts are responsible for the success of the Company;
NOW, THEREFORE, the Company hereby constitutes, establishes and adopts
the following Plan and agrees to the following provisions:
ARTICLE 1
PURPOSE OF THE PLAN
1.1 PURPOSE. The purpose of the Plan is to assist the Company in
attracting and retaining selected individuals to serve as directors,
consultants, officers and employees of the Company who will contribute to the
Company's success and to achieve long-term objectives which will inure to the
benefit of all shareholders of the Company through the additional incentive
inherent in the ownership of the Company's shares of common stock, no par value
per share (the "Shares"). Options granted under the Plan will be either
"incentive share options" intended to qualify as such under the provisions of
section 422 of the Internal Revenue Code of 1986, as from time to time amended
(the "Code"), or "nonqualified share options." For purposes of the Plan, the
term "subsidiary" shall mean "subsidiary corporation," as such term is defined
in section 424(f) of the Code, and "affiliate" shall have the meaning set forth
in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). For purposes of the Plan, the term "Award" shall mean a grant of an
Option, a Restricted Share Award, a Dividend Equivalent Right or any other award
made under the terms of the Plan.
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<PAGE> 2
ARTICLE 2
SHARES SUBJECT TO AWARDS
2.1 NUMBER OF SHARES. Subject to the adjustment provisions of Section
7.9 hereof, the aggregate number of Shares which may be issued under Awards
under the Plan, whether pursuant to Options, Restricted Share Awards or Dividend
Equivalent Rights, shall not exceed Seven Million (7,000,000). No Awards to
purchase fractional Shares shall be granted or issued under the Plan.
2.2 SHARES SUBJECT TO TERMINATED AWARDS. The Shares covered by any
unexercised portions of terminated Options granted under Article 4, any Shares
forfeited as provided in Article 5 and any Shares subject to Awards which are
otherwise surrendered by the Participant (as hereinafter defined) without
receiving any payment or other benefit with respect thereto may again be subject
to new Awards under the Plan. In the event the purchase price of an Option is
paid in whole or in part through the delivery of Shares, the number of Shares
issuable in connection with the exercise of the Option shall not again be
available for the grant of Awards under the Plan.
2.3 CHARACTER OF SHARES. Shares delivered under the Plan may be
authorized and unissued Shares or Shares acquired by the Company, or both.
ARTICLE 3
ELIGIBILITY AND ADMINISTRATION
3.1 AWARDS TO EMPLOYEES, OFFICERS, DIRECTORS AND CONSULTANTS.
(a) Participants who receive Options under Article 4 hereof
("Optionees"), Restricted Share Awards under Article 5 hereof or
Dividend Equivalent Rights under Article 6 hereof (in each case, a
"Participant") shall consist of such employees, officers, directors and
consultants of the Company or any of its subsidiaries or affiliates as
the Committee (as defined in Section 3.2(a) hereinafter) shall select
from time to time. The Committee's designation of an Optionee or
Participant in any year shall not require the Committee to designate
such person to receive Awards or grants in any other year. The
designation of an Optionee or Participant to receive Awards or grants
under one portion of the Plan shall not require the Committee to
include such Optionee or Participant under other portions of the Plan.
(b) No Option which is intended to qualify as an "incentive
share option" may be granted to any employee, officer, director or
consultant who, at the time of such grant, owns, directly or indirectly
(within the meaning of sections 422(b)(6) and 424(d) of the Code),
shares possessing more than ten percent (10%) of the total combined
voting power of all classes of shares of the Company or any of its
subsidiaries or affiliates, unless at the time of such grant, (i) the
option price is fixed at not less than 110% of the Fair Market Value
(as hereinafter defined) of the Shares subject to such Option,
determined on the date of the
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<PAGE> 3
grant, and (ii) the exercise of such Option is prohibited by its terms
after the expiration of five (5) years from the date such Option is
granted.
3.2 ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors
of the Company or, upon the designation of the Board, by the
Compensation Committee (the "Committee") of the Board of Directors.
References herein to the Committee shall mean the Compensation
Committee of the Board or such similar committee of the Board as
designated by the Board of Directors or, in the absence of a
Compensation Committee or any such designation of a similar committee,
the Board of Directors of the Company. Any committee charged with
administering the Plan shall have only such authority with respect to
the making of Awards and the performing of other duties and
responsibilities under the Plan as shall be delegated to such committee
by the Board.
(b) The Committee is authorized, subject to the provisions of
the Plan, to establish such rules and regulations as it may deem
appropriate for the conduct of meetings and proper administration of
the Plan. All actions of the Committee shall be taken by majority vote
of its members.
(c) Subject to the provisions of the Plan, the Committee shall
have authority to, in its sole discretion, interpret the provisions of
the Plan and, subject to the requirements of applicable law, to
prescribe, amend, and rescind rules and regulations relating to it as
it may deem necessary or advisable. The Committee shall have the
authority to, in its sole discretion, amend, rescind and alter the
terms of any grant of Options or other Award under this Plan, provided
that such amendment, rescission or alteration shall not adversely
affect the rights of the Optionee or Award recipient as set forth in
the applicable Option or Award agreement between the Company and the
Optionee or Award recipient. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final, conclusive and
binding on all persons, including the Company, its shareholders,
directors, consultants, officers, employees, Optionees and
Participants.
ARTICLE 4
OPTIONS
4.1 GRANT OF OPTIONS. The Committee shall determine, within the
limitations of the Plan, the directors, consultants, officers and employees of
the Company and its subsidiaries and affiliates to whom Options are to be
granted under the Plan, the number of Shares that may be purchased under each
such Option and the option price, and shall designate such Options at the time
of the grant as either "incentive share options" or "nonqualified share
options;" provided, however, that Options granted to employees of an affiliate
(that is not also a subsidiary) or to non-employees of the Company may only be
"nonqualified share options."
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<PAGE> 4
All Options granted pursuant to this Article 4 herein shall be
authorized by the Committee and shall be evidenced in writing by share option
agreements ("Share Option Agreements") in such form and containing such terms
and conditions as the Committee shall determine which are not inconsistent with
the provisions of the Plan, and, with respect to any Share Option Agreement
granting Options which are intended to qualify as "incentive share options," are
not inconsistent with Section 422 of the Code. Granting an Option pursuant to
the Plan shall impose no obligation on the recipient to exercise such option.
Any individual who is granted an Option pursuant to this Article 4 may hold more
than one Option granted pursuant to this Article 4 at the same time and may hold
both "incentive share options" and "nonqualified share options" at the same
time. To the extent that any Option does not qualify as an "incentive share
option" (whether because of its provisions, the time or manner of its exercise
or otherwise) such Option or the portion thereof which does not so qualify shall
constitute a separate "nonqualified share option."
4.2 OPTION PRICE. Subject to Section 3.1(b), the option price per each
Share purchasable under any "incentive share option" granted pursuant to this
Article 4 shall not be less than 100% of the Fair Market Value (as hereinafter
defined) of such Share on the date of the grant of such Option. The option price
per share of each Share purchasable under any "nonqualified share option"
granted pursuant to this Article 4 shall be such amount as the Committee shall
determine at the time of the grant of such Option or the then current Fair
Market Value (as defined in Section 7.2 hereinafter).
4.3 OTHER PROVISIONS. Options granted pursuant to this Article 4 shall
be made in accordance with the terms and provisions of Article 7 hereof and any
other applicable terms and provisions of the Plan.
ARTICLE 5
RESTRICTED AWARDS
5.1 RESTRICTED SHARE AWARDS.
(a) Grants of Restricted Shares. A grant of Shares made
pursuant to this Article 5 is referred to as a "Restricted Share
Award." The Committee may grant to any Participant an amount of Shares
in such manner, and subject to such terms, restrictions and conditions
relating to vesting, forfeiture, delivery and transfer (whether based
on performance standards, periods of service or otherwise) as the
Committee shall establish (such Shares being referred to herein as the
"Restricted Shares"). The terms of any Restricted Share Award granted
under this Plan shall be set forth in a written agreement (a
"Restricted Share Agreement") which shall contain provisions determined
by the Committee and not inconsistent with this Plan. The provisions of
Restricted Share Awards need not be the same for each Participant
receiving such Awards.
(b) Issuance of Restricted Shares. As soon as practicable on
or after the date of grant of a Restricted Share Award by the
Committee, the Company shall cause to be transferred on the books of
the Company Shares, registered in the name of the Participant,
evidencing the Restricted Shares covered by the Award, but subject to
forfeiture to the
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<PAGE> 5
Company retroactive to the date of grant, if a Restricted Share
Agreement delivered to the Participant by the Company with respect to
the Restricted Shares covered by the Award is not duly executed by the
Participant and timely returned to the Company. All Restricted Shares
covered by Awards under this Article 5 shall be subject to the
restrictions, terms and conditions contained in the Plan and the
Restricted Share Agreement entered into by and between the Company and
the Participant. Until the lapse or release of all restrictions
applicable to an Award of Restricted Shares, the share certificates
representing such Restricted Shares may, in the discretion of the
Committee, be held in custody by the Company or its designee and shall
bear a restrictive legend describing the applicable restrictions, terms
and conditions.
(c) Shareholder Rights. Beginning on the date of grant of the
Restricted Share Award and subject to execution of the Restricted Share
Agreement as provided in Sections 5.1(a) and (b), the Participant shall
become a shareholder of the Company with respect to all Shares subject
to the Restricted Share Agreement and shall have all of the rights of a
shareholder, including, but not limited to, the right to vote such
Shares and the right to receive distributions made with respect to such
Shares; provided, however, that any Shares distributed as a dividend or
otherwise with respect to any Restricted Shares as to which the
restrictions have not yet lapsed shall be subject to the same
restrictions as such Restricted Shares.
(d) Restriction on Transferability. None of the Restricted
Shares may be assigned or transferred (other than by will or the laws
of descent and distribution), pledged or sold prior to lapse or release
of the restrictions applicable thereto.
(e) Delivery of Shares Upon Release of Restrictions. Upon
expiration or earlier termination of any forfeiture period without a
forfeiture and the satisfaction of or release from any other conditions
prescribed by the Committee, the restrictions applicable to the
Restricted Shares shall lapse. As promptly as administratively feasible
thereafter, subject to the requirements of Section 8.1, the Company
shall deliver to the Participant or, in case of the Participant's
death, to the Participant's beneficiary, one or more stock certificates
for the appropriate number of Shares, free of all such restrictions,
except for any restrictions that may be imposed by law.
5.2 TERMS AND CONDITIONS OF RESTRICTED SHARES.
(a) Restrictions Affecting Restricted Shares. Subject to
Section 5.2(b), Restricted Shares shall be subject to such
restrictions, terms and conditions as shall be established by the
Committee, including, but not limited to, restrictions relating to
vesting, forfeiture, delivery and transfer (whether based on
performance standards, periods of service or otherwise). Such
restrictions, terms and conditions may be set forth in the Plan or in
the Restricted Share Agreement entered into by and between the Company
and the Participant.
(b) Waiver of Conditions or Restrictions. Notwithstanding
anything contained in this Article 5 to the contrary, the Committee
may, in its sole discretion, waive any
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<PAGE> 6
restrictions, terms or conditions set forth in the Plan or in any
Restricted Share Agreement under appropriate circumstances (which may
include the death, disability or retirement of the Participant, or a
material change in circumstances arising after the date of an Award)
and subject to such terms and conditions as the Committee shall deem
appropriate.
ARTICLE 6
DIVIDEND EQUIVALENT RIGHTS
6.1 GRANT OF DIVIDEND EQUIVALENT RIGHTS. The Committee shall determine,
within the limitations of the Plan, the directors, consultants, officers and
employees of the Company and its subsidiaries and affiliates to whom Dividend
Equivalent Rights are to be granted under the Plan. For purposes of the Plan, a
"Dividend Equivalent Right" shall mean the right of the holder thereof to
receive credits based on the cash dividends that would have been paid on the
Shares specified in the Award if the Shares were held by the holder to whom the
Award is made. The Committee may grant a Dividend Equivalent Right, either as a
component of another Award or as a separate Award, and, in general, each such
holder of a Dividend Equivalent Right that is outstanding on a dividend record
date for the Company's common stock shall be credited with an amount equal to
the cash or stock dividends or other distributions that would have been received
had the Shares covered by the Award been issued and outstanding on the dividend
record date. The terms of any Dividend Equivalent Right awarded under this Plan
shall be set forth in a written agreement (a "Dividend Equivalent Rights
Agreement") which shall contain provisions determined by the Committee and not
inconsistent with this Plan. The provisions of any such Award need not be the
same for each Participant receiving such Awards. Dividend equivalents credited
to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional Shares (which may thereafter accrue
additional Dividend Equivalent Rights). Any such reinvestment shall be at the
Fair Market Value (as hereinafter defined) at the time thereof. Dividend
Equivalent Rights may be settled in cash or Shares, or a combination thereof, in
a single payment or in installments. The Committee may provide that a Dividend
Equivalent Right granted as a component of another Award shall be settled upon
exercise, settlement or payment for or lapse of restrictions on such other
Award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled under the same conditions as such other Award. A Dividend Equivalent
Right granted as a component of another Award may also contain restrictions,
terms and conditions different from such other Award.
ARTICLE 7
GENERALLY APPLICABLE PROVISIONS
7.1 OPTION PERIOD. Subject to Section 3.1(b), the period for which an
Option is exercisable shall not exceed ten (10) years from the date such Option
is granted. After the Option is granted, the option period may not be reduced.
7.2 FAIR MARKET VALUE. Unless otherwise provided in Section 422 of the
Internal Revenue Code of 1986, as amended, for the grant of an "incentive share
option," if the Shares are listed or admitted to trading on a securities
exchange registered under the Exchange Act, the "Fair
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Market Value" of a Share as of a specified date shall mean the average of the
high and low price of the shares for the day immediately preceding the date as
of which Fair Market Value is being determined (or if there was no reported sale
on such date, on the last preceding date on which any reported sale occurred) as
reported on the principal securities exchange on which the Shares are listed or
admitted to trading. If the Shares are not listed or admitted to trading on any
such exchange but are listed as a national market security on the National
Association of Securities Dealers, Inc. Automated Quotation System ("The Nasdaq
Stock Market"), traded in the over-the-counter market or listed or traded on any
similar system then in use, the Fair Market Value of a Share shall be either, in
the sole discretion of the Committee, the average of the high and low sales
price or the closing sales price, for the day immediately preceding the date as
of which the Fair Market Value is being determined (or if there was no reported
sale on such date, on the last preceding date on which any reported sale
occurred) as reported on such system. If the Shares are not listed or admitted
to trading on any such exchange, are not listed as a national market security on
The Nasdaq Stock Market and are not traded in the over-the-counter market or
listed or traded on any similar system then in use, but are quoted on The Nasdaq
Stock Market or any similar system then in use, the Fair Market Value of a Share
shall be the average of the closing high bid and low asked quotations on such
system for the Shares on the date in question. If the Shares are not publicly
traded, Fair Market Value shall be determined by the Committee in its sole
discretion using appropriate criteria. An Option shall be considered granted on
the date the Committee acts to grant the Option or such later date as the
Committee shall specify.
7.3 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercised by the Optionee thereof (or by his or her executors, administrators,
guardian or legal representative, as provided in Sections 7.6 and 7.7 hereof) as
to all or part of the Shares covered thereby, by the giving of written notice of
exercise to the Company, specifying the number of Shares to be purchased,
accompanied by payment of the full purchase price for the Shares being
purchased. Full payment of such purchase price shall be made within five (5)
business days following the date of exercise and shall be made (i) in cash or by
certified check or bank check, (ii) with the consent of the Committee, by
delivery of a promissory note in favor of the Company upon such terms and
conditions as determined by the Committee, (iii) with the consent of Committee,
by tendering previously acquired Shares (valued at their Fair Market Value, as
determined by the Committee as of the date of tender), or (iv) with the consent
of the Committee, any combination of (i), (ii) and (iii). Such notice of
exercise, accompanied by such payment, shall be delivered to the Company at its
principal business office or such other office as the Committee may from time to
time direct, and shall be in such form, containing such further provisions
consistent with the provisions of the Plan, as the Committee may from time to
time prescribe. In no event may any Option granted hereunder be exercised for a
fraction of a Share. The Company shall effect the transfer of Shares purchased
pursuant to an Option as soon as practicable, and, within a reasonable time
thereafter, such transfer shall be evidenced on the books of the Company. No
person exercising an Option shall have any of the rights of a holder of Shares
subject to an Option until certificates for such Shares shall have been issued
following the exercise of such Option. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date of such
issuance.
7.4 NON-TRANSFERABILITY OF OPTIONS. Without the prior written consent
of the Company, no Option shall be assignable or transferable by the Optionee,
other than by will or the laws of
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<PAGE> 8
descent and distribution, and may be exercised during the life of the Optionee
only by the Optionee or his duly appointed guardian or legal representative.
Notwithstanding the foregoing or any other provisions contained in this Plan, a
nonqualified Share Option Agreement may provide that the Optionee may transfer
the option and all rights and privileges evidenced by the Share Option Agreement
to (i) members of Optionee's immediate family (i.e., Optionee's spouse, or the
children, grandchildren or parents of Optionee or Optionee's spouse) (any such
person referred to herein as a "Family Member"), (ii) one or more trusts for the
benefit of any Family Member, and (iii) any partnership whose only partners are
Family Members (any person or entity referred to in clauses (i), (ii) or (iii)
above being a "Permitted Transferee"), provided that (a) no consideration may be
paid for the transfer of the option or other rights or privileges evidenced by
the Share Option Agreement and (b) any Permitted Transferee who is the
transferee of any option will remain subject to all conditions (including the
transfer restrictions) which were applicable to the Option and the rights and
privileges evidenced by the Plan and the Share Option Agreement prior to the
transfer to such Permitted Transferee.
7.5 TERMINATION OF SERVICE. If the service of the Optionee is
terminated for any reason other than (1) Disability (as hereinafter defined) of
the Optionee, (2) death of the Optionee, or (3) for cause, in accordance with
any applicable employment or engagement agreement in effect between the Optionee
and the Company; or if no such agreement is in effect, as determined by the
Committee in its sole and absolute discretion, an Option (to the extent
exercisable on the date of such termination) shall be exercisable by the
Optionee at any time within (i) ninety (90) days after such termination if the
Optionee is a non-director employee or a consultant, or (ii) one year after such
termination if the Optionee is a director, unless such Option terminates prior
to such time; provided, however, that the Committee may, in its sole discretion,
on a case by case basis, extend the period during which any such Option must be
exercised. If the Optionee's service with the Company is terminated for cause,
any Option(s) granted to him will automatically terminate as of the time of such
cessation of service.
7.6 DEATH. If the Optionee dies while employed by the Company or any of
its subsidiaries or affiliates or during his term as a Director of the Company
or any of its subsidiaries or affiliates, as the case may be, any Option(s)
granted to him not previously expired or exercised shall, to the extent
exercisable on the date of death, be exercisable by the estate of such Optionee
or by any person who acquired such Option by bequest or inheritance, at any time
within one (1) year after the death of the Optionee, unless earlier terminated
pursuant to its terms; provided, however, that if the term of such Option would
expire by its terms within six (6) months after the Optionee's death, the term
of such Option shall be extended until six (6) months after the Optionee's
death; provided further, that in no instance may the term of the Option, as so
extended, exceed the maximum term set forth in Section 3.1(b)(ii) or 7.1 above.
7.7 DISABILITY. If the Optionee's service is terminated by reason of
the Optionee's Disability, an Option (to the extent exercisable on the date of
the Optionee's termination of service by reason of Disability) shall be
exercisable by the Optionee at any time prior to the expiration of the Option or
within one (1) year after the date of such termination of service, whichever is
the shorter period. As used herein, the term "Disability" shall mean the
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment
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<PAGE> 9
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than six (6) months. The
determination of whether or not an Optionee's service is terminated by reason of
Disability shall be in the sole and absolute discretion of the Committee. An
individual shall not be considered Disabled unless he furnishes proof of the
existence thereof in such form and manner, and at such times, as the Committee
may require.
7.8 AMENDMENT AND MODIFICATION OF THE PLAN. The Compensation Committee
of the Board of Directors of the Company or, in the absence of a Compensation
Committee, the Board of Directors of the Company, may, from time to time, alter,
amend, suspend or terminate the Plan as it shall deem advisable, subject to any
requirement for shareholder approval imposed by applicable law or any rule of
any stock exchange or quotation system on which Shares are listed or quoted;
provided that no amendments to, or termination of, the Plan shall in any way
impair the rights of an Optionee or a Participant under any Award previously
granted without such Optionee's or Participant's consent.
7.9 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that a
dividend payable in Shares or a share split shall be hereinafter declared upon
the Shares, the number of Shares then subject to any Option hereunder and the
number of Shares reserved for issuance pursuant to the Plan but not yet covered
by an Option shall be adjusted by adding to each such Share the number of shares
which would be distributable thereon if such Share had been outstanding on the
date fixed for determining the shareholders entitled to receive such share
dividend or share split. In the event that the outstanding Shares shall be
changed into or exchanged for a different number or kind of shares of common
stock or other securities of the Company or of another corporation, whether
through reorganization, recapitalization, share split, combination of shares,
merger, consolidation, combination, spin-off, repurchase or exchange of Shares,
then there shall be substituted for each Share subject to any such Option and
for each Share reserved for issuance pursuant to the Plan but not yet covered by
an Option, the number and kind of shares of common stock or other securities
into which each outstanding Share shall be so changed or for which each such
Share shall be exchanged. In the event there shall be any change, other than as
specified above in this Section 7.9, in the number or kind of outstanding Shares
or of any shares of common stock or other securities into which Shares shall
have been changed or for which they shall have been exchanged, then if the
Committee shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of Shares theretofore reserved for
issuance pursuant to the Plan but not yet covered by an Option and of the Shares
then subject to an Option or Options, such adjustment shall be made by the
Committee and shall be effective and binding for all purposes of the Plan and of
each Share Option Agreement. In the case of any such substitution or adjustment
as provided for in this Section, the option price in each Share Option Agreement
for each Share covered thereby prior to such substitution or adjustment will be
the option price for all shares of common stock or other securities which shall
have been substituted for such Share or to which such adjustment provided for in
this Section 7.9 shall be made, in accordance with Section 424(a) of the Code.
No adjustment or substitution provided for in this Section 7.9 shall require the
Company pursuant to any Share Option Agreement to sell a fractional Share, and
the total substitution or adjustment with respect to each Share Option Agreement
shall be limited accordingly.
9
<PAGE> 10
7.10 LAPSE OF RESTRICTIONS IN THE EVENT OF A CHANGE IN CONTROL. A
"Change in Control" for purposes of this Plan shall mean (i) the dissolution or
liquidation of the Company, (ii) any sale or other disposition of all or
substantially all of the assets of the Company or (iii) the consummation of any
merger or consolidation of the Company if the shareholders of the Company
immediately before such transaction own, immediately after consummation of such
transaction, equity securities (other than Options and other rights to acquire
equity securities) possessing less than fifty and one-tenth percent (50.1%) of
the voting power of the surviving or acquiring corporation.
(a) Change in Control With Provision Being Made Therefor. If
provision be made in writing in connection with a Change in Control for
the assumption and continuance of any Option granted under the Plan, or
the substitution for such Option of a new option covering the shares of
the successor employer corporation, with appropriate adjustment as to
number and kind of shares and prices, the Option granted under the
Plan, or the new Option substituted therefor, as the case may be, shall
continue in the manner and under the terms provided.
(b) Change in Control Without Provision Being Made Therefor.
In the event provision is not made in connection with a Change in
Control for the continuance and assumption of any Option granted under
the Plan or for the substitution of any Option covering the shares of
the successor employer corporation, then, subject to the $100,000
annual limitation with respect to incentive stock options, the holder
of any such Option shall be entitled, prior to the effective date of
any such Change in Control and for six months thereafter, to purchase
the full number of shares not previously exercised under such Option,
without regard to the periods of exercisability of such Option
established by the Committee and set forth in the Share Option
Agreement evidencing such Option if (and only if) such Option has not
at that time expired or been terminated.
(c) Adjustments. All adjustments under this Section 7.10 shall
be made by the Committee, whose determination as to what adjustments
shall be made and the extent thereof, shall be final, binding and
conclusive for all purposes of the Plan and of each Share Option
Agreement, Restricted Share Agreement and Dividend Equivalent Rights
Agreement.
7.11 QUALIFICATION OF THE PLAN. This Plan is not intended to be, and
shall not be, qualified under Section 401(a) of the Code.
ARTICLE 8
MISCELLANEOUS
8.1 TAX WITHHOLDING. The Company shall notify an Optionee or
Participant of any income tax withholding requirements arising as a result of
the grant of any Award, exercise of an Option or any other event occurring
pursuant to this Plan. The Company shall have the right to withhold from such
Optionee or Participant such withholding taxes as may be required by law, or to
otherwise require the Optionee or Participant to pay such withholding taxes. If
the Optionee or Participant shall fail to make such tax payments as are
required, the Company or its subsidiaries or
10
<PAGE> 11
affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to such Optionee or
Participant or to take such other action as may be necessary to satisfy such
withholding obligations.
8.2 RIGHT OF DISCHARGE RESERVED. Nothing in the Plan nor the grant of
an Award hereunder shall confer upon any officer, employee, director, consultant
or other individual the right to continue in the employment or service of the
Company or any subsidiary or affiliate of the Company or affect any right that
the Company or any subsidiary or affiliate of the Company may have to terminate
the employment or service of (or to demote or to exclude from future Options
under the Plan) any such officer, employee, director, consultant or other
individual at any time for any reason. Except as specifically provided by the
Committee, the Company shall not be liable for the loss of existing or potential
profit from an Award granted in the event of termination of an employment or
other relationship even if the termination is in violation of an obligation of
the Company or any subsidiary or affiliate of the Company to the officer,
employee, director or consultant.
8.3 NATURE OF PAYMENTS. All Awards made pursuant to the Plan are in
consideration of services performed for the Company or any subsidiary or
affiliate of the Company. Any income or gain realized pursuant to Awards under
the Plan constitutes a special incentive payment to the Optionee or Participant
and shall not be taken into account, to the extent permissible under applicable
law, as compensation for purposes of any of the employee benefit plans of the
Company or any subsidiary or affiliate of the Company except as may be
determined by the Committee or by the directors of the applicable subsidiary or
affiliate of the Company.
8.4 COMPLIANCE WITH SECURITIES LAW.
(a) The grant of Options and the issuance of Shares upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such
securities. Options may not be exercised if the issuance of Shares upon
exercise would constitute a violation of any applicable federal, state
or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the
Stock may then be listed. In addition, no Option may be exercised
unless (a) a registration statement under the Securities Act shall at
the time of exercise of the Option be in effect with respect to the
Shares issuable upon exercise of the Option or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the
Option may be issued in accordance with the terms of an applicable
exemption from the registration requirements of the Securities Act. THE
OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT
BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS
VESTED. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's
legal counsel to be necessary to the lawful issuance and sale of any
Shares hereunder shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise
of any Option, the
11
<PAGE> 12
Company may require the Optionee to satisfy any qualifications that may
be necessary or appropriate to evidence compliance with any applicable
law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
(b) This Plan is intended to comply in all respects with Rule
16b-3 promulgated under the Securities Act of 1934, as amended (the
"Exchange Act"), with respect to Participants who are subject to
Section 16 of the Exchange Act, and any provision herein that is
contrary to Rule 16b-3 shall be deemed null and void to the extent
appropriate by either the Committee or the Company's Board of
Directors.
8.5 INDEMNIFICATION OF COMMITTEE. The Company shall indemnify each
present and future member of the Committee against, and each member of the
Committee shall be entitled, without further act on his part, to indemnity from
the Company for all expenses (including the amount of judgments and the amount
of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably incurred
by him in connection with or arising out of any action, suit, or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee, whether or not he continues to be a member of the Committee at the
time of incurring such expenses; provided, however, that such indemnity shall
not include any expenses incurred by any such member of the Committee (a) in
respect of matters as to which he shall be finally adjudged in any such action,
suit, or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee or (b) in
respect of any matter in which any settlement is effected in an amount in excess
of the amount approved by the Company on the advice of its legal counsel; and
provided further, that no right of indemnification under the provisions set
forth herein shall be available to or enforceable by any such member of the
Committee unless, within sixty (60) days after institution of any such action,
suit, or proceeding, such Committee member shall have offered the Company, in
writing, the opportunity to handle and defend the same at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors, or administrators of each such member of the Committee and shall be
in addition to all other rights to which such member of the Committee shall be
entitled as a matter of law, contract, or otherwise.
8.6 SEVERABILITY. If any provision of the Plan shall be held unlawful
or otherwise invalid or unenforceable in whole or in part, such unlawfulness,
invalidity or unenforceability shall not affect any other provision of the Plan
or part thereof, each of which remain in full force and effect. If the making of
any payment or the provision of any other benefit required under the Plan shall
be held unlawful or otherwise invalid or unenforceable, such unlawfulness,
invalidity or unenforceability shall not prevent any other payment or benefit
from being made or provided under the Plan, and if the making of any payment in
full or the provision of any other benefit required under the Plan in full would
be unlawful or otherwise invalid or unenforceable, then such unlawfulness,
invalidity or unenforceability shall not prevent such payment or benefit from
being made or provided in part, to the extent that it would not be unlawful,
invalid or unenforceable, and the maximum payment or benefit that would not be
unlawful, invalid or unenforceable shall be made or provided under the Plan.
12
<PAGE> 13
8.7 GENDER AND NUMBER. In construing the Plan, any masculine
terminology herein shall also include the feminine, and the definition of any
term herein in the singular shall also include the plural, except when otherwise
indicated by the context.
8.8 GOVERNING LAW. The Plan and all determinations made and actions
taken thereunder, to the extent not otherwise governed by the Code or the laws
of the United States, shall be governed by the laws of the State of Delaware and
construed accordingly.
8.9 TERMINATION OF PLAN. Awards may be granted under the Plan at any
time and from time to time on or prior to February 22, 2010, on which date the
Plan will expire except as to Awards then outstanding under the Plan. Such
outstanding Awards shall remain in effect until they have been exercised or
terminated, or have expired.
8.10 CAPTIONS. The captions in this Plan are for convenience of
reference only, and are not intended to narrow, limit or affect the substance or
interpretation of the provisions contained herein.
8.11 DATE. The Plan shall be dated as of January 31, 2000.
13
<PAGE> 1
EXHIBIT 10.7
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
MIGRATEC, INC.
LONG-TERM INCENTIVE PLAN
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made on the
date set forth on Exhibit A attached hereto (the "Date of Grant"), between
MigraTEC, Inc., a Florida corporation (together with its predecessors,
successors and assigns, the "Company"), and _____________, an employee of the
Company (the "Optionee"). All capitalized terms not otherwise defined herein
shall have the meaning set forth in the MigraTEC, Inc. Long-Term Incentive Plan,
dated January 31, 2000 (the "Plan").
RECITALS:
WHEREAS, the Company desires to carry out the purposes of the Plan by
affording the Optionee the opportunity to purchase shares of the Company's
common stock, no par value per share (the "Common Stock");
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1.1 Grant of Option. The Company hereby grants to the Optionee the
right and option (the "Option") to purchase the number of shares of Common Stock
as set forth on Exhibit A attached hereto (the "Shares"), such Shares being
subject to adjustment as provided in Paragraph 6 herein set forth. The Option is
intended to constitute an "incentive stock option" under the provisions of
section 422 of the Internal Revenue Code of 1986, as amended, and subject to the
terms of the Plan and applicable law, this Agreement shall be construed so that
the Option shall qualify as an "incentive stock option."
2.1 Purchase Price. The purchase price of the Shares shall be such
price as set forth on Exhibit A attached hereto, which is the Fair Market Value
of a Share on the Date of Grant.
3.1 Exercise of Option. Unless expired as provided in Paragraph 5
below, this Option may be exercised from time to time after the Date of Grant to
the extent of Shares that have vested, as provided in Exhibit A attached hereto.
The Optionee's right to exercise the Option accrues only in accordance with such
vesting schedule and, except as otherwise provided herein, only to the extent
that the Optionee remains in the continuous employ or service of the Company.
4.1 Manner of Exercise, Payment of Purchase Price.
(a) Subject to the terms and conditions of this Agreement, the
Option shall be exercised by written notice to the Company at its
principal office. Such notice shall state the election to exercise the
Option and specify the number of Shares to be purchased. Such notice of
exercise shall be signed by Optionee and shall be irrevocable when
given.
<PAGE> 2
(b) The purchase price for the Shares to be purchased shall be
paid or made within five (5) business days following the date of
delivery of the notice of exercise. The purchase price may be paid in
cash or by certified check or bank check.
(c) Upon receipt of the purchase price, and subject to the
terms of Paragraph 9, the certificate or certificates representing the
Shares purchased shall be registered in the name of the person or
persons so exercising the Option. If the Option shall be exercised by
the Optionee and, if the Optionee shall so request in the notice
exercising the Option, the Shares shall be registered in the name of
the Optionee and another person as joint tenants with right of
survivorship, and shall be delivered as provided above to or upon the
written order of the person or persons exercising the Option. All
Shares that shall be purchased upon the exercise of the Option as
provided herein shall be fully paid and nonassessable.
5.1 Expiration of Option. The Option shall expire and become null and
void upon the first to occur of the following: (a) the expiration of 30 days
after the Optionee ceases to be employed by the Company for any reason other
than termination for cause or due to death or Disability; (b) a period of one
year shall have elapsed since the Optionee's death or the date of termination of
the Optionee's service by reason of the Optionee's Disability; (c) the earlier
of the expiration date as set forth on Exhibit A hereto, or a period of ten (10)
years shall have elapsed since the Date of Grant; or (d) the Optionee's
employment shall have been terminated for cause as determined by the Committee
or the Board of Directors of the Company.
6.1 Adjustments of Shares Subject to Option. The Shares subject to the
Option shall be adjusted from time to time as set forth in Sections 7.9 and 7.10
of the Plan. The determination of any such adjustment by the Committee shall be
final, binding and conclusive.
7.1 No Contract. This Agreement does not constitute a contract for
employment and shall not affect the right of the Company (subject to any
contract for employment which may be in effect) to terminate the Optionee's
employment for any reason or no reason whatsoever.
8.1 Rights as Shareholder. This Option shall not entitle the Optionee
to any rights of a shareholder of the Company or to any notice of proceedings of
the Company with respect to any Shares issuable upon exercise of this Option
unless and until the Option has been exercised for such Shares and such Shares
have been registered in the Optionee's name upon the stock records of the
Company.
9.1 Restriction on Issuance of Shares. The Company shall not be
required to issue or deliver any certificates for Shares purchased upon the
exercise of an Option prior to: (i) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable; (ii) the completion of any registration or other
qualification of such Shares under any state or federal law or ruling or
regulation of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable; and (iii) the determination
by the Committee that the Optionee has tendered to the Company any federal,
state or local tax owed by the Optionee as a result of exercising the Option
when the Company has a legal liability to satisfy such tax. In addition, if the
Common Stock reserved for issuance upon the exercise of Options shall not then
be registered under the
-2-
<PAGE> 3
Securities Act of 1933, as amended (the "Securities Act"), the Company may upon
the Optionee's exercise of an Option, require the Optionee or his permitted
transferee to represent in writing that the Shares being acquired are for
investment and not with a view to distribution, and may mark the certificate for
the Shares with a legend restricting transfer and may issue stop transfer orders
relating to such certificate to the Company's transfer agent (if applicable).
10.1 Restriction on Sale of Shares. The Shares purchased pursuant to an
exercise of an Option may not be transferred, assigned, encumbered, sold or
otherwise made the subject of disposition, unless at the time of such
disposition such Shares are registered by an effective registration statement
under the Securities Act, or if not registered, exempt from registration as
stated in an opinion of counsel reasonably satisfactory to the Company.
11.1 Lapse of Option. This Agreement shall be null and void in the
event the Optionee shall fail to sign and return a counterpart hereof to the
Company within thirty (30) days of its delivery to the Optionee.
12.1 Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators, and successors of the parties hereto.
13.1 Governing Instrument and Entire Agreement. This Option and any
Shares issued hereunder shall in all respects be governed by the terms and
provisions of the Plan. In the event of a conflict between the terms of this
Agreement and the terms of the Plan (a copy of which is attached), the terms of
the Plan shall control. There are no oral agreements between the parties
relating to the subject matter hereof, and this Agreement and the terms of the
Plan constitute the entire agreement of the parties with respect to the subject
matter hereof. This Agreement may not be amended except by written agreement
executed by the Company and the Optionee.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned officer has executed this Agreement
on behalf of the Company to be effective as of the date first above written.
COMPANY:
MIGRATEC, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
OPTIONEE:
-----------------------------------------
Printed Name:
----------------------------
Date:
------------------------------------
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<PAGE> 5
EXHIBIT A
TO
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE MIGRATEC, INC.
LONG-TERM INCENTIVE PLAN
Optionee Name:
------------------------------
Date of Grant:
------------------------------
Number of Shares
Underlying Option:
------------------------------
Purchase Price: $ per share
------------------------------
Expiration Date:
------------------------------
Vesting Schedule:
------------------------------
<PAGE> 1
EXHIBIT 10.8
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE
MIGRATEC, INC.
LONG-TERM INCENTIVE PLAN
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made as
of the date of grant listed on Exhibit A attached hereto (the "Date of Grant"),
between MIGRATEC, INC., a Florida corporation (together with its predecessors,
successors and assigns, the "Company"), and __________ (the "Optionee"). All
capitalized terms not otherwise defined herein shall have the meaning set forth
in the MigraTEC, Inc. Long-Term Incentive Plan, dated January 31, 2000 (the
"Plan").
W I T N E S S E T H:
WHEREAS, the Company desires to carry out the purposes of the Plan by
affording Optionee the opportunity to purchase shares of the Company's common
stock, no par value per share (the "Common Stock");
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1.1 Grant of Option. The Company hereby grants to Optionee the right
and option (the "Option") to purchase the number of shares of Common Stock set
forth on Exhibit A attached hereto (the "Shares"), such Shares being subject to
adjustment as provided in Paragraph 6 herein set forth. The Option is a
"nonqualified stock option" and is not intended to constitute an "incentive
stock option" under the provisions of section 422 of the Internal Revenue Code
of 1986, as amended.
2.1 Purchase Price. The purchase price of the Shares shall be as set
forth on Exhibit A attached hereto.
3.1 Exercise of Option. Unless expired as provided in Paragraph 5
below, this Option may be exercised from time to time after the Date of Grant to
the extent of Shares that have vested in accordance with the vesting schedule
set forth on Exhibit A attached hereto. The Optionee's right to exercise the
Option accrues only to the extent that the Optionee remains in the service of
the Company.
4.1 Manner of Exercise, Payment of Purchase Price.
(a) Subject to the terms and conditions of this Agreement, the
Option shall be exercised by written notice to the Company at its
principal office. Such notice shall state the election to exercise
the Option and specify the number of Shares to be purchased. Such
notice of exercise shall be signed by the Optionee and shall be
irrevocable when given.
<PAGE> 2
(b) The purchase price for the Shares to be purchased shall be
made within five (5) business days following the date of delivery
of the note of exercise. The purchase price may be paid (i) in
cash or by certified check or bank check, (ii) with the consent of
the Committee, by delivery of a promissory note in favor of the
Company upon such terms and conditions as determined by the
Committee, (iii) with the consent of the Committee, by tendering
previously acquired Shares (valued at their Fair Market Value, as
determined by the Committee as of the date of tender), or (iv)
with the consent of the Committee, any combination of (i), (ii)
and (iii). In the event Optionee wishes to pay all or any portion
of the purchase price by any of the methods set forth in (ii),
(iii) or (iv) of the preceding sentence, Optionee shall, not less
than fourteen (14) days prior to the date of exercise, give
written notice to the Secretary of the Company requesting approval
of such payment method, setting forth the particulars of the
proposed payment method. The Committee shall approve, disapprove
or modify (to the extent consistent with the above options) the
proposed payment method within fourteen (14) days of its receipt
of the request.
(c) Upon receipt of the purchase price, and subject to the
terms of Paragraph 9 and the Optionee's designation, the
certificate or certificates representing the Shares purchased
shall be registered in the name of the entity, person or persons
so exercising the Option. If the Option shall be exercised by
Optionee and, if Optionee shall so request in the notice
exercising the Option, the Shares shall be registered in the name
of Optionee or its designee(s), and shall be delivered as provided
above to or upon the written order of the person or persons
exercising the Option. All Shares that shall be purchased upon the
exercise of the Option as provided herein shall be fully paid and
nonassessable.
5.1 Expiration of Option. The Option shall expire and become null and
void upon the first to occur of the following: (a) the expiration of 90 (ninety)
days (if the Optionee is a non-director employee or consultant of the Company)
or one year (if the Optionee is a director of the Company) after the service of
the Optionee to the Company is terminated for any reason other than termination
due to death or Disability; (b) a period of one year shall have elapsed since
Optionee's death or the date of termination of Optionee's service by reason of
Optionee's Disability; or (c) upon the expiration date as set forth on Exhibit A
attached hereto.
6.1 Adjustments of Shares Subject to Option. The Shares subject to the
Option shall be adjusted from time to time as set forth in Sections 7.9 and 7.10
of the Plan. The determination of any such adjustment by the Committee shall be
final, binding and conclusive.
7.1 No Contract. This Agreement does not constitute a contract for
employment or service with the Company and shall not affect the right of the
Company to terminate Optionee's service for any reason or no reason whatsoever.
8.1 Rights as Shareholder. This Option shall not entitle Optionee to
any rights of a shareholder of the Company or to any notice of proceedings of
the Company with respect to any Shares issuable upon exercise of this Option
unless and until the Option has been exercised for such Shares and such Shares
have been registered in the Optionee's name upon the stock records of the
Company.
-2-
<PAGE> 3
9.1 Restriction on Issuance of Shares. The Company shall not be
required to issue or deliver any certificates for Shares purchased upon the
exercise of an Option prior to: (i) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable; (ii) the completion of any registration or other
qualification of such Shares under any state or federal law or ruling or
regulation of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable; and (iii) the determination
by the Committee that Optionee has tendered to the Company any federal, state or
local tax owed by Optionee as a result of exercising the Option when the Company
has a legal liability to satisfy such tax. In addition, if the Common Stock
reserved for issuance upon the exercise of Options shall not then be registered
under the Securities Act of 1933, as amended (the "Securities Act"), the Company
may upon Optionee's exercise of an Option, require Optionee or its permitted
transferee to represent in writing that the Shares being acquired are for
investment and not with a view to distribution, and may mark the certificate for
the Shares with a legend restricting transfer and may issue stop transfer orders
relating to such certificate to the Company's transfer agent (if applicable).
10.1 Restriction on Sale of Shares. The Shares purchased pursuant to an
exercise of an Option may not be transferred, assigned, encumbered, sold or
otherwise made the subject of disposition, unless at the time of such
disposition such Shares are registered by an effective registration statement
under the Securities Act, or if not registered, exempt from registration as
stated in an opinion of counsel reasonably satisfactory to the Company.
11.1 Lapse of Option. This Agreement shall be null and void in the
event Optionee shall fail to sign and return a counterpart hereof to the Company
within thirty (30) days of its delivery to Optionee.
12.1 Binding Effect. This Agreement shall be binding upon the assigns,
heirs, executors, administrators, and successors of the parties hereto.
13.1 Governing Instrument and Entire Agreement. This Option and any
Shares issued hereunder shall in all respects be governed by the terms and
provisions of the Plan. In the event of a conflict between the terms of this
Agreement and the terms of the Plan (a copy of which is attached), the terms of
the Plan shall control. There are no oral agreements between the parties
relating to the subject matter hereof, and this Agreement and the terms of the
Plan constitute the entire agreement of the parties with respect to the subject
matter hereof. This Agreement may not be amended except by written agreement
executed by the Company and Optionee.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned officer has executed this Agreement
on behalf of the Company to be effective as of the date first above written.
COMPANY:
MIGRATEC, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
OPTIONEE:
By:
--------------------------------------
Printed Name:
----------------------------
Date:
------------------------------------
-4-
<PAGE> 5
EXHIBIT A
TO
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE
MIGRATEC, INC. LONG-TERM INCENTIVE PLAN
Name of Optionee:
-------------------------
Date of Grant:
-------------------------
Number of Shares
Underlying Option:
-------------------------
Purchase Price: $ per share
-------------------------
Expiration Date:
-------------------------
Vesting Schedule:
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<PAGE> 1
EXHIBIT 10.9
WARRANT AGREEMENT
Between
MIGRATEC, INC.
And
MT PARTNERS, L.P.
and
MERCURY FUND NO. 1, LTD.
Dated as of January 25, 2000
THE WARRANTS AND WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANTS
AND WARRANT SECURITIES, AS THE CASE MAY BE, MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT
WITH RESPECT TO THE WARRANTS AND WARRANT SECURITIES, AS THE CASE MAY BE, UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
<PAGE> 2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of the 25th day
of January, 2000, by between MigraTEC, Inc., a Florida corporation (the
"Company"), MT Partners, L.P., a Texas limited partnership ("Cardinal"), and
Mercury Fund No. 1, Ltd., a Texas limited partnership ("Mercury"), and their
respective designees and/or assignees (the "Investors").
RECITALS
WHEREAS, the Company has agreed to issue to the Investors or their
assigns common stock purchase warrants in substantially the form attached hereto
as Exhibit A (the "Warrants") to acquire up to an aggregate of 6,000,000 shares
of the Company's common stock, no par value per share ("Common Stock");
WHEREAS Cardinal and Mercury have agreed to provide the initial loan
amount (the "Initial Loan Amount") in the aggregate of One Million Two Hundred
Fifty Thousand Dollars ($1,250,000) pursuant to that certain Note and Warrant
Purchase Agreement (the "Purchase Agreement");
WHEREAS, Cardinal and Mercury, at their sole discretion, may advance
subsequent loan amounts in the aggregate amount of up to Two Million Five
Hundred Thousand Dollars ($2,500,000), which together with the Initial Loan
Amount shall equal in the aggregate up to Three Million Seven Hundred Fifty
Thousand Dollars ($3,750,000) (the "Total Loan Amount"); and
WHEREAS, in consideration of the advances by the Investors under the
Purchase Agreement of amounts up to the Total Loan Amount, the Company desires
to issue to each Investor one or more Warrants to purchase the number of shares
of the Company's Common Stock as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties hereto agree as follows:
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<PAGE> 3
AGREEMENT
I. DEFINITIONS
Section 1.01 Defined Terms. As used in this agreement, the following
capitalized terms shall have the meanings respectively assigned to them below,
which meanings shall be applicable equally to the singular and plural forms of
the terms so defined. All terms not so defined below shall have the meanings
ascribed to them in the Purchase Agreement and the Notes.
"Affiliate" means as to any Person or any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control of such Person. For purposes of this definition "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Business Day" shall mean any day that the banks located in the State
of Texas are open to conduct business.
"Common Stock" shall mean the common stock, no par value per share, of
the Company.
"Common Stock Equivalents" shall mean all options, warrants (including,
without limitation, the Warrants), securities of any kind (including, without
limitation, securities convertible into or exchangeable or exercisable for
Common Stock) and other rights (in each case whether now existing or hereafter
issued or arising) to acquire from the Company shares of Common Stock (without
regard to whether such options, warrants, securities and other rights are then
exchangeable, exercisable or convertible in full, in part or at all).
"Company" shall have the meaning set forth in the preamble.
"Dividend" means, as to any Person, any declaration or payment of any
dividend or distribution (other than a dividend of Common Stock) on, or the
making of any pro rata distribution, loan, advance, or investment to, any shares
of capital stock of such Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, and any successor
provisions thereto.
"Exercise Price" shall mean $0.20 per share. The Exercise Price and the
number of shares of Common Stock purchasable pursuant to the Warrants shall be
subject to adjustment from time to time as hereinafter set forth in Article V
hereof.
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"Expiration Period" means January 25, 2005.
"Exercise Quantity" shall mean the number of shares of Common Stock,
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of the Warrants, required to be issued by the
Company to the holders of the Warrants. Exercise Quantity may be adjusted from
time to time pursuant to the provisions of the Warrants and this Agreement.
"Fair Value" as of a particular date shall mean the closing asked price
of the Common Stock as reported on a national securities exchange or on the
NASDAQ SmallCap, National Market System or OTC Bulletin Board Service
(collectively, and as applicable, "NASDAQ") or, if a last asked quotation is not
available for the Common Stock, the last sale price of the Common Stock as
reported by NASDAQ, or if not so reported, as listed in the National Quotation
Bureau, Inc.'s "Pink Sheets." If such quotations are unavailable, or with
respect to other appropriate security, property, assets, business or entity,
"Fair Value" shall mean the fair value of such item as determined by mutual
agreement reached by the Holder and the Company or, in the event the parties are
unable to agree, an opinion of PriceWaterhouseCoopers, LLP ("PWC") in accordance
with the following procedure. In the case of any event which gives rise to a
requirement to determine "Fair Value" pursuant to this Agreement, the Company
shall notify the Holders of such event as promptly as practicable, but in any
event within ten (10) calendar days following such event and if the procedures
contemplated herein in connection with determining Fair Value have not been
complied with fully, then any such determination of Fair Value for any purpose
of this Agreement shall be deemed to be preliminary and subject to adjustment
pending full compliance with such procedures.
Upon the occurrence of an event requiring the determination of Fair
Value, the Company shall give the Holder(s) of the Warrants notice of such
event, and the Company and the Holders shall engage in direct good faith
discussions to arrive at a mutually agreeable determination of Fair Value. In
the event the Company and the Holder(s) are unable to arrive at a mutually
agreeable determination within ten (10) days of the notice, the Company and the
Holder(s) of the Warrants (who, if more than one, shall agree among themselves
by a majority) shall retain PWC. Such firm shall determine the Fair Value of the
security, property, assets, business or entity, as the case may be, in question
and deliver its opinion in writing to the Company and to such Holder within
thirty (30) days of its retention. Each of the Company and the Holders (as a
group) shall submit to PWC their proposed determination of Fair Value, and any
other supporting documentation reasonably requested by PWC. In no event shall
the marketability, or lack thereof, or lack of registration of a security be a
factor in determining the "Fair Value" of such security. The determination so
made shall be conclusive and binding on the Company and such Holder(s), absent
clear and manifest error. The fees and expenses of PWC pursuant to this
provision shall be borne by the Company in advance. In the event the Company
fails to pay such fees, or the retainer or deposit requested by such independent
certified public accounts' firm,
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<PAGE> 5
within 10 days of the acceptance by PWC (conditional or unconditional) of such
engagement, then the Holders' proposed determination of Fair Value shall be
conclusive and binding upon the Company.
"Holder" or "Holders" shall mean the Person(s) then registered as the
owners of the Warrants or Warrant Securities, as the case may be, on the books
and records of the Company.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, court or governmental or political
subdivision or agency thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, and any successor provisions
thereto.
"Subsidiary" of any Person means (i) a corporation, association or
other business entity of which more than fifty percent (50%) of the total voting
power of all classes of the outstanding voting stock or other indicia of
ownership is owned, directly or indirectly, by such Person or by one or more
other Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof, (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof) and (iii) any other Person not
described in clauses (i) and (ii) above in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, owns 50% ownership and the power,
whether by such ownership interest, pursuant to a written contract or agreement
or otherwise, to direct the policies and management or the financial and other
affairs thereof.
"Warrant Securities" shall mean the shares of Common Stock purchasable
or purchased from time to time under the Warrants or acquirable or acquired upon
any transfer of any such securities, together with all additional securities
receivable or received in payment of Dividends or distributions on or splits of
those securities or receivable or received as a result of adjustments provided
for in Article V hereof.
II. WARRANTS
Section 2.01 Grant of Warrants.
(a) The Company hereby grants to the Investors, for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Warrants to purchase the number of shares of Common Stock, as the same may be
adjusted from time to time as set forth in Article V, determined in accordance
with Section 2.01(b) below, which Warrants shall be
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<PAGE> 6
evidenced by warrant certificates in substantially the form attached as Exhibit
A. Investors and any subsequent Holder of the Warrants and of Warrant Securities
shall have the rights and obligations provided for in the Warrants and in this
Agreement.
(b) Subject to the terms of this Agreement, the Warrants, the Notes and
the Purchase Agreement, the Company shall grant warrants to each Investor or
Affiliates of the Investors for the purchase of the following number of shares
of Common Stock:
(i) On the Initial Closing:
The amount of the Guaranteed Advance funded by the
Investor
The Total Loan Amount
multiplied by
6,000,000; and
(ii) On each Subsequent Closing:
The amount of any Subsequent Advance funded by the
Investor
The Total Loan Amount
multiplied by
6,000,000.
Section 2.02 Exercise of Warrants. Subject to the terms of this
Agreement, the Warrants holder shall have the right, at any time and from time
to time after January 25, 2000 until 5:00 p.m., Central Time, on January 25,
2005, to purchase from the Company up to the number of fully paid and
nonassessable shares of Warrant Securities to which the Warrants holder may at
the time be entitled to purchase pursuant to this Agreement and the Warrants,
upon presentation and surrender of the Warrants to the Company, together with
the Exercise Form duly completed and executed and payment in the aggregate
amount equal to the Exercise Price multiplied by the number of shares of Common
Stock being purchased. At the option of Holder, payment of the Exercise Price
may be made either by (i) certified check payable to the order of the Company,
(ii) surrender of certificates then held representing, or deduction from the
number of shares issuable upon exercise of the Warrants, of that number of
shares which has an aggregate Fair Value determined in accordance with this
Agreement on the date of exercise equal to the aggregate Exercise Price for all
shares to be purchased pursuant to the Warrants, or (iii) by a combination of
the foregoing methods. Within five business days of the Company's receipt of
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<PAGE> 7
the Warrants, the completed and signed Exercise Form and the requisite payment
(if any), the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Warrant
Securities purchased.
Section 2.03 Partial Exercise. In the event of a partial exercise of
the Warrants, the Company shall issue and deliver to the Holder new Warrants at
the same time such stock certificates are delivered, which new Warrants shall
entitle the Holder to purchase the balance of the Exercise Quantity not
purchased in that partial exercise and shall otherwise be upon the same terms
and provisions as the Warrants.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company, hereby represents and warrants as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of Florida, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under the contracts to which it is a party. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction where the failure to be so
qualified would have a material adverse effect on the Company, including,
without limitation, Texas. No jurisdiction in which the Company is not qualified
or licensed has claimed, in writing or otherwise, that the Company is required
to be qualified or licensed therein.
(b) The execution and delivery of this Agreement and the Warrants have
been duly and properly authorized by all requisite corporate action of the
Company and its board of directors, and no consent of any other Person is
required as a prerequisite to the validity, enforceability and performance of
this Agreement and the Warrants that has not been obtained. The Company has the
full legal right, power and authority to execute and deliver this Agreement and
the Warrants and to perform its obligations hereunder and thereunder. When
issued and delivered pursuant to this Agreement, the Warrants will have been
duly and validly executed, issued and delivered and will constitute valid and
legally binding obligations of the Company and the Holder thereof will be
entitled to the benefits provided herein and therein.
(c) The Warrant Securities, when issued, sold and delivered in
accordance with the terms hereof, for the consideration expressed herein, shall
be duly and validly issued and outstanding, fully paid and nonassessable, and
will be issued in compliance with all applicable federal and state securities or
blue sky laws.
(d) The Company is not a party to or otherwise subject to any contract
or agreement which restricts or otherwise affects its right or ability to
execute and deliver this Agreement or
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<PAGE> 8
the Warrants or to perform any obligation hereunder or thereunder (including,
without limitation, issuance of the Warrant Securities). Neither the execution
or delivery of this Agreement or the Warrants, nor compliance therewith
(including, without limitation, issuance of the Warrant Securities), will
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or result in the
creation of any material lien upon any assets or properties of the Company
under, or require any consent, approval, or other action by, notice to or filing
with any court or governmental agency or division pursuant to the Articles of
Incorporation or Bylaws of the Company, as currently in effect, any award of any
arbitrator, or any agreement, instrument or law to which the Company is subject
or by which it or its assets or properties is bound.
(e) The Warrants are, and the Warrant Securities will be, issued by the
Company to the Investors in a transaction exempt from registration and
qualification under the applicable federal and state securities and blue sky
laws.
IV. COVENANTS
Section 4.01 Covenants of the Company. The Company hereby covenants and
agrees that, during the term of this Agreement, unless Holders of outstanding
Warrants evidencing a majority of the Warrants agree otherwise in writing,
(a) Each of the Warrant Securities issued and delivered upon the
exercise of the Warrants and payment of the Exercise Price will be duly and
validly authorized and issued, will be fully paid and nonassessable, and will
not be subject to any unpaid tax of the Company or any lien imposed on or
created by the Company, whether respecting their issuance to and purchase by the
Holder of the Warrants or otherwise. The Company will take all such actions as
may be necessary to assure that all such Warrant Securities may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange or quotation system upon which
such Warrant Securities may be listed.
(b) The Company shall reserve and at all times keep available for
issuance an authorized number of shares of Common Stock or Warrant Securities
sufficient to permit the full and immediate exercise of the Warrants and the
full and immediate exercise, exchange and conversion of all other securities,
options, warrants and other rights issued or granted by the Company.
(c) The Company shall not permit the par value of its Common Stock to
exceed, at any time, the Exercise Price and shall take all such actions as may
be necessary or appropriate to ensure that it does not do so.
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(d) As soon as available, and in no event later than three business
days following the dates filed with the Securities and Exchange Commission (the
"Commission") or any other governmental agency or division or other regulatory
authority, if such documents are so filed, the Company shall, upon request,
deliver to any Holder(s) of the Warrants and the Warrant Securities copies of
(i) all annual, quarterly and monthly financial statements made available by the
Company to its shareholders, (ii) all reports, notices and proxy or information
statements sent or made available generally by the Company to its shareholders,
and (iii) all regular and periodic reports and all registration statements,
prospectuses and other information filed by the Company with the Commission,
relevant state authorities or any securities exchange, securities quotation
system or other self-regulatory organization.
(e) The Company agrees that to the extent reasonably necessary to
permit the Holders to sell shares of the Common Stock in accordance with and in
reliance on Rule 144, and for so long as such shares are owned by the Holders
and such shares are not registered for resale under the Securities Act, the
Company will make and keep public information available within the meaning of
Rule 144 at all times from and after the Closing Date, and file with the SEC in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act.
(f) The Company shall cooperate with the Holder(s) of the Warrants and the
Warrant Securities in supplying such information as may be reasonably necessary
for the Holder(s) to complete and file any information or other reporting forms
from time to time required by the Commission, relevant state authorities or any
securities exchange, securities quotation system or other self-regulatory
organization, including, without limitation, information pertaining to or
required for the availability of any exemption from the securities laws for the
sale, transfer or other disposition of the Warrants or any of the Warrant
Securities.
Section 4.02 Indemnification.
(a) The Company agrees to defend, indemnify and hold harmless, to the
full extent permitted by law, Investors and each other Holder of the Warrants,
this Agreement, or any Warrant Security purchased hereunder, any underwriter(s),
and their respective directors, officers, employees, attorneys and agents, as
well as each other Person (if any) controlling any of the foregoing Persons
within the meaning of Section 15 of the Securities Act, or Section 20 of the
Exchange Act, from and against any and all claims, liabilities, losses and
expenses (including, without limitation, the reasonable disbursements, expenses
and fees of their respective attorneys, accountants and experts) that may be
imposed upon, incurred by, or asserted against any of them, any of their
respective directors, officers, employees, attorneys and agents, or any such
control Person, under the Securities Act, the Exchange Act or any other statute
or at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof), arise out of or are related directly or indirectly
to (i) the breach of any of the representations, warranties and/or covenants of
the Company contained herein, or (ii) any alleged untrue
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statement of any material fact contained, on the effective date thereof, in any
registration statement under which such securities are or were registered under
the Securities Act or the Exchange Act, or in any preliminary prospectus or
final prospectus related thereto, or any amendment or supplement thereto, or any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
such Persons for any legal or any other expenses reasonably incurred by such
Persons in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, preliminary
prospectus, final prospectus amendment or supplement thereto incident to
registration or qualification of any Warrant Securities in reliance upon and in
strict conformity with written information furnished to the Company by such
Persons with respect to information regarding such Persons expressly for
inclusion therein. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any such indemnified
Person, and shall survive the transfer of such securities by such Person.
Promptly after receipt of notice of the commencement of any action in respect of
which indemnity may be sought against the Company, the Company shall assume the
defense of such action (including the employment of counsel, who shall be
reasonably satisfactory to the party seeking indemnity hereunder) and the
payment of expenses insofar as such action shall relate to any alleged liability
in respect of which indemnity may be sought against the Company. If the Company
assumes the defense of such action, (i) no compromise or settlement of such
claims may be effected by the Company without the indemnified party's consent
unless (1) there is no finding or admission of any violation of law, regulation,
rule or order or any violation of the rights of any other person or entity and
no effect on any other claims that may be made against the indemnified party,
and (2) the sole relief provided is monetary damages that are paid in full by
Company; and (ii) the indemnified party will have no liability with respect to
any compromise or settlement of such claims effected without its consent. If
notice is given to the Company of the commencement of any action and the Company
does not, within ten days after the indemnified party's notice is given to the
Company, give notice to the indemnified party of its election to assume the
defense of such action, the Company will be bound by any determination made in
such action or any compromise or settlement effected by the indemnified party.
Section 4.03 Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a claim or
action may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, or if an indemnified party determines that there are defenses
available to it that the Company cannot assert on behalf of the indemnified
party or not being raised by the Company after the indemnified party has given
the Company notice of such defense, or if the indemnified party reasonably
determines that there is a conflict of interest between the Company and the
indemnified party in the claim or action, the indemnified party
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may, by notice to the Company, assume the exclusive right to defend, compromise,
or settle such claim or action, and the Company will be bound by any
determination of a claim or action so defended or any compromise or settlement
effected.
V. ANTIDILUTION
Section 5.01 No Dilution or Impairment: Adjustments.
(a) Prohibited Actions. So long as any Warrants are outstanding, the
Company will not avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrants or impair the ability of the
Holder(s) to realize the full intended economic value thereof, but will at all
times in good faith assist in the carrying out of all such terms, and of the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder(s) of the Warrants against dilution or other
impairment.
(b) Adjustment of Exercise Price in the Event of Certain Issuances of
Common Stock or Common Stock Equivalents. In case the Company shall at any time
(i) issue or sell Common Stock or Common Stock Equivalents (by merger otherwise)
for less than $0.125 (as adjusted for stock divisions, dividends, combinations,
recapitalizations and reclassifications) (other than (A) delivery of shares of
Common Stock upon exercise of the Warrants, and (B) any Common Stock Equivalents
issued and outstanding on the date hereof), or (ii) issue Common Stock or Common
Stock Equivalents by way of a Dividend or other distribution on any stock of the
Company or effect a forward stock split of the outstanding shares of Common
Stock, the Company shall first obtain approval from the Board of Directors
consisting of at least one representative of the Investors pursuant to the
Shareholders Agreement, and the Exercise Price then in effect shall be
proportionately decreased (on the date of such issuance, sale or split) so that
the new Exercise Price shall be equal to the product of (x) the former Exercise
Price and (y) the lesser of (i) one or (ii) the following fraction:
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately prior to such issuance
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately after such issuance
and the Exercise Quantity purchasable upon exercise of the Warrants immediately
prior thereto shall be adjusted so that the new Exercise Quantity shall be equal
to the product of (x) the former Exercise Quantity and (y) the following
fraction:
The Exercise Price in effect immediately prior to such adjustment
The Exercise Price in effect immediately after such adjustment
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(c) Company to Prevent Dilution. In any case at any time or from time
to time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Article V, and which might
adversely affect the rights of the Holders under any provision of this
Agreement, unless the adjustment necessary shall be agreed upon by the Company
and the Holders, the Board of Directors of the Company shall appoint PWC,
acceptable to the Holders, who at the Company's expense shall give their opinion
upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Article V, necessary with respect to
the Exercise Price and the Exercise Quantity, so as to preserve, without
dilution, the rights of the Holders. Upon the receipt of such opinion, the
Company's Board of Directors shall forthwith make the adjustments described
therein; provide, however, that no such adjustment shall be made to increase the
Exercise Price or decrease the Exercise Quantity.
(d) Reorganization; Asset Sales; Etc. In case of (i) any capital
reorganization or any reclassification of the capital stock of the Company, (ii)
any consolidation or merger of the Company or any Subsidiary with or into
another Person, (iii) the disposition or transfer of assets of the Company other
than in the ordinary course of the Company's business, (iv) any Dividend or
other distribution to the holders of capital stock of the Company in the form of
any asset, including without limitation securities of the Company, or (v) the
dissolution, liquidation or winding up of the Company, the Holders shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such transaction or event that appropriate provision shall
be made so that such Holders shall thereafter be entitled to purchase) the kind
and amount of shares of stock and other securities and property receivable in
such transaction by a holder of the number of shares of Common Stock of the
Company into which this Agreement entitled the Holders to purchase immediately
prior to such capital reorganization, reclassification of capital stock,
non-surviving combination or disposition; and in any such case appropriate
adjustments shall be made in the application of the provisions of this Article V
with respect to rights and interests thereafter purchasable upon the exercise of
a Warrant.
(e) Adjustment Statement. Whenever the Exercise Price or Exercise
Quantity is adjusted as herein provided, the Company shall, within ten days
following the consummation of the event triggering such adjustment, deliver to
the Holders a statement signed by the President of the Company and by its
Treasurer or Secretary stating the adjusted Exercise Price and Exercise Quantity
for which the Warrants are exercisable, determined as specified herein. The
statement shall show in detail the facts requiring such adjustment, including a
statement of the consideration received by the Company for any additional stock
issued. Irrespective of any adjustments in the Exercise Price or the Exercise
Quantity or the kind of shares purchasable upon the exercise of the Warrants,
the Warrants theretofore or thereafter issued may continue to express the same
price and number and kind of shares as are stated in the Warrants initially
issuable pursuant to this Agreement.
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(f) Prior Notice to the Holders. If at any time:
(i) The Company shall pay any Dividend payable in Common Stock
or Common Stock Equivalents upon its capital stock or make any distribution to
the holders of its capital stock; or
(ii) The Company shall offer for subscription pro rata to the
holders of its capital stock any additional shares of stock of any class or any
other rights; or
(iii) The Company shall effect any capital reorganization or
any reclassification of or change in the outstanding capital stock of the
Company (other than a change in par value, or a change from par value to no par
value, or a change from no par value to par value, or a change resulting solely
from a subdivision of outstanding shares), or any consolidation or merger, or
any sale, transfer or other disposition of all or substantially all of its
property, assets, business and goodwill as an entirety, or the liquidation,
dissolution or winding up of the Company; or
(iv) The Company shall declare a Dividend upon its capital
stock;
then, in any such event, the Company shall cause at least thirty (30) days'
prior written notice to be mailed to the Holders at the address of each such
Holder shown on the books of the Company. The notice shall also specify the date
on which the books of the Company shall close or a record be taken for such
stock dividend, distribution or subscription rights, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution, winding up, or Dividend, as the case may
be, shall take place, and the date of participation therein by the holders of
shares of capital stock if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the rights of the Holder.
(g) Disputes. If there is any dispute as to the computation of the
Exercise Price or the Exercise Quantity, the Company will retain PWC (or its
successor), to conduct an audit of the computations pursuant to the terms hereof
involved in such dispute, including the financial statements or other
information upon which such computations were based. The determination of such
accounting firm shall, in the absence of manifest error, be conclusive and
binding.
VI. REGISTRATION RIGHTS
All registration rights under the Securities Act between the Company
and the Investors relating to the Warrants or the Company's Common Stock shall
be determined by the Registration Rights Agreement by and among the Company and
the Investors of even date herewith.
12
<PAGE> 14
VII. TRANSFER OF WARRANTS AND WARRANT SECURITIES
Section 7.01 Transfer. Except as set forth in Section 7.02 below, the
Warrants and all rights thereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender of such
Warrants at the office of the Company maintained for such purpose, together with
a written assignment of such Warrants duly executed by the Holder hereof or its
agent or attorney. Upon such surrender and payment, the Company shall execute
and deliver a new Warrants or Warrants in the name of the assignee or assignees
and in the denominations specified in such instrument of assignment, and the
surrendered Warrants shall promptly be canceled. The transferred Warrants, if
properly assigned in compliance herewith, may be exercised by an assignee for
the purchase of shares of Common Stock without having a new Warrants issued. The
Company will not close its stock transfer books against a transfer of the
Warrants or the Warrant Securities or any exercise of the Warrants. Any such
transfer or exercise tendered while such stock transfer books shall be closed
shall be deemed effective immediately prior to such closure.
Subject to Section 7.02 below, the Warrants may be divided or combined
with other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder thereof or its agent or
attorney. Subject to compliance with this, as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrants or Warrants in exchange for the Warrants or Warrants to be
divided or combined in accordance with such notice.
The Company shall pay all expenses, taxes (other than income taxes, if
any, of the transferee) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section 7.01. The Company agrees to maintain at
its aforesaid office books for the registration and transfer of the Warrants.
Notwithstanding any provision to the contrary contained herein, the Warrants and
the Warrant Securities shall be transferable only in compliance with the
provisions of the Securities Act and applicable state securities laws in respect
of the transfer of any Warrants or any Warrant Securities.
Section 7.02 Transfer Restrictions. Neither this Warrant Agreement, the
Warrants nor the Warrant Securities, when issued, have been registered under the
Securities Act or under the securities laws of any state. Neither this
Agreement, the Warrants nor the Warrant Securities, when issued, may be
transferred: (a) if such transfer would constitute a violation of any federal or
state securities laws or a breach of the conditions to any exemption from
registration thereunder and (b) unless and until one of the following has
occurred: (i) registration of the Warrants or the Warrant Securities, as the
case may be, under the Securities Act, and such registration or qualification as
may be necessary under the securities laws of any state, have
13
<PAGE> 15
become effective, (ii) the Holder has delivered an opinion of counsel, or other
evidence reasonably satisfactory to the Company, that such registration or
qualification is not required, or (iii) such transfer would be permitted under
Rule 144 under the Securities Act.
Each certificate for Warrant Securities issued upon exercise of a
Warrant and each certificate issued to a subsequent transferee, unless at the
time of exercise such Warrant Securities are registered under the Securities
Act, shall bear a legend substantially in the following form (and any additional
legends required by applicable law) on the face thereof.
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES
MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE ABSENCE OF (1) AN
EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT WITH
RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT AND UNDER
ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
REGISTRATION AND QUALIFICATION.
Section 7.03 Replacement of Instruments. Within five business days
following receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any
certificate or instrument evidencing any Warrants or Warrant Securities, and (a)
in the case of loss, theft or destruction, upon receipt by the Company of
indemnity reasonably satisfactory to it, or (b) in the case of mutilation, upon
surrender and cancellation thereof, the Company, at its expense, will execute,
register and deliver, in lieu thereof, a new certificate or instrument for (or
covering the purchase of) an equal number of Warrants or Warrant Securities.
VIII. MISCELLANEOUS
Section 8.01 Term. Except as otherwise expressly provided in this
Agreement or the Warrants, this Agreement shall expire on January 25, 2005,
provided that the Company's obligations to honor an exercise of the Warrants
given prior to such expiration or to perform any obligation continue and survive
notwithstanding the expiration of this Agreement.
Section 8.02 No Waiver Under Other Agreements. The terms and provisions
contained in this Agreement are not intended and shall not be construed to
waive, modify, repeal, stay, diminish or otherwise impair or affect in any
manner whatsoever any right or remedy of the
14
<PAGE> 16
Holder(s) under the Company's Certificate of Incorporation, Bylaws or similar
agreements, or any other agreements between the Company and/or its affiliates
and Investors.
Section 8.03 Reliance. Each party to this Agreement shall be entitled
to rely upon any notice, consent, certificate, affidavit, statement, paper,
document, writing or other communication reasonably believed by that party to be
genuine and to have been signed, sent or made by the proper Person or Persons.
Section 8.04 Notice. All notices and other communications provided for
or permitted hereunder shall be made in writing and be by hand-delivery or
certified mail, return receipt requested, (a) if to Holders, to the address set
forth on the signature page hereof or such other address given by Holders to the
Company in writing, (b) if to a subsequent Holder of Warrants or Warrant
Securities issued pursuant to the exercise of the Warrants, at the most current
address given by such Holder to the Company in writing; or (c) if to the
Company, as follows:
MigraTEC, Inc.
12801 Stemmons Freeway, Suite 710
Dallas, Texas 75234
Telecopier: (972) 969-0315
Attn: President
All such notices and communications shall be deemed to have been duly
given upon delivery or attempted delivery during normal business hours.
Section 8.05 Enforcement. The Company acknowledges that the Holders may
proceed to exercise or enforce any right, power, privilege, remedy or interest
that they may have under this Agreement or applicable law without notice, except
as otherwise expressly provided herein, without pursuing, exhausting or
otherwise exercising or enforcing any other right, power, privilege, remedy or
interest that they may have against or in respect of any other party, or any
other Person or thing, and without regard to any act or omission of such party
or any other Person. The Company's obligations hereunder, including, without
limitation the obligation to issue the Warrant Securities upon exercise of the
Warrants, are absolute and unconditional and are not subject to any abatement,
reduction, setoff, defense, counterclaim or recoupment due or alleged to be due
to, or by reason of, any past, present or future claims which the Company may
have against the Investors or any Holder, or any assignee, thereof, for any
reason whatsoever. All rights and remedies of the party hereto are cumulative of
each other and of every other right or remedy such party may otherwise have at
law or in equity, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
15
<PAGE> 17
Section 8.06 Equitable Relief. Each party acknowledges and agrees that
it would be impossible to measure in money the damage in the event of a breach
of any of the terms and provisions of this Agreement by any party hereto, and
that, in the event of any such breach, there may not be an adequate remedy at
law, although the foregoing shall not constitute a waiver of any of the party's
rights, powers, privileges and remedies against or in respect of a breaching
party, any other person or thing under this Agreement or applicable law. It is
therefore agreed that, in addition to all other such rights, powers, privileges
and remedies that it may have, each party shall be entitled, without the
obligation to post bond, to injunctive relief, specific performance or such
other equitable relief as such party may request to exercise or otherwise
enforce any of the terms and provisions of this Agreement and to enjoin or
otherwise restrain any act prohibited thereby, and no party will urge, and each
party hereby waives, any defense that there is an adequate remedy available at
law.
Section 8.07 Merger or Consolidation of the Company. So long as the
Warrants remains outstanding, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
Section 8.08 Interpretation; Headings, Severability.
(a) The parties acknowledge and agree that since each party and its
counsel have had the opportunity to review and negotiate the terms and
provisions of this Agreement and have contributed to its revision, the normal
rule of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement,
and its terms and provisions shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
(b) The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
(c) In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, such determination shall not impair or otherwise affect the validity,
legality or enforceability: (i) by or before that authority of the remaining
terms and provisions of this Agreement, which shall be enforced as if the
superseded, invalid, illegal or otherwise unenforceable term or provision were
modified to the extent required to permit such provision to be not superseded,
invalid, illegal or unenforceable, or (ii) by or before any other authority of
any of the terms and provisions of this Agreement.
16
<PAGE> 18
(d) If any period of time specified in this Agreement expires on a day
that is not a Business Day, that period shall be extended to and expire on the
next succeeding Business Day.
Section 8.09 Survival of Covenants. Each of the covenants and other
agreements of the parties contained in this Agreement shall be absolute and,
except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with respect
to events occurring prior thereto.
Section 8.10 No Required Exercise. No term or provision of the Warrants
or this Agreement is intended to require, nor shall any such term or provision
be construed as requiring, any Holder of the Warrants to exercise or sell the
Warrants.
Section 8.11 Binding Effect. This Agreement shall be binding upon and
enforceable against the parties hereto and their respective successors and
assigns.
Section 8.12 No Waiver by Action or Course of Dealing. No course of
dealing or any delay or failure to exercise any right hereunder on the part of
any party hereto shall operate as a waiver of such right or otherwise prejudice
the rights, powers or remedies of such party.
Section 8.13 Waiver; Modification; Amendment. Each and every
modification to and amendment of this Agreement shall be in writing and signed
by the Company, Investors (if at that time Investors is a Holder) and by the
Holders of a majority in interest of all issued and unissued Warrant Securities.
Each and every waiver of and consent to any departure from any term or provision
hereof (except as otherwise provided herein) shall be in writing and signed by
Investors (if at that time it is a Holder) and by the Holders of a majority in
interest of all issued and unissued Warrant Securities and by each party against
whom enforcement of the waiver or consent may be sought. Notwithstanding the
foregoing, no modification, amendment or waiver of any term or provision hereof
with respect to the Exercise Price, the Exercise Quantity, any terms of Article
V hereof, any of the terms of this Section 8.13 or which purports, or has the
effect of, shortening the term of any Warrants or limiting the right or ability
of a Holder thereof to exercise a Warrant shall be enforceable against a Holder
unless such Holder specifically approves, in writing, such modifications,
amendment or modification.
Section 8.14 Entire Agreement. This Agreement and the Warrants contain
the entire agreement of the parties with respect to the Warrants and supersede
all other representations, warranties, agreements and understandings, oral or
otherwise, among the parties hereto with respect to the Warrants, except as
otherwise provided herein.
17
<PAGE> 19
Section 8.15 No Inconsistent Agreements or Rights. The Company shall
not enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement.
Section 8.16 Time of the Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of the essence.
Section 8.17 Attorneys' Fees and Costs. Should any party institute any
action, suit or other proceeding arising out of or relating to this Agreement or
the Warrants, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith,
along with all costs of defense, investigation, preparation, experts and
collection.
Section 8.18 Governing Law. This Agreement, the warrants and the
warrant securities and all amendments, supplements, waivers, and consents
relating hereto or thereto shall be governed by and construed in accordance with
the internal laws of the State of Florida without regard to principles of
conflicts of law.
[Signature page follows]
18
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed as of the day and year first above written.
THE COMPANY:
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet, President
MT PARTNERS, L.P.
By: CARDINAL HOLDING CORPORATION
Its: General Partner
By:
---------------------------------
Marshall Payne, President
500 Crescent Court, Suite 250
Dallas, Texas 75201
Tel: (214) 871-6815
Fax: (214) 871-6801
MERCURY FUND NO. 1, LTD.
By: MERCURY VENTURES, LTD.
Its: General Partner
By: MERCURY MANAGEMENT, L.L.C.
Its: General Partner
By:
---------------------------------
Kevin Howe, Manager
17950 Preston Road, Suite 800
Dallas, Texas 75252
Tel: (972) 931-6814
Fax: (972) 248-6390
19
<PAGE> 21
Exhibit A
to
Warrant Agreement
Initial Warrants
<PAGE> 22
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
COMMON STOCK PURCHASE WARRANT
January 25, 2000
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
MigraTEC, Inc., a Florida corporation (the "Company"), does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), MT Partners, L.P., a
Texas limited partnership, its successor, and assigns ("Holder"), hereby is
entitled to purchase from the Company, during the term set forth in Section 1
hereof, up to an aggregate amount of 1,053,333 shares (the "Exercise Quantity")
of duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock of the Company (the "Common Stock"), all upon the terms and
provisions and subject to adjustment of such Exercise Quantity provided in the
Warrant Agreement and this Common Stock Purchase Warrant (the "Warrant"). The
exercise price per share of Common Stock for which this Warrant is exercisable
shall be $0.20, as adjusted from time to time pursuant to the terms of this
Warrant and the Warrant Agreement (the "Exercise Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Central time, on January 25, 2005.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this
Warrant at any time during the term hereof, in whole or in part, from time to
time (but not for fractional shares, unless this Warrant is exercised in whole),
by presentation and surrender of this Warrant to the Company, together with the
annexed Exercise Form duly completed and executed and payment
1
<PAGE> 23
in the aggregate amount equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased. At the option of Holder, payment of the
Exercise Price may be made either by (i) certified check payable to the order of
the Company, (ii) surrender of certificates then held representing, or deduction
from the number of shares issuable upon exercise of this Warrant, of that number
of shares which has an aggregate Fair Value determined in accordance with the
Warrant Agreement on the date of exercise equal to the aggregate Exercise Price
for all shares to be purchased pursuant to this Warrant, or (iii) by any
combination of the foregoing methods. Within five business days of the Company's
receipt of this Warrant, the completed and signed Exercise Form and the
requisite payment (if any), the Company shall issue and deliver (or cause to be
delivered) to the exercising Holder stock certificates aggregating the number of
shares of Warrant Securities purchased.
(b) This Warrant may be exercised by the Holder of this
Warrant at any time in accordance with Section 2(a) hereof (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, together with the annexed Exercise
Form duly completed and executed and payment in the aggregate amount equal to
the Exercise Price multiplied by the number of shares of Common Stock being
purchased. At the option of Holder, payment of the Exercise Price may be made
either by (i) certified check payable to the order of the Company, (ii)
surrender of certificates then held representing, or deduction from the number
of shares issuable upon exercise of this Warrant, of that number of shares which
has an aggregate Fair Value determined in accordance with this Agreement on the
date of exercise equal to the aggregate Exercise Price for all shares to be
purchased pursuant to this Warrant, or (iii) by a combination of the foregoing
methods. Within five business days of the Company's receipt of this Warrant, the
completed and signed Exercise Form and the requisite payment (if any), the
Company shall issue and deliver (or cause to be delivered) to the exercising
Holder stock certificates aggregating the number of shares of Warrant Securities
purchased.
(c) In the event the Holder of this Warrant desires that any
or all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(d) Upon the due exercise by the Holder of this Warrant,
whether in whole or in part, the Holder (or any other person to whom a stock
certificate is to be so issued) shall be deemed for all purposes to have become
the Holder of record of the shares of Common Stock for which this Warrant has
been so exercised, effective immediately prior to the close of business on the
date this Warrant, the completed and signed Exercise Form and the requisite
payment were duly delivered to the Company, irrespective of the date of actual
delivery of certificates representing such shares of Common Stock so issued.
2
<PAGE> 24
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant shall be made to the Company during normal business hours on a business
day (unless the Company otherwise permits) at the executive offices of the
Company or to such other office or duly authorized representative of the Company
as from time to time may be designated by the Company by written notice given to
the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within five business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form and the requisite payment.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices an open register for all Warrants, in which the Company shall
record the name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable hereunder and the corresponding purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with
the provisions of Article VII of the Warrant Agreement, in whole or in part, by
the Holder or any duly authorized representative of such Holder. A transfer may
be registered with the Company by submission to it of this Warrant, together
with the annexed Assignment Form duly completed and executed, and if the
transfer is not a registered transfer, evidence reasonably satisfactory to the
Company that such transfer is in compliance with federal and state securities
laws. Within five business days
3
<PAGE> 25
after the Company's receipt of this Warrant and the Assignment Form so completed
and executed, the Company will issue and deliver to the transferee a new Warrant
representing the portion of the Exercise Quantity transferred at the same
Exercise Price per share and otherwise having the same terms and provisions as
this Warrant, which the Company will register in the new Holder's name.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it, or (b)
in the case of mutilation, upon surrender and cancellation thereof, the Company,
at its expense, will execute, register and deliver, in lieu thereof, a new
certificate or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer
of this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company
and the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
4
<PAGE> 26
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet, President
5
<PAGE> 27
MigraTEC, Inc.
EXERCISE FORM
MigraTEC, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ______ shares of common stock of the Company (the "Warrant
Securities"), and requests that certificates for the Warrant Securities be
issued in the name of:
---------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
---------------------------------------------------------------
---------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
------------------
Name of Holder
or Assignee:
----------------------------
(Please Print)
Address:
----------------------------
----------------------------
Signature:
----------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
6
<PAGE> 28
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase ______ shares of common stock represented by the within
Warrant Certificate unto, and requests that a certificate for such Warrant be
issued in the name of:
-------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------------------------------
-------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints
________________________ Attorney to transfer said Warrant on the books of the
Company, with full power of substitution in the premises and, if said number of
shares of common stock shall not be all of the common stock purchasable under
the within Warrant Certificate, that a new Warrant Certificate for the balance
of the common stock purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder and delivered to such Holder's
address as then set forth on the Company's books.
Dated:
------------------ ------------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
7
<PAGE> 29
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
COMMON STOCK PURCHASE WARRANT
January 25, 2000
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
MigraTEC, Inc., a Florida corporation (the "Company"), does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Mercury Fund No. 1,
Ltd., a Texas limited partnership company, its successor, and assigns
("Holder"), hereby is entitled to purchase from the Company, during the term set
forth in Section 1 hereof, up to an aggregate amount of 946,600 shares (the
"Exercise Quantity") of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company (the "Common Stock"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity provided in the Warrant Agreement and this Common Stock Purchase
Warrant (the "Warrant"). The exercise price per share of Common Stock for which
this Warrant is exercisable shall be $0.20, as adjusted from time to time
pursuant to the terms of this Warrant and the Warrant Agreement (the "Exercise
Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Central time, on January 25, 2005.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this
Warrant at any time during the term hereof, in whole or in part, from time to
time (but not for fractional shares, unless this Warrant is exercised in whole),
by presentation and surrender of this Warrant to the Company, together with the
annexed Exercise Form duly completed and executed and payment
1
<PAGE> 30
in the aggregate amount equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased. At the option of Holder, payment of the
Exercise Price may be made either by (i) certified check payable to the order of
the Company, (ii) surrender of certificates then held representing, or deduction
from the number of shares issuable upon exercise of this Warrant, of that number
of shares which has an aggregate Fair Value determined in accordance with the
Warrant Agreement on the date of exercise equal to the aggregate Exercise Price
for all shares to be purchased pursuant to this Warrant, or (iii) by any
combination of the foregoing methods. Within five business days of the Company's
receipt of this Warrant, the completed and signed Exercise Form and the
requisite payment (if any), the Company shall issue and deliver (or cause to be
delivered) to the exercising Holder stock certificates aggregating the number of
shares of Warrant Securities purchased.
(b) This Warrant may be exercised by the Holder of this
Warrant at any time in accordance with Section 2(a) hereof (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, together with the annexed Exercise
Form duly completed and executed and payment in the aggregate amount equal to
the Exercise Price multiplied by the number of shares of Common Stock being
purchased. At the option of Holder, payment of the Exercise Price may be made
either by (i) certified check payable to the order of the Company, (ii)
surrender of certificates then held representing, or deduction from the number
of shares issuable upon exercise of this Warrant, of that number of shares which
has an aggregate Fair Value determined in accordance with this Agreement on the
date of exercise equal to the aggregate Exercise Price for all shares to be
purchased pursuant to this Warrant, or (iii) by a combination of the foregoing
methods. Within five business days of the Company's receipt of this Warrant, the
completed and signed Exercise Form and the requisite payment (if any), the
Company shall issue and deliver (or cause to be delivered) to the exercising
Holder stock certificates aggregating the number of shares of Warrant Securities
purchased.
(c) In the event the Holder of this Warrant desires that any
or all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
2
<PAGE> 31
(d) Upon the due exercise by the Holder of this Warrant,
whether in whole or in part, the Holder (or any other person to whom a stock
certificate is to be so issued) shall be deemed for all purposes to have become
the Holder of record of the shares of Common Stock for which this Warrant has
been so exercised, effective immediately prior to the close of business on the
date this Warrant, the completed and signed Exercise Form and the requisite
payment were duly delivered to the Company, irrespective of the date of actual
delivery of certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant shall be made to the Company during normal business hours on a business
day (unless the Company otherwise permits) at the executive offices of the
Company or to such other office or duly authorized representative of the Company
as from time to time may be designated by the Company by written notice given to
the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within five business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form and the requisite payment.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices an open register for all Warrants, in which the Company shall
record the name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable hereunder and the corresponding purchase prices.
3
<PAGE> 32
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with
the provisions of Article VII of the Warrant Agreement, in whole or in part, by
the Holder or any duly authorized representative of such Holder. A transfer may
be registered with the Company by submission to it of this Warrant, together
with the annexed Assignment Form duly completed and executed, and if the
transfer is not a registered transfer, evidence reasonably satisfactory to the
Company that such transfer is in compliance with federal and state securities
laws. Within five business days after the Company's receipt of this Warrant and
the Assignment Form so completed and executed, the Company will issue and
deliver to the transferee a new Warrant representing the portion of the Exercise
Quantity transferred at the same Exercise Price per share and otherwise having
the same terms and provisions as this Warrant, which the Company will register
in the new Holder's name.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it, or (b)
in the case of mutilation, upon surrender and cancellation thereof, the Company,
at its expense, will execute, register and deliver, in lieu thereof, a new
certificate or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer
of this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company
and the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
4
<PAGE> 33
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet, President
5
<PAGE> 34
MigraTEC, Inc.
EXERCISE FORM
MigraTEC, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ________ shares of common stock of the Company (the "Warrant
Securities"), and requests that certificates for the Warrant Securities be
issued in the name of:
---------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
---------------------------------------------------------------
---------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
------------------
Name of Holder
or Assignee:
------------------------------
(Please Print)
Address:
------------------------------
------------------------------
Signature:
------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrant have been assigned.
6
<PAGE> 35
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase ______ shares of common stock represented by the within
Warrant Certificate unto, and requests that a certificate for such Warrant be
issued in the name of:
-------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------------------------------
-------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints __________________
Attorney to transfer said Warrant on the books of the Company, with fun power of
substitution in the premises and, if said number of shares of common stock shall
not be all of the common stock purchasable under the within Warrant Certificate,
that a new Warrant Certificate for the balance of the common stock purchasable
under the within Warrant Certificate be registered in the name of the
undersigned Holder and delivered to such Holder's address as then set forth on
the Company's books.
Dated:
----------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
7
<PAGE> 1
EXHIBIT 10.10
THIS CONVERTIBLE SECURED PROMISSORY NOTE AND THE SHARES ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SAID SECURITIES UNDER THE SECURITIES ACT
AND ANY OTHER APPLICABLE STATE SECURITIES LAWS OR RULES, UNLESS EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF SAID LAWS ARE AVAILABLE AND SAID OFFER, SALE OR
TRANSFER IS MADE PURSUANT TO AND IN STRICT COMPLIANCE WITH THE TERMS AND
CONDITIONS OF SAID EXEMPTIONS.
MIGRATEC, INC.
CONVERTIBLE SECURED PROMISSORY NOTE
$1,975,000.00 January 25, 2000
MigraTEC, Inc., a Florida corporation (the "Company"), hereby promises
to pay to MT Partners, L.P., a Texas limited partnership (or its successors and
assigns) ("Payee"), the principal sum of up to One Million Nine Hundred Seventy
Five Thousand Dollars ($1,975,000.00) or the aggregate unpaid amount of all
advances of principal paid by Payee pursuant to this Note and all other notes
issued to Payee in connection herewith (the "Payee's Total Loan Amount"), upon
Maturity (as such term is defined below), unless this Note is sooner converted
as provided herein. Subject to the other requirements set forth in that certain
Note and Warrant Purchase Agreement (the "Purchase Agreement"), dated as of
January 25, 2000, by and among the Company and Payee and the other investor set
forth therein (the "Other Payee") and this Note, the advances of the Total Loan
Amount under this Note to the Company by Payee (collectively, the "Advances")
shall be made as follows:
(i) Six Hundred Fifty Eight Thousand Three Hundred Thirty
Three and 33/100 Dollars ($658,333.33) upon execution of each of the
Purchase Agreement and this Note (the "Guaranteed Advance");
(ii) An additional advance, at Payee's election, of up to Six
Hundred Fifty Eight Thousand Three Hundred Thirty Three and 33/100
Dollars ($658,333.33) (exclusive of the Guaranteed Advance) on or
before February 28, 2000 (the "Subsequent Advance"); and
(iii) A final advance, at Payee's election, of up to Six
Hundred Fifty Eight Thousand Three Hundred Thirty Three and 33/100
Dollars ($658,333.33) (exclusive of the Guaranteed Advance and the
Subsequent Advance) on or before April 30, 2000 (the "Final Advance;"
the Subsequent Advance and the Final Advance are referred to herein as
the "Subsequent Advances").
<PAGE> 2
With respect to the Advances, (i) each Subsequent Advance shall be in
an amount of not less than Fifty Thousand Dollars ($50,000.00) nor more than Six
Hundred Fifty Eight Thousand Three Hundred Thirty Three and 33/100 Dollars
($658,333.33), except as otherwise provided herein, (ii) the aggregate amount of
the Advances to be issued pursuant to this Note (including the Guaranteed
Advance and all Subsequent Advances) shall not exceed One Million Nine Hundred
Seventy Five Thousand Dollars ($1,975,000), except as otherwise provided herein,
and (iii) the deadline by which Payee may make any Subsequent Advance to the
Company shall be extended for so long as the Company is in default or other
breach of any of the terms and conditions of the Purchase Agreement, this Note,
the Warrant, any security agreement related hereto or any other agreement
between the Company and Payee or any Affiliate of Payee; provided, however, that
the Company acknowledges that (i) simultaneous with the issuance to Payee of
this Note, the Company is issuing to the Other Payee, pursuant to the Purchase
Agreement, a promissory note substantially similar to this Note in the principal
sum of up to $1,775,000, and (ii) in the event that the Other Payee or any
Affiliate of the Other Payee elects not to make a Subsequent Advance or to make
the full amount of a Subsequent Advance pursuant to such Other Payee's
promissory note, Payee or any Affiliate of the Payee shall be entitled to
advance to the Company an amount equal to up to the difference between (x) the
amount which the Other Payee or Affiliate of Other Payee is entitled to advance
under its promissory note with respect to any Subsequent Advance and (y) the
amount actually advanced by such Other Payee or Affiliate of Other Payee under
its promissory note with respect to any such Subsequent Advance. In connection
with any such advance by Payee with respect to all or a portion of an Advance
not made by the Other Payee or Affiliate of Other Payee, the Company shall issue
to Payee a replacement convertible secured promissory note which in the
aggregate shall equal (x) such additional advance plus (y) the aggregate
outstanding amount due and payable under this Note, and contain the same
material terms as set forth herein; provided that such amount exceeds the
Payee's Total Loan Amount.
This Note is issued by the Company pursuant to the terms and provisions
of the Purchase Agreement and the other Loan Documents referenced therein,
including a Security Agreement and a Patent Security Agreement dated of even
date herewith. This Note shall be deemed to be a "Note" as that term is defined
in the Purchase Agreement. The Company agrees that this Note is entitled to all
of the benefits provided in the Purchase Agreement and the other Loan Documents,
including, without limitation, all representations, warranties and covenants of
the Company contained therein and all remedies provided therein, such benefits
hereby incorporated herein. Reference herein to the Purchase Agreement or any of
such other Loan Documents shall not affect or impair the absolute and
unconditional obligation of the Company to pay this Note when due, if this Note
is not sooner converted into shares of the Company's capital stock as
contemplated hereby. (Capitalized terms that are not defined herein shall have
such meanings as are assigned to them in the Purchase Agreement.)
This Note shall be due and payable in full at Maturity. For purposes of
this Note, "Maturity" shall be the first to occur of (i) January 25, 2003; (ii)
the merger of the Company with or other acquisition of the Company by any entity
pursuant to which the shareholders of the Company immediately preceding such
merger or acquisition own less than 50% of the issued and outstanding
2
<PAGE> 3
common stock of the surviving entity immediately following such merger or
acquisition (either, an "Acquisition"); (iii) a sale of all or substantially all
of the assets of the Company (an "Asset Sale"); or (iv) an Event of Default.
Upon the Maturity of this Note, Payee shall be entitled to demand immediate
repayment of this Note in full or in part or, in its sole and absolute
discretion, to elect to voluntarily convert all or any portion of the principal
of this Note into the number of fully paid and non-assessable shares of the
Common Stock of the Company as determined by dividing (x) the outstanding amount
of principal of this Note being converted by (y) the Conversion Price (as
hereinafter defined).
In the event that Payee demands repayment of all or a portion of this
Note, payment shall be made by wire transfer of immediately available funds on
the date due to such bank account that Payee shall designate to the Company in
writing.
This Note shall automatically convert (an "Automatic Conversion"), if
not sooner converted at the election of the holder as provided herein, into
shares of the Company's Series A Preferred Stock at such time as the Company has
obtained the approval of its shareholders to the creation of the Series A
Preferred Stock and has filed with the Secretary of State of Florida (a)
Articles of Amendment to its Articles of Incorporation authorizing the creation
of the Series A Preferred Stock and (b) a resolution of the Board of Directors
of the Company containing a Statement of Designations, Rights, Preferences and
Privileges of the Series A Preferred Stock of the Company, setting forth the
terms of the Series A Preferred Stock, provided, that the Company has used its
best efforts to take such actions as soon as practical and in any event by June
30, 2000. In connection with an Automatic Conversion of this Note, the amount of
this Note shall convert into the number of fully paid and non-assessable shares
of Series A Preferred Stock of the Company as determined by dividing (x) the
then outstanding amount of this Note by (y) $0.125 (the "Conversion Price").
At any time after the date hereof and prior to an Automatic Conversion
of this Note, Payee shall have the right, in its sole and absolute discretion,
to voluntarily convert all or any portion of the principal of this Note into
shares of Common Stock (a "Voluntary Conversion") pursuant to the terms and
conditions of the Purchase Agreement. In accordance with the foregoing and the
terms of this Note, Payee may elect, by giving notice of such election to the
Company, to convert all or any portion of the amount of this Note into the
number of fully paid and non-assessable shares of the Common Stock of the
Company as determined by dividing (x) the outstanding amount of this Note being
converted by (y) the Conversion Price. Following the Maturity of this Note,
Payee may demand repayment of all or any portion of the unpaid amount of this
Note. The following provisions shall apply to any conversion of this Note.
(a) Conversion Procedures.
(i) Conversion Price. Notwithstanding anything to the contrary
in this Note, but subject to Section (b) below, in the event that the
Company issues or sells shares of capital stock or any warrant, option
or other right to purchase shares of capital stock or any other
securities convertible into or exchangeable for capital stock of the
Company (each, a "Preferred Option"), at a per share issuance price
(the lowest such Preferred Option issuance price, the "New Issue
Price") that is lower than the Conversion Price, then in the event an
3
<PAGE> 4
Automatic or Voluntary Conversion occurs such New Issue Price shall
replace $0.125 as the Conversion Price.
Notwithstanding anything in this Note to the contrary, the foregoing
shall not be applicable to any of the following:
(1) shares of Common Stock issued to officers, directors,
employees and consultants or other service providers
of the Company pursuant to a stock grant, stock
option plan or purchase plan or other employee stock
incentive program or agreement approved by the
Company's Board of Directors;
(2) shares of capital stock issued or issuable in
connection with a bona fide equipment lease or bank
financing transaction approved by the Company's Board
of Directors, including without limitation shares
issued upon the exercise of warrants issued in
connection with such transactions; or
(3) shares of capital stock issued or issuable in
connection with a merger or acquisition transaction.
(ii) Partial Conversion. In connection with a Voluntary
Conversion, if only a portion of this Note is converted into capital
stock, the Company shall return this Note to Payee with a notation
thereon of the remaining outstanding amount of this Note or, at the
request of Payee, shall issue and deliver to Payee a replacement
convertible secured promissory note for the remaining outstanding
balance hereof, such note containing the same material terms as set
forth herein.
(iii) Delivery of Certificates. As soon as possible after
conversion has been effected (but in any event within five (5) business
days), the Company will deliver to the converting holder a certificate
or certificates representing the number of shares of capital stock
issuable by reason of such conversion registered in such name or names
and such denomination or denominations as the converting holder has
specified.
(iv) Further Assurances. The issuance of certificates for
shares of capital stock upon conversion of this Note will be made
without charge to the holder of this Note for any issuance tax in
respect thereof or other cost incurred by the Company in connection
with such conversion and the related issuance of shares of stock. Upon
conversion of this Note, the Company will take all such actions as are
necessary in order to ensure that the shares issuable with respect to
such conversion will be validly issued, fully paid and nonassessable.
(v) Books To Be Kept Open. The Company will not close its
books against the transfer of this Note or of capital stock issued or
issuable upon conversion of this Note in any manner which interferes
with the timely conversion of this Note.
(vi) Fractional Shares. If any fractional interest in a share
would be deliverable upon any conversion of this Note, the Company, in
lieu of delivering the fractional share
4
<PAGE> 5
therefor, will pay cash in an amount equal to such fractional interest
multiplied by the applicable Conversion Price as of the date of
conversion.
(b) Adjustments to Conversion Price and Number of Shares. The
Conversion Price and the number of shares into which this Note is convertible
shall be subject to adjustment as follows:
(i) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration or termination of any Preferred Option
without the exercise or conversion of such Preferred Option, a New
Issue Price resulting from the issuance of such expired or terminated
Preferred Options shall no longer be in effect and the New Issue Price
to be applied, if one exists, shall be recalculated as if such expired
or terminated Preferred Options had never been issued.
(ii) Treasury Shares. The number of shares of capital stock
outstanding at any given time does not include shares owned or held by
or for the account of the Company, and the disposition of any shares so
owned or held will be considered an issue or sale of capital stock.
(iii) Record Date. If the Company takes a record of the
holders of capital stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in capital stock,
options or in convertible securities or (B) to subscribe for or
purchase capital stock, options or convertible securities, then such
record date will be deemed to be the date of the issue or sale of the
shares of capital stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(iv) Subdivision or Combination of Capital Stock. If the
Company at any time after the date hereof subdivides (by any stock
split, stock dividend, recapitalization or otherwise) its outstanding
shares of capital stock into a greater number of shares, the applicable
Conversion Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of shares of capital stock
into which this Note is then convertible shall be proportionately
increased, and if the Company at any time combines (by reverse stock
split or otherwise) its outstanding shares of capital stock into a
smaller number of shares, the Conversion Price in effect immediately
prior to such combination will be proportionately increased and the
number of shares of capital stock into which this Note is then
convertible shall be proportionately decreased.
(v) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any capital reorganization, reclassification or consolidation
which is not an Acquisition or an Asset Sale and which is effected in
such a way that holders of capital stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for capital stock is referred to
herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Company will make appropriate provisions (in form and
substance satisfactory to the holder of this Note) to ensure that such
holder will thereafter have the right to acquire and receive, in lieu
of or in addition to the shares of
5
<PAGE> 6
capital stock that immediately prior thereto are acquirable and
receivable upon the conversion of this Note, such shares of stock,
securities or assets as such holder would have received in connection
with such Organic Change if such holder had fully converted this Note
immediately prior to such Organic Change. The Company will not effect
any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor (if other than the Company)
resulting from consolidation or merger or the party purchasing such
assets assumes by written instrument (in form reasonably satisfactory
to the holder hereof), the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
(vi) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section (b) but not expressly
provided for by such provisions, then the Company's Board of Directors
will make an appropriate adjustment in the Conversion Price and the
number of shares for which this Note is convertible so as to protect
the rights of the holder hereof; provided, that no such adjustment will
increase such conversion price as otherwise determined pursuant hereto
or decrease the number of shares of capital stock issuable upon
conversion hereof.
(vii) Notices.
(A) Immediately upon any adjustment of the Conversion
Price or the number of shares into which this Note is
convertible, the Company shall give written notice thereof to
the holder hereof, along with a detailed calculation showing
the process pursuant to which such new Conversion Price or
number of shares was determined.
(B) The Company will give written notice to the
holder hereof at least ten (10) days prior to the date on
which the Company closes its books or declares a record date
(1) with respect to any dividend or distribution upon (or any
subdivision, combination or other change in the outstanding
number of shares of) any class of the Company's capital stock,
(2) with respect to any pro rata subscription offer to holders
of any class of the Company's capital stock or (3) for
determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(C) The Company also will give written notice to the
holder hereof at least ten (10) business days prior to the
date it issues any capital stock of the Company other than
common stock issued to officers, directors, employees and
consultants or other service providers of the Company pursuant
to a stock grant, stock option plan or purchase plan or other
employee stock incentive program or agreement approved by the
Company's Board of Directors.
(D) In the event of an Acquisition or Asset Sale, the
Company shall provide written notice to Payee.
6
<PAGE> 7
The invalidity, or unenforceability in particular circumstances, of any
provision of this Note shall not extend beyond such provision or such
circumstances and no other provision of this Note shall be affected thereby. If
the applicable law is ever judicially interpreted so as to render usurious any
amount called for under this Note or under any of the other documents
evidencing, securing or relating to this Note or any part thereof, including the
Security Agreement and the Patent Security Agreement each dated even date hereof
by and between the Company and Payee (collectively, the "Note Documents"), or
contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note (the "Loan"), then it is the Company's and
Payee's express intent that all excess amounts theretofore collected by Payee be
credited on the principal balance of this Note (or, if this Note has been or
would thereby be paid in full, refunded to the Company), and the provisions of
this Note and the other Note Documents immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to permit the recovery of
the fullest amount called for hereunder and thereunder, while complying in all
respects with the applicable law and regulations.
The Company and each party, if any, now or hereafter liable for payment
of any sums of money payable on this Note, jointly and severally, waive
presentment and demand for payment, notice of intent to accelerate and notice of
acceleration, protest and notice of protest and nonpayment, and diligence in
collecting or bringing suit against any party liable hereon, and agree that
their liability on this Note shall not be affected by any renewal or extension
in time of payment hereof, by any indulgence, or by any release, modification,
or substitution of any security for the payment of this Note, and hereby consent
to any and all extensions, renewals, replacements, waivers, releases, or
exchanges affecting this Note and the taking, release, modification, or
substitution of any security, with or without notice and before or after
maturity.
This Note and the Company's obligations hereunder are secured in favor
of Payee in accordance with the terms and conditions of each of that certain
Security Agreement and that certain Patent Security Agreement between the
Company and Payee, each of even date hereof.
This Note shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and shall inure to the benefit of the
Payee, its successors and permitted assigns. In the event this Note is placed in
the hands of an attorney for collection or suit is filed hereon or if
proceedings are had in bankruptcy, receivership, reorganization, or other legal
or judicial proceedings for the collection hereof, the Company hereby agrees to
pay to the holder of this Note reasonable attorneys' fees, and shall pay all
additional reasonable costs and expenses of collection and enforcement.
THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS NOTE WITHOUT REGARD TO
CONFLICT OF LAWS PROVISIONS WITH A FORUM AND VENUE OF DALLAS COUNTY, TEXAS.
[Remainder of Page Intentionally Left Blank]
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Note as of the day and year first written above.
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet,
President
8
<PAGE> 1
EXHIBIT 10.11
THIS CONVERTIBLE SECURED PROMISSORY NOTE AND THE SHARES ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SAID SECURITIES UNDER THE SECURITIES ACT
AND ANY OTHER APPLICABLE STATE SECURITIES LAWS OR RULES, UNLESS EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF SAID LAWS ARE AVAILABLE AND SAID OFFER, SALE OR
TRANSFER IS MADE PURSUANT TO AND IN STRICT COMPLIANCE WITH THE TERMS AND
CONDITIONS OF SAID EXEMPTIONS.
MIGRATEC, INC.
CONVERTIBLE SECURED PROMISSORY NOTE
$1,775,000.00 January 25, 2000
MigraTEC, Inc., a Florida corporation (the "Company"), hereby promises
to pay to Mercury Fund No. 1, Ltd., a Texas limited partnership (or its
successors and assigns) ("Payee"), the principal sum of up to One Million Seven
Hundred Seventy-five Thousand Dollars ($1,775,000.00) or the aggregate unpaid
amount of all advances of principal paid by Payee pursuant to this Note and all
other notes issued to Payee in connection herewith (the "Payee's Total Loan
Amount"), upon Maturity (as such term is defined below), unless this Note is
sooner converted as provided herein. Subject to the other requirements set forth
in that certain Note and Warrant Purchase Agreement (the "Purchase Agreement"),
dated as of January 25, 2000, by and among the Company and Payee and the other
investor set forth therein (the "Other Payee") and this Note, the advances of
the Total Loan Amount under this Note to the Company by Payee (collectively, the
"Advances") shall be made as follows:
(i) Five Hundred Ninety-one Thousand Six Hundred Sixty-six
Hundred and 66/100 Dollars ($591,666.66) upon execution of each of the
Purchase Agreement and this Note (the "Guaranteed Advance");
(ii) An additional advance, at Payee's election, of up to Five
Hundred Ninety-one Thousand Six Hundred Sixty-six Hundred and 66/100
Dollars ($591,666.66) (exclusive of the Guaranteed Advance) on or
before February 28, 2000 (the "Subsequent Advance"); and
(iii) A final advance, at Payee's election, of up to Five
Hundred Ninety-one Thousand Six Hundred Sixty-six Hundred and 66/100
Dollars ($591,666.66) (exclusive of the Guaranteed Advance and the
Subsequent Advance) on or before April 30, 2000 (the "Final Advance;"
the Subsequent Advance and the Final Advance are referred to herein as
the "Subsequent Advances").
<PAGE> 2
With respect to the Advances, (i) each Subsequent Advance shall be in
an amount of not less than Fifty Thousand Dollars ($50,000.00) nor more than
Five Hundred Ninety-one Thousand Six Hundred Sixty-six Hundred and 66/100
Dollars ($591,666.66), except as otherwise provided herein, (ii) the aggregate
amount of the Advances to be issued pursuant to this Note (including the
Guaranteed Advance and all Subsequent Advances) shall not exceed One Million
Seven Hundred Seventy-five Thousand Dollars ($1,775,000), except as otherwise
provided herein, and (iii) the deadline by which Payee may make any Subsequent
Advance to the Company shall be extended for so long as the Company is in
default or other breach of any of the terms and conditions of the Purchase
Agreement, this Note, the Warrant, any security agreement related hereto or any
other agreement between the Company and Payee or any Affiliate of Payee;
provided, however, that the Company acknowledges that (i) simultaneous with the
issuance to Payee of this Note, the Company is issuing to the Other Payee,
pursuant to the Purchase Agreement, a promissory note substantially similar to
this Note in the principal sum of up to $1,975,000, and (ii) in the event that
the Other Payee or any Affiliate of the Other Payee elects not to make a
Subsequent Advance or to make the full amount of a Subsequent Advance pursuant
to such Other Payee's promissory note, Payee or any Affiliate of the Payee shall
be entitled to advance to the Company an amount equal to up to the difference
between (x) the amount which the Other Payee or Affiliate of Other Payee is
entitled to advance under its promissory note with respect to any Subsequent
Advance and (y) the amount actually advanced by such Other Payee or Affiliate of
Other Payee under its promissory note with respect to any such Subsequent
Advance. In connection with any such advance by Payee with respect to all or a
portion of an Advance not made by the Other Payee or Affiliate of Other Payee,
the Company shall issue to Payee a replacement convertible secured promissory
note which in the aggregate shall equal (x) such additional advance plus (y) the
aggregate outstanding amount due and payable under this Note, and contain the
same material terms as set forth herein; provided that such amount exceeds the
Payee's Total Loan Amount.
This Note is issued by the Company pursuant to the terms and provisions
of the Purchase Agreement and the other Loan Documents referenced therein,
including a Security Agreement and a Patent Security Agreement dated of even
date herewith. This Note shall be deemed to be a "Note" as that term is defined
in the Purchase Agreement. The Company agrees that this Note is entitled to all
of the benefits provided in the Purchase Agreement and the other Loan Documents,
including, without limitation, all representations, warranties and covenants of
the Company contained therein and all remedies provided therein, such benefits
hereby incorporated herein. Reference herein to the Purchase Agreement or any of
such other Loan Documents shall not affect or impair the absolute and
unconditional obligation of the Company to pay this Note when due, if this Note
is not sooner converted into shares of the Company's capital stock as
contemplated hereby. (Capitalized terms that are not defined herein shall have
such meanings as are assigned to them in the Purchase Agreement.)
This Note shall be due and payable in full at Maturity. For purposes of
this Note, "Maturity" shall be the first to occur of (i) January 25, 2003; (ii)
the merger of the Company with or other acquisition of the Company by any entity
pursuant to which the shareholders of the Company immediately preceding such
merger or acquisition own less than 50% of the issued and outstanding common
stock of the surviving entity immediately following such merger or acquisition
(either, an "Acquisition"); (iii) a sale of all or substantially all of the
assets of the Company (an "Asset Sale");
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<PAGE> 3
or (iv) an Event of Default. Upon the Maturity of this Note, Payee shall be
entitled to demand immediate repayment of this Note in full or in part or, in
its sole and absolute discretion, to elect to voluntarily convert all or any
portion of the principal of this Note into the number of fully paid and
non-assessable shares of the Common Stock of the Company as determined by
dividing (x) the outstanding amount of principal of this Note being converted by
(y) the Conversion Price (as hereinafter defined).
In the event that Payee demands repayment of all or a portion of this
Note, payment shall be made by wire transfer of immediately available funds on
the date due to such bank account that Payee shall designate to the Company in
writing.
This Note shall automatically convert (an "Automatic Conversion"), if
not sooner converted at the election of the holder as provided herein, into
shares of the Company's Series A Preferred Stock at such time as the Company has
obtained the approval of its shareholders to the creation of the Series A
Preferred Stock and has filed with the Secretary of State of Florida (a)
Articles of Amendment to its Articles of Incorporation authorizing the creation
of the Series A Preferred Stock and (b) a resolution of the Board of Directors
of the Company containing a Statement of Designations, Rights, Preferences and
Privileges of the Series A Preferred Stock of the Company, setting forth the
terms of the Series A Preferred Stock, provided, that the Company has used its
best efforts to take such actions as soon as practical and in any event by June
30, 2000. In connection with an Automatic Conversion of this Note, the amount of
this Note shall convert into the number of fully paid and non-assessable shares
of Series A Preferred Stock of the Company as determined by dividing (x) the
then outstanding amount of this Note by (y) $0.125 (the "Conversion Price").
At any time after the date hereof and prior to an Automatic Conversion
of this Note, Payee shall have the right, in its sole and absolute discretion,
to voluntarily convert all or any portion of the principal of this Note into
shares of Common Stock (a "Voluntary Conversion") pursuant to the terms and
conditions of the Purchase Agreement. In accordance with the foregoing and the
terms of this Note, Payee may elect, by giving notice of such election to the
Company, to convert all or any portion of the amount of this Note into the
number of fully paid and non-assessable shares of the Common Stock of the
Company as determined by dividing (x) the outstanding amount of this Note being
converted by (y) the Conversion Price. Following the Maturity of this Note,
Payee may demand repayment of all or any portion of the unpaid amount of this
Note. The following provisions shall apply to any conversion of this Note.
(a) Conversion Procedures.
(i) Conversion Price. Notwithstanding anything to the contrary
in this Note, but subject to Section (b) below, in the event that the
Company issues or sells shares of capital stock or any warrant, option
or other right to purchase shares of capital stock or any other
securities convertible into or exchangeable for capital stock of the
Company (each, a "Preferred Option"), at a per share issuance price
(the lowest such Preferred Option issuance price, the "New Issue
Price") that is lower than the Conversion Price, then in the event an
Automatic or Voluntary Conversion occurs such New Issue Price shall
replace $0.125 as the Conversion Price.
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<PAGE> 4
Notwithstanding anything in this Note to the contrary, the foregoing
shall not be applicable to any of the following:
(1) shares of Common Stock issued to officers, directors,
employees and consultants or other service providers
of the Company pursuant to a stock grant, stock
option plan or purchase plan or other employee stock
incentive program or agreement approved by the
Company's Board of Directors;
(2) shares of capital stock issued or issuable in
connection with a bona fide equipment lease or bank
financing transaction approved by the Company's Board
of Directors, including without limitation shares
issued upon the exercise of warrants issued in
connection with such transactions; or
(3) shares of capital stock issued or issuable in
connection with a merger or acquisition transaction.
(ii) Partial Conversion. In connection with a Voluntary
Conversion, if only a portion of this Note is converted into capital
stock, the Company shall return this Note to Payee with a notation
thereon of the remaining outstanding amount of this Note or, at the
request of Payee, shall issue and deliver to Payee a replacement
convertible secured promissory note for the remaining outstanding
balance hereof, such note containing the same material terms as set
forth herein.
(iii) Delivery of Certificates. As soon as possible after
conversion has been effected (but in any event within five (5) business
days), the Company will deliver to the converting holder a certificate
or certificates representing the number of shares of capital stock
issuable by reason of such conversion registered in such name or names
and such denomination or denominations as the converting holder has
specified.
(iv) Further Assurances. The issuance of certificates for
shares of capital stock upon conversion of this Note will be made
without charge to the holder of this Note for any issuance tax in
respect thereof or other cost incurred by the Company in connection
with such conversion and the related issuance of shares of stock. Upon
conversion of this Note, the Company will take all such actions as are
necessary in order to ensure that the shares issuable with respect to
such conversion will be validly issued, fully paid and nonassessable.
(v) Books To Be Kept Open. The Company will not close its
books against the transfer of this Note or of capital stock issued or
issuable upon conversion of this Note in any manner which interferes
with the timely conversion of this Note.
(vi) Fractional Shares. If any fractional interest in a share
would be deliverable upon any conversion of this Note, the Company, in
lieu of delivering the fractional share therefor, will pay cash in an
amount equal to such fractional interest multiplied by the applicable
Conversion Price as of the date of conversion.
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<PAGE> 5
(b) Adjustments to Conversion Price and Number of Shares. The
Conversion Price and the number of shares into which this Note is convertible
shall be subject to adjustment as follows:
(i) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration or termination of any Preferred Option
without the exercise or conversion of such Preferred Option, a New
Issue Price resulting from the issuance of such expired or terminated
Preferred Options shall no longer be in effect and the New Issue Price
to be applied, if one exists, shall be recalculated as if such expired
or terminated Preferred Options had never been issued.
(ii) Treasury Shares. The number of shares of capital stock
outstanding at any given time does not include shares owned or held by
or for the account of the Company, and the disposition of any shares so
owned or held will be considered an issue or sale of capital stock.
(iii) Record Date. If the Company takes a record of the
holders of capital stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in capital stock,
options or in convertible securities or (B) to subscribe for or
purchase capital stock, options or convertible securities, then such
record date will be deemed to be the date of the issue or sale of the
shares of capital stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(iv) Subdivision or Combination of Capital Stock. If the
Company at any time after the date hereof subdivides (by any stock
split, stock dividend, recapitalization or otherwise) its outstanding
shares of capital stock into a greater number of shares, the applicable
Conversion Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of shares of capital stock
into which this Note is then convertible shall be proportionately
increased, and if the Company at any time combines (by reverse stock
split or otherwise) its outstanding shares of capital stock into a
smaller number of shares, the Conversion Price in effect immediately
prior to such combination will be proportionately increased and the
number of shares of capital stock into which this Note is then
convertible shall be proportionately decreased.
(v) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any capital reorganization, reclassification or consolidation
which is not an Acquisition or an Asset Sale and which is effected in
such a way that holders of capital stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for capital stock is referred to
herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Company will make appropriate provisions (in form and
substance satisfactory to the holder of this Note) to ensure that such
holder will thereafter have the right to acquire and receive, in lieu
of or in addition to the shares of capital stock that immediately prior
thereto are acquirable and receivable upon the conversion of this Note,
such shares of stock, securities or assets as such holder would have
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<PAGE> 6
received in connection with such Organic Change if such holder had
fully converted this Note immediately prior to such Organic Change. The
Company will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor (if other than the
Company) resulting from consolidation or merger or the party purchasing
such assets assumes by written instrument (in form reasonably
satisfactory to the holder hereof), the obligation to deliver to such
holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to acquire.
(vi) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section (b) but not expressly
provided for by such provisions, then the Company's Board of Directors
will make an appropriate adjustment in the Conversion Price and the
number of shares for which this Note is convertible so as to protect
the rights of the holder hereof; provided, that no such adjustment will
increase such conversion price as otherwise determined pursuant hereto
or decrease the number of shares of capital stock issuable upon
conversion hereof.
(vii) Notices.
(A) Immediately upon any adjustment of the Conversion
Price or the number of shares into which this Note is
convertible, the Company shall give written notice thereof to
the holder hereof, along with a detailed calculation showing
the process pursuant to which such new Conversion Price or
number of shares was determined.
(B) The Company will give written notice to the
holder hereof at least ten (10) days prior to the date on
which the Company closes its books or declares a record date
(1) with respect to any dividend or distribution upon (or any
subdivision, combination or other change in the outstanding
number of shares of) any class of the Company's capital stock,
(2) with respect to any pro rata subscription offer to holders
of any class of the Company's capital stock or (3) for
determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(C) The Company also will give written notice to the
holder hereof at least ten (10) business days prior to the
date it issues any capital stock of the Company other than
common stock issued to officers, directors, employees and
consultants or other service providers of the Company pursuant
to a stock grant, stock option plan or purchase plan or other
employee stock incentive program or agreement approved by the
Company's Board of Directors.
(D) In the event of an Acquisition or Asset Sale, the
Company shall provide written notice to Payee.
The invalidity, or unenforceability in particular circumstances, of any
provision of this Note shall not extend beyond such provision or such
circumstances and no other provision of this Note shall be affected thereby. If
the applicable law is ever judicially interpreted so as to render usurious
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<PAGE> 7
any amount called for under this Note or under any of the other documents
evidencing, securing or relating to this Note or any part thereof, including the
Security Agreement and the Patent Security Agreement each dated even date hereof
by and between the Company and Payee (collectively, the "Note Documents"), or
contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note (the "Loan"), then it is the Company's and
Payee's express intent that all excess amounts theretofore collected by Payee be
credited on the principal balance of this Note (or, if this Note has been or
would thereby be paid in full, refunded to the Company), and the provisions of
this Note and the other Note Documents immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to permit the recovery of
the fullest amount called for hereunder and thereunder, while complying in all
respects with the applicable law and regulations.
The Company and each party, if any, now or hereafter liable for payment
of any sums of money payable on this Note, jointly and severally, waive
presentment and demand for payment, notice of intent to accelerate and notice of
acceleration, protest and notice of protest and nonpayment, and diligence in
collecting or bringing suit against any party liable hereon, and agree that
their liability on this Note shall not be affected by any renewal or extension
in time of payment hereof, by any indulgence, or by any release, modification,
or substitution of any security for the payment of this Note, and hereby consent
to any and all extensions, renewals, replacements, waivers, releases, or
exchanges affecting this Note and the taking, release, modification, or
substitution of any security, with or without notice and before or after
maturity.
This Note and the Company's obligations hereunder are secured in favor
of Payee in accordance with the terms and conditions of each of that certain
Security Agreement and that certain Patent Security Agreement between the
Company and Payee, each of even date hereof.
This Note shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and shall inure to the benefit of the
Payee, its successors and permitted assigns. In the event this Note is placed in
the hands of an attorney for collection or suit is filed hereon or if
proceedings are had in bankruptcy, receivership, reorganization, or other legal
or judicial proceedings for the collection hereof, the Company hereby agrees to
pay to the holder of this Note reasonable attorneys' fees, and shall pay all
additional reasonable costs and expenses of collection and enforcement.
THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS NOTE WITHOUT REGARD TO
CONFLICT OF LAWS PROVISIONS WITH A FORUM AND VENUE OF DALLAS COUNTY, TEXAS.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 8
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Note as of the day and year first written above.
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet,
President
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<PAGE> 1
EXHIBIT 10.12
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the 25th day of
January, 2000, by MigraTEC, Inc., a Florida corporation ("Debtor"), whose
address is 12801 Stemmons Freeway, Suite 710, Dallas, Texas 75234 in favor of
each of MT Partners, L.P., whose address is 500 Crescent Court, Suite 250,
Dallas, Texas 75201, and Mercury Ventures, Ltd., a Texas limited partnership,
whose address is 17950 Preston Road, suite 800, Dallas, Texas 75252
(collectively with their respective successors and assigns, "Secured Party").
Debtor hereby agrees with Secured Party as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) The term "Code" shall mean the Texas Business and Commerce
Code as in effect in the State of Texas on the date of this Agreement
or as it may hereafter be amended from time to time.
(b) The term "Collateral" shall mean all of the property set
forth below (as indicated):
(i) any right to payment for services rendered or for
goods sold or leased which is not evidenced by an instrument
or chattel paper, whether or not it has been earned by
performance ("Accounts"), and all customer lists, subscription
lists, invoices, agings, verification reports and other
records relating in any way to such Accounts, and all of
Debtor's rights in, to and under all purchase orders or
contracts now owned or hereafter received or acquired by it
for goods or services, and all of Debtor's rights to any goods
represented by any of the foregoing (including returned or
repossessed goods and unpaid seller's rights) and all moneys
due or to become due to Debtor under all contracts for the
sale or lease of goods and/or the performance of services by
it (whether or not yet earned by performance) or in connection
with any other transaction, now in existence or hereafter
arising; all promissory notes, drafts, bills of exchange,
instruments, documents and trade acceptances (collectively,
"Instruments"); all deposit accounts, general intangibles, tax
refunds and other obligations of any kind owing to Debtor
(including under any trade names), now or hereafter existing,
arising out of or in connection with the sale or lease of
goods or the rendering of services or otherwise (including,
without limitation, any such obligations that would be
characterized as an account, general intangible or chattel
paper under the Code); and all rights now or hereafter
existing in and to all security agreements, leases, guarantees
and other contracts securing or otherwise relating to any such
Accounts, Instruments, deposit accounts, general intangibles
or obligations;
(ii) all machinery, equipment, tools, apparatus,
furniture and leasehold improvements, now owned or hereafter
acquired by Debtor or in which Debtor now has or hereafter may
acquire any right, title or interest, and any and all
additions, substitutions and replacements thereof, wherever
located, together with all attachments, components, parts,
equipment and accessories installed therein or affixed
<PAGE> 2
thereto, including but not limited to all "equipment" as
defined in Section 9.109(2) of the Code;
(iii) all writings which evidence both a monetary
obligation and a security interest in or a lease of specific
goods;
(iv) all contracts and agreements to which Debtor is
a party or to which Debtor has any rights, together with all
modifications, amendments or replacements of any of the
foregoing, including, without limitation, (A) all rights of
Debtor to receive moneys due and to become due to Debtor
thereunder or in connection therewith, (B) all rights of
Debtor to damages arising out of, or for, breach or default in
respect thereof and (C) all rights of Debtor to perform and to
exercise all remedies thereunder;
(v) all general intangibles (as defined in the Code);
all inventions, processes, production methods, proprietary
information, trade secrets and know-how; all patents and
applications for patents, copyrights, trademarks, trade names,
corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos and other
source or business identifiers, and the goodwill associated
therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and
Trademark office or in any similar office or agency of the
United States, any State thereof or any other country or any
political subdivision thereof, or otherwise and all renewals
thereof, and all licenses or other agreements granted to
Debtor with respect to any of the foregoing; all information,
customer lists, advertising lists, advertising contracts,
identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge,
surveys, engineering reports, test reports, manuals, materials
standards, processing standards, performance standards,
telephone numbers and telephone listings, catalogs, books,
records, computer and automatic machinery software and
programs, and the like pertaining to operations by or the
business of Debtor and all licenses with respect thereto; all
field accounting information and all media in which or on
which any of the information or knowledge or data or records,
may be recorded or stored and all computer programs used for
the compilation or printout of such information, knowledge,
records or data; all licenses, consents, permits, variances,
certifications and approvals of all Governmental Authorities
now or hereafter held by Debtor pertaining to operations or
business now or hereafter conducted; all rights to receive
return of deposits and trust payments; all rights to payment
under letters of credit and similar agreements; all tax
refunds (including, without limitation, all federal and state
income tax refunds and benefits of net operating loss carry
forwards); and all causes of action, rights, claims and
warranties now or hereafter owned or acquired by Debtor;
(vi) all rights, claims and benefits of Debtor
against any person arising out of, relating to or in
connection with the Collateral;
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<PAGE> 3
(vii) the balance of every bank account and deposit
account of Debtor and any other claim of Debtor against
Secured Party, now or hereafter existing, liquidated or
unliquidated, and all money, instruments, securities,
documents, chattel paper, credits, claims, demands, income,
and any other property, rights and interests of Debtor which
at any time shall come into the possession or custody or under
the control of Secured Party or any agent, affiliate or
correspondent of Secured Party, for any purpose, and the
proceeds thereof (Secured Party shall be deemed to have
possession of any of the Collateral in transit to or set apart
for Secured Party or any of its respective agents, affiliates
or correspondents);
(viii) all equity interest in any entity, any debt
instrument issued by any person or entity and any instrument
convertible into any equity or debt interest (whether owned
beneficially or of record), including but not limited to all
shares of capital stock of whatever class, all partnership and
joint venture interests, and all debentures and debt
instruments (collectively "Securities"); all shares,
securities, monies or properties representing a distribution
on any Securities or representing a Distribution (defined
below) or return of capital upon or in respect of any
Securities or any part thereof, or resulting from a split-up,
revision, reclassification or other like change of the
Securities, or otherwise received in exchange therefor; all
subscription rights, warrants or options issued to the holders
of, or in respect of, the Securities; each certificate or
other instrument evidencing any of the foregoing;
(ix) any declaration or payment of any distribution
or dividend (including a stock dividend) on, or the making of
any pro rata distribution, loan, advance, or investment to or
in any holder (in its capacity as a partner, shareholder or
other equity holder) of, any partnership interest or shares of
capital stock or other equity interest of such entity; any
purchase, redemption, or other acquisition or retirement for
value of any shares of partnership interest or capital stock
or other equity interest of such entity; and any payments of
principal of, and interest on, and all other payments in
respect of any debt issued by any person or entity (all of the
foregoing being herein referred to as collectively
"Distributions");
(x) all accounts of Debtor maintained with or through
any other person or entity or persons or entities related to
the acquisition, ownership, sale or other disposition of any
interest in any security or interest in any security
(including but not limited to all interest in any equity or
debt security, option, warrant, put, call, futures agreements,
commodity agreements, margin accounts, short positions and
partnership interests), each deposit account (time, demand or
other) in which any proceeds of or income from the foregoing
may be on deposit, all general intangibles consisting of the
foregoing and each agreement, document or instrument governing
or evidencing any of the foregoing and all amendments and
restatements thereof, and all claims of Debtor against any
person or entity with respect to any of the foregoing;
(xi) all insurance policies and bonds and claims
relating to any of the Collateral and payments thereunder;
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<PAGE> 4
(xii) all other personal property now owned of
hereafter acquired by Debtor, including, without limitation,
any and all inventory, documents, goods and other property in
which a security interest would be created under Chapter 9 of
the Code; and
(xiii) all accessions to, all substitutions for and
replacements of, and all proceeds and products of any and all
of the foregoing Collateral and, to the extent not otherwise
included, all (A) payments under insurance (whether or not
Secured Party is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to
or otherwise with respect to any of the foregoing Collateral
and (B) all cash.
(c) The term "Indebtedness" shall mean (i) all indebtedness,
obligations and liabilities of Debtor to Secured Party now existing or
hereafter arising pursuant to those two certain promissory notes dated
January 25th, 2000, in the aggregate principal amount of $3,750,000.00
executed by Debtor and payable to the order of Secured Party (the
"Notes"), (ii) all obligations of Debtor to Secured Party under any
documents evidencing, securing, governing and/or pertaining to all or
any part of the indebtedness described in (i) above, (iii) all costs
and expenses incurred by Secured Party in connection with the
collection and administration of all or any part of the indebtedness
and obligations described in (i) and (ii) above or the protection or
preservation of, or realization upon, the collateral securing all or
any part of such indebtedness and obligations, including without
limitation all reasonable attorneys' fees, and (iv) all renewals,
extensions, modifications and rearrangements of the indebtedness and
obligations described in (i), (ii) and (iii) above.
(d) The term "Loan Documents" shall mean the Note and Warrant
Purchase Agreement dated even date herewith by and between Debtor and
Secured Party, the Notes and this Agreement.
(e) The term "Senior Debt" shall mean all indebtedness of
Debtor to MJ Capital Partners, L.P. and its affiliates.
(f) The term "Senior Lender" means MJ Capital Partners, L.P.
and its affiliates.
All words and phrases used herein which are expressly defined in Section 1.201
or Chapter 9 of the Code shall have the meaning provided for therein. Other
words and phrases defined elsewhere in the Code shall have the meaning specified
therein except to the extent such meaning is inconsistent with a definition in
Section 1.201 or Chapter 9 of the Code.
2. Security Interest. As security for the Indebtedness, Debtor, for
value received, hereby pledges and grants to Secured Party a continuing security
interest in the Collateral.
3. Maintenance of Collateral. Other than the exercise of reasonable
care to assure the safe custody of any Collateral in Secured Party's possession
from time to time, Secured Party does not have any obligation, duty or
responsibility with respect to the Collateral. Without limiting the generality
of the foregoing, Secured Party shall not have any obligation, duty or
responsibility to do
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any of the following: (a) ascertain any maturities, calls, conversions,
exchanges, offers, tenders or similar matters relating to the Collateral or
informing Debtor with respect to any such matters; (b) fix, preserve or exercise
any right, privilege or option (whether conversion, redemption or otherwise)
with respect to the Collateral unless (i) Debtor makes written demand to Secured
Party to do so, (ii) such written demand is received by Secured Party in
sufficient time to permit Secured Party to take the action demanded in the
ordinary course of its business, and (iii) Debtor provides additional
collateral, acceptable to Secured Party in its sole discretion; (c) collect any
amounts payable in respect of the Collateral (Secured Party being liable to
account to Debtor only for what Secured Party may actually receive or collect
thereon); (d) sell all or any portion of the Collateral to avoid market loss;
(e) sell all or any portion of the Collateral unless and until (i) Debtor makes
written demand upon Secured Party to sell the Collateral, and (ii) Debtor
provides additional collateral, acceptable to Secured Party in its sole
discretion; or (f) hold the Collateral for or on behalf of any party other than
Debtor.
4. Representations and Warranties. Debtor hereby represents and
warrants the following to Secured Party:
(a) Authority. The execution, delivery and performance of the
Loan Documents by Debtor have been duly authorized by all necessary
corporate action of Debtor.
(b) Accuracy of Information. All information heretofore,
herein or hereafter supplied to Secured Party by or on behalf of Debtor
with respect to the Collateral is true and correct.
(c) Enforceability. The Loan Documents constitute legal, valid
and binding obligations of Debtor, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of
creditors' rights and except to the extent specific remedies may
generally be limited by equitable principles and except as right to
indemnification may be limited by consideration of public policy.
(d) Ownership and Liens. Debtor has good and marketable title
to the Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest
created by this Agreement and those securing the Senior Debt. No
dispute, right of setoff, counterclaim or defense exists with respect
to all or any part of the Collateral. Debtor has not executed any other
security agreement currently affecting the Collateral and no effective
financing statement or other instrument similar in effect covering all
or any part of the Collateral is on file in any recording office except
as may have been executed or filed in favor of Secured Party and those
executed and filed in favor of Senior Lender.
(e) No Conflicts or Consents. Neither the ownership, the
intended use of the Collateral by Debtor, the grant of the security
interest by Debtor to Secured Party herein nor the exercise by Secured
Party of its rights or remedies hereunder, will (i) conflict with any
provision of (A) any domestic or, to Debtor's knowledge, foreign law,
statute, rule or regulation, (B) the articles of incorporation or
bylaws of Debtor, or (C) any agreement, judgment, license, order or
permit applicable to or binding upon Debtor, or (ii) result in or
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require the creation of any lien, charge or encumbrance upon any assets
or properties of Debtor or of any person except as may be expressly
contemplated in the Loan Documents. Except as expressly contemplated in
the Loan Documents, no consent, approval, authorization or order of,
and no notice to or filing with, any court, governmental authority or
third party is required in connection with the grant by Debtor of the
security interest herein or the exercise by Secured Party of its rights
and remedies hereunder.
(f) Security Interest. Debtor has and will have at all times
full right, power and authority to grant a security interest in the
Collateral to Secured Party in the manner provided herein, free and
clear of any lien, security interest or other charge or encumbrance
other than those liens and security interests securing the Senior Debt.
This Agreement creates a legal, valid and binding security interest in
favor of Secured Party in the Collateral securing the Indebtedness.
Possession by Secured Party of all certificates, instruments and cash
constituting Collateral from time to time and/or the filing of the
financing statements delivered prior hereto and/or concurrently
herewith by Debtor to Secured Party will perfect and establish Secured
Party's security interest hereunder in the Collateral.
(g) Location. Debtor's residence or chief executive office, as
the case may be, and the office where the records concerning the
Collateral are kept is located at its address set forth on the first
page hereof. Except as specified elsewhere herein, all Collateral shall
be kept at such address.
(h) Exclusion of Certain Collateral. Unless otherwise agreed
by Secured Party, the Collateral does not include any aircraft,
watercraft or vessels, railroad cars, railroad equipment, locomotives
or other rolling stock intended for a use related to interstate
commerce.
(i) Inventory. The security interest in the inventory shall
continue through all stages of manufacture and shall, without further
action, attach to the accounts or other proceeds resulting from the
sale or other disposition thereof and to all such inventory as may be
returned to Debtor by its account debtors.
(j) Accounts. Each account represents the valid and legally
binding indebtedness of a bona fide account debtor arising from the
sale or lease by Debtor of goods or license by Debtor of software or
the rendition by Debtor of services. The amount shown as to each
account on Debtor's books is the true and undisputed amount owing and
unpaid thereon, subject only to discounts, allowances, rebates, credits
and adjustments to which the account debtor has a right.
(k) Chattel Paper, Documents and Instruments. The chattel
paper, documents and instruments of Debtor pledged hereunder have only
one original counterpart and no party other than Debtor or Senior
Lender is in actual or constructive possession of any such chattel
paper, documents or instruments.
(l) Securities. Any certificates evidencing Securities are
valid and genuine and have not been altered. All Securities have been
duly authorized and validly issued, are fully
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paid and non-assessable, and were not issued in violation of the
preemptive rights of any party or of any agreement by which Debtor or
the issuer thereof is bound. No restrictions or conditions exist with
respect to the transfer or voting of any Securities, except as has been
disclosed to Secured Party in writing. To the best of Debtor's
knowledge, no issuer of any of the Securities (other than those that
are publicly traded) has any outstanding stock rights, rights to
subscribe, options, warrants or convertible securities outstanding or
any other rights outstanding entitling any party to have issued to such
party capital stock of such issuer, except as has been disclosed to
Secured Party in writing.
5. Affirmative Covenants. Debtor will comply with the covenants
contained in this Section 5 at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in writing.
(a) Ownership and Liens. Debtor will maintain good and
marketable title to all Collateral free and clear of all liens,
security interests, encumbrances or adverse claims, except for the
security interest created by this Agreement and the security interests
and other encumbrances securing the Senior Debt. Debtor will not permit
any dispute, right of setoff, counterclaim or defense to exist with
respect to all or any part of the Collateral. Debtor will cause any
financing statement or other security instrument with respect to the
Collateral to be terminated, except as may exist or as may have been
filed in favor of Secured Party or the Senior Lender.
(b) Further Assurances. Debtor will from time to time at its
expense promptly execute and deliver all further instruments and
documents and take all further action necessary or appropriate or that
Secured Party may request in order (i) to perfect and protect the
security interest created or purported to be created hereby, (ii) to
enable Secured Party to exercise and enforce its rights and remedies
hereunder in respect of the Collateral, and (iii) to otherwise effect
the purposes of this Agreement, including without limitation: (A)
executing and filing such financing or continuation statements, or
amendments thereto; and (B) furnishing to Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral,
all in reasonable detail satisfactory to Secured Party.
(c) Inspection of Collateral. Debtor will keep adequate
records concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect any of
the Collateral and the books and records of or relating to the
Collateral at any time during normal business hours, to make and take
away photocopies, photographs and printouts thereof and to write down
and record any such information.
(d) Payment of Taxes. Debtor (i) will timely pay all property
and other taxes, assessments and governmental charges or levies imposed
upon the Collateral or any part thereof, (ii) will timely pay all
lawful claims which, if unpaid, might become a lien or charge upon the
Collateral or any part thereof, and (iii) will maintain appropriate
accruals and reserves for all such liabilities in a timely fashion in
accordance with generally accepted accounting principles. Debtor may,
however, delay paying or discharging any such taxes, assessments,
charges, claims or liabilities so long as the validity thereof is
contested in good
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faith by proper proceedings and provided Debtor has set aside on
Debtor's books adequate reserves therefor.
(e) Condition of Goods. Debtor will maintain, preserve,
protect and keep all Collateral which constitutes goods in good
condition, repair and working order and will cause such Collateral to
be used and operated in good and workmanlike manner, in accordance with
applicable laws and in a manner which will not make void or cancelable
any insurance with respect to such Collateral.
(f) Insurance. Debtor will, at its own expense, maintain
insurance with respect to all Collateral which constitutes goods in
such amounts, against such risks, in such form and with such insurers,
as shall be satisfactory to Senior Lender from time to time.
(g) Accounts and General Intangibles. Debtor will, except as
otherwise provided in Subsection 7(e), collect, at Debtor's own
expense, all amounts due or to become due under each of the accounts
and general intangibles. Debtor will also duly perform and cause to be
performed all of its obligations with respect to the goods or services,
the sale or lease or rendition of which gave rise or will give rise to
each account and all of its obligations to be performed under or with
respect to the general intangibles.
6. Negative Covenants. Debtor will comply with the covenants contained
in this Section 6 at all times during the period of time this Agreement is
effective, unless Secured Party shall otherwise consent in writing.
(a) Transfer or Encumbrance. Other than in the ordinary course
of business, Debtor will not (i) sell, assign (by operation of law or
otherwise), transfer, exchange, lease or otherwise dispose of any of
the Collateral, (ii) grant a lien or security interest in or execute,
file or record any financing statement or other security instrument
with respect to the Collateral to any party other than Secured Party or
Senior Lender, or (iii) deliver actual or constructive possession of
any of the Collateral to any party other than Secured Party or Senior
Lender, except for (A) sales and leases of inventory and licensing of
software and intellectual property rights in the ordinary course of
business, and (B) the sale or other disposal of any item of equipment
which is worn out or obsolete; provided, however, the exceptions
permitted in clauses (A) and (B) above shall automatically terminate
upon the occurrence of an Event of Default.
(b) Impairment of Security Interest. Debtor will not take or
fail to take any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
(c) Possession of Collateral. Debtor will not cause or permit
the removal of any Collateral from its possession, control and risk of
loss, nor will Debtor cause or permit the removal of any Collateral
from the address on the first page hereof other than (i) as permitted
by Subsection 6(a), or (ii) in connection with the possession of any
Collateral by Secured Party, Senior Lender or by their bailee.
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(d) Goods. Debtor will not permit any Collateral which
constitutes goods to at any time (i) be covered by any document except
documents in the possession of the Senior Lender, (ii) become so
related to, attached to or used in connection with any particular real
property so as to become a fixture upon such real property, or (iii) be
installed in or affixed to other goods so as to become an accession to
such other goods unless such other goods are subject to a security
interest under this Agreement.
(e) Compromise of Collateral. Debtor will not adjust, settle,
compromise, amend or modify any Collateral, except an adjustment,
settlement, compromise, amendment or modification in good faith and in
the ordinary course of business.
(f) Financing Statement Filings. Debtor recognizes that
financing statements pertaining to the Collateral have been or may be
filed where Debtor maintains any Collateral, has its records concerning
any Collateral or has its residence or chief executive office, as the
case may be. Without limitation of any other covenant herein, Debtor
will not cause or permit any change in the location of (i) any
Collateral, (ii) any records concerning any Collateral, or (iii)
Debtor's chief executive office to a jurisdiction other than as
represented in Subsection 4(g) unless Debtor shall have notified
Secured Party in writing of such change at least thirty (30) days prior
to the effective date of such change, and shall have first taken all
action required by Secured Party for the purpose of further perfecting
or protecting the security interest in favor of Secured Party in the
Collateral. In any written notice furnished pursuant to this
Subsection, Debtor will expressly state that the notice is required by
this Agreement and contains facts that may require additional filings
of financing statements or other notices for the purpose of continuing
perfection of Secured Party's security interest in the Collateral.
7. Rights of Secured Party. Secured Party shall have the rights
contained in this Section 7 at all times during the period of time this
Agreement is effective.
(a) Additional Financing Statements Filings. Debtor hereby
authorizes Secured Party to file, without the signature of Debtor, one
or more financing or continuation statements, and amendments thereto,
relating to the Collateral. Debtor further agrees that a carbon,
photographic or other reproduction of this Security Agreement or any
financing statement describing any Collateral is sufficient as a
financing statement and may be filed in any jurisdiction Secured Party
may deem appropriate.
(b) Power of Attorney. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, such power of attorney
being coupled with an interest, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, after the
occurrence of an Event of Default and subject to the provisions of the
Debtor's obligations to Senior Lender, to take any action and to
execute any instrument which Secured Party may deem necessary or
appropriate to accomplish the purposes of this Agreement, including
without limitation: (i) to obtain and adjust insurance required by
Secured Party hereunder; (ii) to demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of the Collateral; (iii) to receive,
endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clause (i) or (ii) above; and (iv) to
file any claims or take any action or
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institute any proceedings which Secured Party may deem necessary or
appropriate for the collection and/or preservation of the Collateral or
otherwise to enforce the rights of Secured Party with respect to the
Collateral.
8. Events of Default. Each of the following constitutes an "Event of
Default" under this Agreement:
(a) Default in Payment. The failure, refusal or neglect of
Debtor to repay the Indebtedness, as the same shall become due and
payable, and such failure, refusal or neglect to repay the Indebtedness
when due and payable remains unremedied for a period of thirty (30)
days after notice of such failure, refusal or neglect is given by
Secured Party; or
(b) Non-Performance of Covenants. The failure (other than as
referred to in subsection (a) above) of Debtor to timely and properly
observe, keep or perform any covenant, agreement, warranty or condition
required herein and such failure remains unremedied for a period of
thirty (30) days after notice of such failure is given by Secured Party
to Debtor; or
(c) Debtor's Bankruptcy or Insolvency. If Debtor (i) becomes
insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its
inability to pay its debts as they become due; (ii) generally is not
paying its debts as such debts become due; (iii) has a receiver,
trustee or custodian appointed for, or take possession of, all or
substantially all of the assets of such party or any of the Collateral,
either in a proceeding brought by such party or in a proceeding brought
against such party and such appointment is not discharged or such
possession is not terminated within ninety (90) days after the
effective date thereof or such party consents to or acquiesces in such
appointment or possession; (iv) files a petition for relief under the
United States Bankruptcy Code or any other present or future federal or
state insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "Applicable Bankruptcy Law") or an
involuntary petition for relief is filed against such party under any
Applicable Bankruptcy Law and such involuntary petition is not
dismissed within ninety (90) days after the filing thereof, or an order
for relief naming such party is entered under any Applicable Bankruptcy
Law, or any composition, rearrangement, extension, reorganization or
other relief of debtors now or hereafter existing is requested or
consented to by such party; or (v) fails to have discharged within a
period of ninety (90) days any attachment, sequestration or similar
writ levied upon any property of such party.
9. Remedies and Related Rights. If an Event of Default shall have
occurred, and without limiting any other rights and remedies provided herein, or
otherwise available to Secured Party, but subject to the provisions of the
rights of Senior Lender under the Senior Debt, Secured Party may exercise one or
more of the rights and remedies provided in this Section.
(a) Remedies. Secured Party may from time to time at its
discretion, without limitation and without notice except as expressly
provided herein:
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(i) exercise in respect of the Collateral all the
rights and remedies of a secured party under the Code (whether
or not the Code applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that
it will at its expense and upon request of Secured Party,
assemble the Collateral as directed by Secured Party and make
it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties;
(iii) reduce its claim to judgment or foreclose or
otherwise enforce, in whole or in part, the security interest
granted hereunder by any available judicial procedure;
(iv) sell or otherwise dispose of, at its office, on
the premises of Debtor or elsewhere, the Collateral, as a unit
or in parcels, by public or private proceedings, and by way of
one or more contracts (it being agreed that the sale or other
disposition of any part of the Collateral shall not exhaust
Secured Party's power of sale, but sales or other dispositions
may be made from time to time until all of the Collateral has
been sold or disposed of or until the Indebtedness has been
paid and performed in full), and at any such sale or other
disposition it shall not be necessary to exhibit any of the
Collateral;
(v) buy the Collateral, or any portion thereof, at
any public sale;
(vi) buy the Collateral, or any portion thereof, at
any private sale if the Collateral is of a type customarily
sold in a recognized market or is of a type which is the
subject of widely distributed standard price quotations;
(vii) apply for the appointment of a receiver for the
Collateral, and Debtor hereby consents to any such
appointment; and
(viii) at its option, retain the Collateral in
satisfaction of the Indebtedness whenever the circumstances
are such that Secured Party is entitled to do so under the
Code or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any notice under
the Uniform Commercial Code, as it exists in the state governing any such
notice, of the sale or other disposition of any Collateral, reasonable notice
shall be deemed given when such notice is deposited in a depository receptacle
under the care and custody of the United States Postal Service, postage prepaid,
at Debtor's address set forth on the first page hereof, ten (10) days prior to
the date of any public sale, or after which a private sale, of any of such
Collateral is to be held. Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
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(b) Private Sale of Securities. Debtor recognizes that Secured
Party may be unable to effect a public sale of all or any part of the
Securities because of restrictions in applicable federal and state
securities laws and that Secured Party may, therefore, determine to
make one or more private sales of any of the Securities to a restricted
group of purchasers who will be obligated to agree, among other things,
to acquire any of the Securities for their own account, for investment
and not with a view to the distribution or resale thereof. Debtor
acknowledges that each any such private sale may be at prices and other
terms less favorable than what might have been obtained at a public
sale and, notwithstanding the foregoing, agrees that each such private
sale shall be deemed to have been made in a commercially reasonable
manner and that Secured Party shall have no obligation to delay the
sale of any of the Securities for the period of time necessary to
permit the issuer to register such Securities for public sale under any
federal or state securities laws. Debtor further acknowledges and
agrees that any offer to sell such Securities which has been made
privately in the manner described above to not less than five (5) bona
fide offerees shall be deemed to involve a "public sale" for the
purposes of Section 9.504(c) of the Code, notwithstanding that such
sale may not constitute a "public offering" under any federal or state
securities laws and that Secured Party may, in such event, bid for the
purchase of such Securities.
(c) Application of Proceeds. If any Event of Default shall
have occurred, Secured Party may at its discretion apply or use any
cash held by Secured Party as Collateral, and any cash proceeds
received by Secured Party in respect of any sale or other disposition
of, collection from, or other realization upon, all or any part of the
Collateral as follows in such order and manner as Secured Party may
elect:
(i) to the repayment or reimbursement of the
reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by Secured
Party in connection with (A) the administration of the Loan
Documents, (B) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon,
the Collateral, and (C) the exercise or enforcement of any of
the rights and remedies of Secured Party hereunder;
(ii) to the payment or other satisfaction of any
liens and other encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) to the payment of any other amounts required by
applicable law (including without limitation, Section
9.504(a)(3) of the Code or any other applicable statutory
provision); and
(v) by delivery to Debtor or any other party lawfully
entitled to receive such cash or proceeds whether by direction
of a court of competent jurisdiction or otherwise.
(d) Deficiency. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to
which Secured Party is legally entitled, Debtor and any party who
guaranteed
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or is otherwise obligated to pay all or any portion of the Indebtedness
shall be liable for the deficiency, together with interest thereon as
provided in the Loan Documents.
(e) Non-Judicial Remedies. In granting to Secured Party the
power to enforce its rights hereunder without prior judicial process or
judicial hearing, Debtor expressly waives, renounces and knowingly
relinquishes any legal right which might otherwise require Secured
Party to enforce its rights by judicial process. Debtor recognizes and
concedes that non-judicial remedies are consistent with the usage of
trade, are responsive to commercial necessity and are the result of a
bargain at arm's length. Nothing herein is intended to prevent Secured
Party or Debtor from resorting to judicial process at either party's
option.
(f) Other Recourse. Debtor waives any right to require Secured
Party to proceed against any third party, exhaust any Collateral or
other security for the Indebtedness, or to have any third party joined
with Debtor in any suit arising out of the Indebtedness or any of the
Loan Documents, or pursue any other remedy available to Secured Party.
Debtor further waives any and all notice of acceptance of this
Agreement and of the creation, modification, rearrangement, renewal or
extension of the Indebtedness. Debtor further waives any defense
arising by reason of any disability or other defense of any third party
or by reason of the cessation from any cause whatsoever of the
liability of any third party. Until all of the Indebtedness shall have
been paid in full, Debtor shall have no right of subrogation and Debtor
waives the right to enforce any remedy which Secured Party has or may
hereafter have against any third party, and waives any benefit of and
any right to participate in any other security whatsoever now or
hereafter held by Secured Party. Debtor authorizes Secured Party, and
without notice or demand and without any reservation of rights against
Debtor and without affecting Debtor's liability hereunder or on the
Indebtedness to (i) take or hold any other property of any type from
any third party as security for the Indebtedness, and exchange,
enforce, waive and release any or all of such other property, (ii)
apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any of the
Indebtedness or other security for the Indebtedness, (iv) waive,
enforce or modify any of the provisions of any of the Loan Documents
executed by any third party, and (v) release or substitute any third
party.
10. INDEMNITY. DEBTOR HEREBY INDEMNIFIES AND AGREES TO HOLD HARMLESS
SECURED PARTY, AND ITS REPRESENTATIVES (EACH AN "INDEMNIFIED PERSON") FROM AND
AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY
KIND OR NATURE (COLLECTIVELY, THE "CLAIMS") WHICH MAY BE IMPOSED ON, INCURRED
BY, OR ASSERTED AGAINST, ANY INDEMNIFIED PERSON ARISING IN CONNECTION WITH THE
LOAN DOCUMENTS, THE INDEBTEDNESS OR THE COLLATERAL (INCLUDING WITHOUT
LIMITATION, THE ENFORCEMENT OF THE LOAN DOCUMENTS AND THE DEFENSE OF ANY
INDEMNIFIED PERSON'S ACTIONS AND/OR INACTIONS IN CONNECTION WITH THE LOAN
DOCUMENTS) PROVIDED THAT NO INDEMNIFIED PERSON SHALL BE INDEMNIFIED HEREUNDER
FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE PARTIES ACKNOWLEDGE THAT
THE INDEMNIFICATION
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PROVIDED FOR IN THIS SECTION SHALL BE PERMITTED IN THE EVENT OF THE NEGLIGENCE
(BUT NOT GROSS NEGLIGENCE) OF AN INDEMNIFIED PERSON. THE INDEMNIFICATION
PROVIDED FOR IN THIS SECTION SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND
SHALL EXTEND AND CONTINUE TO BENEFIT EACH INDIVIDUAL OR ENTITY WHO IS OR HAS AT
ANY TIME BEEN AN INDEMNIFIED PERSON HEREUNDER.
11. Miscellaneous.
(a) Entire Agreement. This Agreement and the other Loan
Documents contain the entire agreement of Secured Party and Debtor with
respect to the Collateral. If the parties hereto are parties to any
prior agreement, either written or oral, relating to the Collateral,
the terms of this Agreement shall amend and supersede the terms of such
prior agreements as to transactions on or after the effective date of
this Agreement, but all security agreements, financing statements,
guaranties, other contracts and notices for the benefit of Secured
Party shall continue in full force and effect to secure the
Indebtedness unless Secured Party specifically releases its rights
thereunder by separate release.
(b) Amendment. No modification, consent or amendment of any
provision of this Agreement or any of the other Loan Documents shall be
valid or effective unless the same is in writing and signed by the
party against whom it is sought to be enforced.
(c) Actions by Secured Party. The lien, security interest and
other security rights of Secured Party hereunder shall not be impaired
by (i) any renewal, extension, increase or modification with respect to
the Indebtedness, (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Secured Party may grant with
respect to the Collateral, or (iii) any release or indulgence granted
to any endorser, guarantor or surety of the Indebtedness. The taking of
additional security by Secured Party shall not release or impair the
lien, security interest or other security rights of Secured Party
hereunder or affect the obligations of Debtor hereunder.
(d) Waiver by Secured Party. Secured Party may waive any Event
of Default without waiving any other prior or subsequent Event of
Default. Secured Party may remedy any default without waiving the Event
of Default remedied. Neither the failure by Secured Party to exercise,
nor the delay by Secured Party in exercising, any right or remedy upon
any Event of Default shall be construed as a waiver of such Event of
Default or as a waiver of the right to exercise any such right or
remedy at a later date. No single or partial exercise by Secured Party
of any right or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right or
remedy hereunder may be exercised at any time. No waiver of any
provision hereof or consent to any departure by Debtor therefrom shall
be effective unless the same shall be in writing and signed by Secured
Party and then such waiver or consent shall be effective only in the
specific instances, for the purpose for which given and to the extent
therein specified. No notice to or demand on Debtor in any case shall
of itself entitle Debtor to any other or further notice or demand in
similar or other circumstances.
14
<PAGE> 15
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
APPLICABLE FEDERAL LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT
OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
(f) Venue. This Agreement has been entered into in the county
in Texas where Secured Party's address for notice purposes is located,
and it shall be performable for all purposes in such county. Courts
within the State of Texas shall have jurisdiction over any and all
disputes arising under or pertaining to this Agreement and venue for
any such disputes shall be in the county or judicial district where
this Agreement has been executed and delivered.
(g) Severability. If any provision of this Agreement is held
by a court of competent jurisdiction to be illegal, invalid or
unenforceable under present or future laws, such provision shall be
fully severable, shall not impair or invalidate the remainder of this
Agreement and the effect thereof shall be confined to the provision
held to be illegal, invalid or unenforceable.
(h) No Obligation. Nothing contained herein shall be construed
as an obligation on the part of Secured Party to extend or continue to
extend credit to Debtor.
(i) Notices. All notices, requests, demands or other
communications required or permitted to be given pursuant to this
Agreement shall be in writing and given by (i) personal delivery, (ii)
expedited delivery service with proof of delivery, or (iii) United
States mail, postage prepaid, registered or certified mail, return
receipt requested, sent to the intended addressee at the address set
forth on the first page hereof or to such different address as the
addressee shall have designated by written notice sent pursuant to the
terms hereof and shall be deemed to have been received either, at the
time of personal delivery, or as of the date of first attempted
delivery at the address and in the manner provided herein, during
normal business hours. Either party shall have the right to change its
address for notice hereunder to any other location within the
continental United States by notice to the other party of such new
address at least thirty (30) days prior to the effective date of such
new address.
(j) Binding Effect and Assignment. This Agreement (i) creates
a continuing security interest in the Collateral, (ii) shall be binding
on Debtor and the successors and assigns of Debtor, and (iii) shall
inure to the benefit of Secured Party and its successors and assigns.
Debtor's rights and obligations hereunder may not be assigned or
otherwise transferred without the prior written consent of Secured
Party.
(k) Cumulative Rights. All rights and remedies of Secured
Party hereunder are cumulative of each other and of every other right
or remedy which Secured Party may otherwise have at law or in equity or
under any of the other Loan Documents, and the exercise of one or more
of such rights or remedies shall not prejudice or impair the concurrent
or subsequent exercise of any other rights or remedies.
15
<PAGE> 16
(l) Gender and Number. Within this Agreement, words of any
gender shall be held and construed to include the other gender, and
words in the singular number shall be held and construed to include the
plural and words in the plural number shall be held and construed to
include the singular, unless in each instance the context requires
otherwise.
(m) Descriptive Headings. The headings in this Agreement are
for convenience only and shall in no way enlarge, limit or define the
scope or meaning of the various and several provisions hereof.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.]
16
<PAGE> 17
EXECUTED as of the date first written above.
DEBTOR:
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet
President
SECURED PARTY:
MT PARTNERS, L.P.
By: CARDINAL HOLDING CORPORATION
General Partner
By:
------------------------------
Marshall Payne, President
MERCURY FUND NO. 1, LTD.
By: MERCURY VENTURES, LTD.
General Partner
By: MERCURY MANAGEMENT, L.L.C.
General Partner
By:
------------------------------
Kevin Howe, Manager
17
<PAGE> 1
EXHIBIT 10.13
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (this "Agreement"), dated as of January 25,
2000, is by and among MigraTEC, Inc., a Florida corporation (the "Company"), and
MT Partners, L.P., a Texas limited partnership ("Cardinal"), and Mercury Fund
No. 1, Ltd., a Texas limited partnership ("Mercury;" Cardinal and Mercury are
individually referred to herein as an "Investor Shareholder" and, collectively,
as the "Investor Shareholders"), and Curtis Overstreet, Joe Meredith, Rick
Johnson and Mark C. Myers (individually, a "Management Shareholder" and,
collectively, the "Management Shareholders") (all individually a "Shareholder"
and, collectively as the "Shareholders") with respect to all of the issued and
outstanding shares of Common Stock, no par value per share (the "Common Stock"),
and Convertible Preferred Stock, Series A, $0.01 par value per share (the
"Series A Preferred Stock"), of the Company, presently or hereafter owned by
each of the Shareholders (collectively, the "Shares").
W I T N E S S E T H:
WHEREAS, the Company has entered into a Note and Warrant Purchase
Agreement (the "Note Purchase Agreement") with Cardinal and Mercury providing
for the issuance to Cardinal and Mercury of promissory notes convertible into
shares of Series A Preferred Stock or Common Stock (the "Notes") and warrants to
purchase shares of Common Stock (the "Warrants"); and
WHEREAS, it is a condition to the consummation of the Note and Warrant
Purchase Agreement that the Company and the Shareholders enter into this
Agreement; and
WHEREAS, the Shareholders agree that the success of the Company
requires the active interest and support of the Shareholders and therefore
desire to promote the best interests of the Company and their mutual interests
by imposing certain conditions, limitations and agreements on the Shares owned
by them as set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
RESTRICTIONS ON TRANSFER OF SHARES
Section 1.1. General Restriction on Transfers.
(a) Each of the Shareholders agrees that such Shareholder will
not in any way sell, transfer, pledge, encumber, assign or otherwise
dispose of any of such Shareholder's
SHAREHOLDERS AGREEMENT - Page 1
<PAGE> 2
Shares, or any right or interest therein, whether voluntarily or
involuntarily or by operation of law (each of the foregoing
transactions is hereinafter referred to as a "Disposition"), except in
accordance with the terms of this Agreement, the Note Purchase
Agreement or any instrument governing the terms of the Series A
Preferred Stock or Common Stock.
(b) In addition to the restrictions on transfer set forth in
Section 1.1(a), during the term of this Agreement, none of the Shares
may be transferred unless either (i) such Shares are registered under
the Securities Act of 1933, as amended (the "Securities Act"), and
registered or qualified under any other applicable securities statute,
or (ii) the Company has received an opinion of counsel, in form and
substance reasonably satisfactory to the Company, that such shares may
be transferred in compliance with the Securities Act and any other
securities statute without such registration or qualification.
Section 1.2. Permitted Transfers. Notwithstanding that such transaction
shall be defined as a Disposition under this Agreement, the transfer
restrictions contained in Section 1.1(a) shall not apply to:
(a) a transfer to (i) any entity or entities owned or
controlled by a Shareholder; (ii) any shareholder, member or partner of
an Investor Shareholder (each, an "Equity Holder"); (iii) any
individual having any relationship by blood, marriage or adoption to a
Shareholder; (iv) a trust or trusts in which the Shareholder or any
Equity Holder or anyone related to any such person by blood, marriage
or adoption, has a vested or contingent interest; (v) a nominee or
fiduciary holding for the sole benefit of the Investor Shareholder and
the transfer by such nominee or fiduciary back to such Investor
Shareholder;
(b) a bona fide pledge of the Shares to a financial
institution in accordance with the terms of Section 1.5 hereof; or
(c) a sale of Shares by a Shareholder in a public transaction.
Dispositions which are not subject to the transfer restrictions of this
Agreement by reason of this Section 1.2 are referred to herein as "Permitted
Transfers." Unless agreed to otherwise by the non-transferring Shareholders, any
transferee receiving Shares pursuant to a Permitted Transfer (other than a
transfer pursuant to Section 1.2(c)) shall be deemed a "Shareholder" for
purposes of this Agreement. In the event of a Permitted Transfer (other than a
transfer pursuant to Section 1.2(c)), any transferee other than the Company that
is not a Shareholder prior to such Permitted Transfer (and his or her spouse, if
any) must execute a counterpart of this Agreement. Notwithstanding the failure
to execute a counterpart of this Agreement, any transferee shall take the Shares
subject to this Agreement and by acceptance of any certificate representing such
Shares shall be bound by this Agreement (other than a transfer pursuant to
Section 1.2(c)). No Shareholder and no transferee receiving Shares pursuant to a
Permitted Transfer (other than a transfer pursuant to Section 1.2(c)) may use
the provisions of this Section 1.2 to circumvent or otherwise frustrate the
purposes of the transfer restrictions contained in this Agreement.
SHAREHOLDERS AGREEMENT - Page 2
<PAGE> 3
Section 1.3. Rights of First Refusal for Proposed Private Transfers of
Shares.
(a) Except for any Permitted Transfers, if a Management
Shareholder proposes to sell all or a part of such Management
Shareholder's Shares or receives a bona fide offer for the purchase of
all or a part of such Management Shareholder's Shares (or any rights or
interests therein) in a private transaction which the Management
Shareholder desires to accept, or such Management Shareholder otherwise
proposes or agrees to transfer all or a part of such Management
Shareholder's Shares (or any rights or interests therein) in a private
transaction, such Shareholder (the "Offering Shareholder") shall first
make a written offer (the "Offer") to sell such Shares to the other
Shareholders (such other Shareholders being sometimes collectively
referred to herein for purposes of this Section 1.3 as the "Offerees").
The Offer shall set forth:
(i) the name and address of any proposed transferee;
(ii) the number of Shares proposed to be transferred
(the "Offered Shares");
(iii) the cash consideration per Share to be received
by the Offering Shareholder in connection with such proposed
private sale;
(iv) the address of the Offering Shareholder at which
each Offeree may give any notice required herein;
(v) an offer to sell and transfer the Offered Shares
to the Offerees pursuant to the provisions of this Agreement;
and
(vi) all other terms and conditions of the proposed
transfer.
(b) The Offerees shall have the right at any time prior to the
close of business on the fifteenth (15th) day following the date of
receipt of such Offer (the "Offer Date") to deliver to the Offering
Shareholder a written notice of election to purchase any part or all of
the Offered Shares described in the Offer at a cash price and upon such
other terms as are specified in such Offer, provided however, that the
aggregate of all of the elections must constitute an election to
purchase all of the Offered Shares. The Offerees (the "Investor
Offerees") shall have the option and preferential right, but shall not
be obligated, to purchase all of the Offered Shares. Such option shall
be exercisable by notice of election from an Investor Offeree to the
Offering Shareholder within the requisite time period. The Investor
Offeree's notice shall set forth the number of Offered Shares which the
Investor Offeree desires to purchase. Each Investor Offeree shall have
the right to accept the Offer as to all or part of the Offered Shares.
If an Investor Offeree shall elect to purchase all or a part of the
Offered Shares, such Investor Offeree shall, within ten (10) days after
the Offer Date, individually communicate in writing such election to
purchase to the Offering Shareholder, which communication shall be
delivered by hand or mailed to such Offering Shareholder at
SHAREHOLDERS AGREEMENT - Page 3
<PAGE> 4
the address set forth on the signature page hereto or at such other
address furnished in accordance with Section 4.1 and shall, when taken
in conjunction with the Offer, be deemed to constitute a valid, legally
binding and enforceable agreement for the sale and purchase of the
Shares covered thereby, so long as the Investor Offerees in the
aggregate shall have elected to purchase all of the Offered Shares.
Upon the expiration of all applicable periods under this Section
1.3(b), the number of Shares to be purchased by each Investor Offeree
shall be determined as follows: (1) there shall first be allocated to
each Investor Offeree a number of Offered Shares equal to such Investor
Offeree's Pro Rata Fraction (defined below), and (2) the balance, if
any, not allocated under clause (1) above, shall be allocated to those
Investor Offerees who accepted the Offer as to a number of Offered
Shares which exceeded their respective Pro Rata Fractions, in each case
on a pro rata basis in proportion to the amount of such excess. For
purposes of this Section 1.3, a Shareholder's "Pro Rata Fraction" shall
equal that number of Offered Shares as shall be equal to the product
obtained by multiplying (i) the aggregate number of Offered Shares by
(ii) a fraction, the numerator of which is the number of shares of
Common Stock of the Company then owned by such Investor Offeree
(assuming the conversion and exercise by such Investor Offeree of all
securities convertible into or exercisable for Common Stock) and the
denominator of which is the total number of shares of Common Stock
owned by all the Investor Offerees (assuming the conversion and
exercise by such Investor Offerees of all securities convertible into
or exercisable for Common Stock). Upon such determination, the
Secretary of the Company shall give prompt notice to the Investor
Offerees of the number of Shares which may be purchased at any time by
any of the Investor Offerees during each of the periods specified
above. For the purpose of the foregoing, fractional interests shall
either be rounded to the nearest full share or be totaled and
allocated, on a whole-share basis, among the Investor Offerees that
have exercised their purchase rights.
(c) If the Investor Offerees do not elect to purchase all of
the Offered Shares pursuant to Section 1.3(b), the Offering Shareholder
will have the right to make a Disposition, subject to Section 5.9, of
all of the Offered Shares to the proposed transferee pursuant to the
terms of the Offer, subject however, to the following: (i) the
consummation of any such Disposition shall be subject to the "tag along
rights" set forth in Section 1.4, (ii) such transferee must execute and
become a party to this Agreement and must hold the Offered Shares
subject to all the terms and conditions of this Agreement;
notwithstanding the failure to execute a counterpart of this Agreement,
any such transferee shall take such Offered Shares subject to this
Agreement and by acceptance of any certificate representing such
Offered Shares shall be bound by this Agreement, and (iii) if all of
the Offered Shares are not transferred in accordance with the terms of
the Offer within a period of one hundred twenty (120) days after the
expiration of the option period provided in Section 1.3(b), the
Offering Shareholder shall not thereafter dispose of such Shares
without first providing the Investor Shareholders a new Offer and
complying with the foregoing procedures specified in Sections 1.3(a)
and (b).
(d) If an Investor Offeree elects to accept an Offer, then the
Offering Shareholder shall deliver the certificate or certificates, if
any, representing the Shares described in the
SHAREHOLDERS AGREEMENT - Page 4
<PAGE> 5
Offer, free and clear of all liens, adverse claims and encumbrances
(except for those created by this Agreement and except for any
securities law restrictions that may be applicable either before or by
reason of the transfer), to the purchasing Investor Offerees in return
for the payment of the purchase price, by cashier's check or wire
transfer, for such securities, all in accordance with the terms of the
Offer or as otherwise established by the mutual agreement of the
parties.
(e) In a proposed Disposition under this Section 1.3, the
consideration proposed to be paid must be cash due and payable at the
closing of such Disposition.
(f) Except as otherwise permitted by this Agreement, the
Management Shareholders agree that they will not, directly or
indirectly, for a period of two (2) years from the date of this
Agreement, without the prior written consent of the Investor
Shareholders, sell, offer to sell or otherwise transfer any Shares;
provided, however, that with respect to public sales by each Management
Shareholder, the foregoing restriction shall not apply as to twenty
percent (20%) of such Management Shareholder's Shares (assuming the
conversion and exercise by such Management Shareholder of all
securities convertible or exercisable for Common Stock) as of January
15, 2000 and shall lapse as to an additional twenty percent (20%) of
such Management Shareholder's Shares on each six (6) month anniversary
of the date of this Agreement such that no such restriction shall apply
to the Management Shareholders' Shares effective as of the two year
anniversary of the date of this Agreement; and provided further,
however, that none of the foregoing restrictions shall apply to Shares
owned by, or warrants purchased in conjunction with the purchase of
Shares owned by, the Management Shareholders as of the date hereof; and
provided further, however, that this provision will terminate and be of
no further force and effect as to any Management Shareholder
immediately upon such Management Shareholder's termination of
employment with the Company for any reason other than for "cause," as
determined pursuant to such Management Shareholder's employment
agreement with the Company.
Section 1.4. Tag-Along Rights.
(a) For a period of three (3) years from the date of this
Agreement, if an Offering Shareholder proposes to accept one or more
bona fide offers (collectively, the "Purchase Offer") from any persons
(collectively the "Purchaser") to purchase Shares from such Offering
Shareholder in a privately-negotiated transaction which is subject to
the provisions of Section 1.3 hereof, and any other Investor
Shareholder shall fail to exercise his or its right of first refusal
pursuant to Section 1.3 with respect to all or part of the Offered
Shares (a "Non-Electing Shareholder"), then each Non-Electing
Shareholder shall have the right, exercisable upon written notice to
the Offering Shareholder within twenty (20) days after the Offer Date,
to participate in such Offering Shareholder's sale of Shares on the
same terms and conditions. To the extent any Non-Electing Shareholder
exercises such right of participation, the number of Shares (on a
Common Stock-equivalent basis) (for purposes of this Section 1.4, the
"Offered Shares") which the Offering Shareholder may sell pursuant to
such Purchase Offer shall be correspondingly reduced. The right of
participation of the Non-Electing Shareholders shall be subject to the
terms and conditions set forth in this Section 1.4.
SHAREHOLDERS AGREEMENT - Page 5
<PAGE> 6
(b) Each Non-Electing Shareholder may sell all or any part of
that number of Shares (on a Common Stock-equivalent basis) equal to the
product obtained by multiplying (i) the aggregate number of Offered
Shares by (ii) a fraction, the numerator of which is the number of
shares of Common Stock then owned by such Non-Electing Shareholder
(assuming the conversion and exercise by such Non-Electing Shareholder
of all securities convertible into or exercisable for Common Stock) and
the denominator of which is the total number of shares of Common Stock
then owned by the Offering Shareholder and all Non-Electing
Shareholders (assuming the conversion and exercise by such Shareholders
of all securities convertible into or exercisable for Common Stock, and
including any shares that have been transferred in accordance with the
Permitted Transfer provisions hereof); provided, however, that any
purchase by the Purchaser of less than all of the Offered Shares shall
be made from the Offering Shareholder and each participating
Non-Electing Shareholder pro rata based upon the number of Shares
proposed to be sold by each. For purposes of this Section 1.4. the
number of shares that each Non-Electing Shareholder is entitled to sell
under this Section 1.4 is referred to as his "Pro Rata Fraction."
(c) Each Non-Electing Shareholder may participate in the sale
by delivering to the Offering Shareholder for transfer to the Purchaser
one or more certificates (after conversion into Common Stock of any
convertible securities by such Non-Electing Shareholder required to
deliver such certificates) properly endorsed for transfer, which
represent the number of Shares (on a Common Stock-equivalent basis)
equal to or exceeding the Non-Electing Shareholder's Pro Rata Fraction.
The stock certificate or certificates which a Non-Electing Shareholder
delivers to the Offering Shareholder shall be transferred by the
Offering Shareholder to the Purchaser in consummation of the sale of
the Shares pursuant to the terms and conditions specified in the Offer,
and the Offering Shareholder shall promptly thereafter remit to the
Non-Electing Shareholder that portion of the sale proceeds to which
such Non-Electing Shareholder is entitled by reason of its
participation in such sale.
(d) If the Offering Shareholder should sell any Shares in
contravention of the participation rights of the Non-Electing
Shareholders under this Section 1.4 (a "Prohibited Transfer"), the
Non-Electing Shareholders, in addition to such other remedies as may be
available at law, in equity or hereunder, shall have the put option
provided in Section 1.4(e) below, and the Offering Shareholder shall be
bound by the applicable provisions of such put option.
(e) In the event of a Prohibited Transfer, each Non-Electing
Shareholder shall have the right to sell to the Offering Shareholder a
number of Shares (on a Common Stock-equivalent basis) equal to the
number of Shares such Non-Electing Shareholder would have been entitled
to transfer to the Purchaser in the Prohibited Transfer pursuant to the
terms hereof. Such sale shall be made on the following terms and
conditions:
SHAREHOLDERS AGREEMENT - Page 6
<PAGE> 7
(i) The price per share at which the Shares are to be
sold to the Offering Shareholder shall be equal to the price
per Share paid by the Purchaser to the Offering Shareholder in
the Prohibited Transfer. The Offering Shareholder shall also
reimburse the Non-Electing Shareholder for any and all fees
and expenses, including legal fees and expenses, incurred
pursuant to the exercise or the attempted exercise of its
rights under this Section 1.4(e).
(ii) Within ninety (90) days after the later of the
dates on which the Non-Electing Shareholder (a) received
notice from the Offering Shareholder of the Prohibited
Transfer; or (b) otherwise becomes aware of the Prohibited
Transfer, each Non-Electing Shareholder shall, if exercising
the put option created hereby, deliver to the Offering
Shareholder the certificate or certificates representing
Shares to be sold, each certificate to be properly endorsed
for transfer.
(iii) The Offering Shareholder shall, upon receipt of
the certificate or certificates for the Shares to be sold by
the Non-Electing Shareholders, pursuant to Section 1.4(e)(ii),
pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in Section
1.4(e)(i), by a cashier's check or bank draft made payable to
the order of such Non-Electing Shareholder.
(iv) Notwithstanding the foregoing, any attempt to
transfer shares of the Company in violation of this Section
1.4 shall be void, and the Company agrees it will not effect
such a transfer nor will it treat any alleged transferee as
the holder of such shares without the written consent of the
Non-Electing Shareholders.
(f) The exercise or non-exercise of the rights of a
Shareholder under Section 1.4 to participate in one or more sales of
Shares made by the Offering Shareholder shall not adversely affect the
rights of such Shareholder to participate in subsequent sales of Shares
or transfers by such Offering Shareholder pursuant to Section 1.3.
Section 1.5. Pledges. Except for the Investor Shareholders, no
Shareholder shall encumber or pledge any Shares unless (i) such Shares shall be
encumbered to a financial institution solely as security for borrowed money and
(ii) such financial institution shall enter into a written agreement with the
Company for the benefit of the Company and the other Shareholders, in all
respects satisfactory to the Company, which provides that such institution
acknowledges that it holds such Shares subject to the terms and provisions of
this Agreement, including the right of first refusal provisions of Section 1.3.
The failure or refusal of such financial institution to enter into such a
written agreement shall not limit the applicability of this Agreement to such
Shares. The attempt by any such financial institution to foreclose a lien on or
security interest in the Shares shall constitute an attempted Disposition
subject to the provisions of Section 1.3.
Section 1.6. Shares Received in Certain Corporate Transactions. The
terms of this Agreement relating to the transfer of Shares shall not apply to
the exchange of Shares pursuant to a plan of merger, consolidation,
recapitalization, or reorganization of the Company, but any stock
SHAREHOLDERS AGREEMENT - Page 7
<PAGE> 8
or securities received in exchange therefor shall also become subject to this
Agreement; provided, however, that this Agreement shall terminate upon the
consummation of any such merger, consolidation, recapitalization or
reorganization if any stock or securities received in such merger,
consolidation, recapitalization or reorganization are registered under the
Securities Exchange Act of 1934, as amended.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Board Composition and Election. The Company and the
Shareholders hereby acknowledge and agree that the composition of the Board
shall be subject to the following terms and conditions:
(a) The Board shall initially consist of five (5) members. The
size of the Board may be increased or decreased by a resolution adopted
by all of the members of the Board. The Investor Shareholders shall
have the right to designate two (2) members of the Board as set forth
in this Section 2.1; provided, however, that in the event that the size
of the Board is increase to seven members, the Investor Shareholders
shall have the right to designate three (3) members. The Shareholders
agree to vote all of their Shares, and otherwise to use their
respective best efforts as shareholders or directors of the Company, to
cause and maintain the election to the Board of two (2) persons
designated by the Investor Shareholders on a five person Board or three
(3) members on a seven person Board one of which shall be the Chairman
of the Board. One (1) of the members designated by the Investor
Shareholders shall serve as the Chairman of the Board of Directors. The
Investor Shareholders shall have such rights to vote on all other
members of the Board of Directors as shall be provided under applicable
law. If the members of the Board unanimously consent to increase or
decrease the size of the Board to a size that does not permit the
maintenance on the Board of representatives of the Investor
Shareholders in the proportions set forth in the preceding sentence,
the resolution adopted by all of the members of the Board changing the
size of the Board shall specify the respective rights of the
Shareholders to designate members to serve on such increased or
decreased Board of Directors. In the event that the aggregate amount of
all Advances (as defined in the Notes) by the Investor Shareholders
pursuant to the Note Purchase Agreement is less than $3,000,000, the
Investor Shareholders shall only be entitled to designate one (1)
person whom the Shareholders agree to vote for as a director and
support for the position of Chairman of the Board; provided, however,
that as contemplated by Section 5.7 of the Note Purchase Agreement, the
Investor Shareholders may, under certain circumstances, have the right
to designate persons who, if elected, would constitute a majority of
the members of the Board of Directors.
(b) In the absence of any designation from any Investor
Shareholders, the director previously designated by such Investor
Shareholders and then serving shall be re-elected if still eligible to
serve as provided herein. The Board cannot vote to remove any member of
the Board designated in accordance with the aforesaid procedure unless
the Investor Shareholders so vote.
SHAREHOLDERS AGREEMENT - Page 8
<PAGE> 9
(c) Any vacancy on the Board created by the resignation,
removal, incapacity or death of any person designated under this
Section 2.1 by the Investor Shareholders shall be filled by another
person designated by the Investor Shareholders. The Shareholders shall
vote their respective Shares in accordance with such new designation,
and any such vacancy shall not be filled in the absence of a new
designation by the Investor Shareholders.
(d) The Shareholders agree that the Investor Shareholders
shall have the right to request, in advance of Board meetings, the
permission of the Board to have non-Board members present during
portions of Board meetings. Upon approval of such requests, which shall
not be unreasonably withheld, such non-Board members shall be eligible
to attend the portions of Board meetings deemed appropriate by the
Board.
Section 2.2. Board Approval of Certain Matters. Neither the Company nor
any subsidiary of the Company shall, without the affirmative consent or approval
of at least seventy percent (70%) of the members of the Board:
(a) authorize or issue additional series or class or shares of
any capital stock resulting in dilution, on a fully-diluted common
stock equivalent basis of greater than 10% when compared to the
fully-diluted common stock equivalent position of the Company on the
date hereof, other than the issuance of (i) 72,927,458 shares of Common
Stock currently issued and outstanding, (ii) 30,000,000 shares of
Common Stock reserved for issuance upon conversion of the Series A
Preferred Stock or conversion of the Notes, (iii) 6,000,000 shares of
Common Stock reserved for issuance upon exercise of warrants issued
pursuant to the Note Purchase Agreement, (iv) 252,716 shares of Common
Stock reserved for issuance upon the exercise of options granted
pursuant to the Company's Employee Stock Option Plan, (v) approximately
8,316,206 shares of Common Stock reserved for issuance to employees,
directors and consultants of the Company and others pursuant to
outstanding options to purchase Common Stock, (vi) approximately
13,968,585 shares of Common Stock reserved for issuance pursuant to
outstanding warrants to purchase Common Stock, and (vii) up to the
number of shares of Common Stock, issuable in a private placement,
equal to the quotient of (i) the difference between (A) $3,750,000 and
(B) the aggregate amount of all Advances (as defined in the Notes) by
the Investor Shareholders pursuant to the Note Purchase Agreement
divided by (ii) $0.125;
(b) sell, abandon, transfer, lease or otherwise dispose of all
or substantially all of the properties or assets of the Company;
(c) merge or consolidate with or into, or permit any
subsidiary to merge or consolidate with or into, any other corporation,
corporations or other entity or entities where such transaction
involves greater than 20% of the Company's market capitalization;
SHAREHOLDERS AGREEMENT - Page 9
<PAGE> 10
(d) voluntarily dissolve, liquidate, or wind-up or carry out
any partial liquidation or distribution or transaction in the nature of
a partial liquidation or distribution (except as may be permitted by
any bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights);
(e) incur or permit to exist aggregate indebtedness for
borrowed money in excess of (i) the Notes, (ii) indebtedness of
$250,000 incurred after the date hereof, and (iii) indebtedness for
borrowed money existing as of the date hereof;
(f) incur or agree to incur any single capital expenditure or
group of related capital expenditures in excess of $150,000;
(g) declare or pay any dividend on or make any distribution
with respect to any capital stock of the Company;
(h) make any payment on account of the purchase of any capital
stock of the Company, other than any such payment made in compliance
with the terms of this Agreement;
(i) amend any employment contract, or make material changes to
the compensation or employee benefits of Curtis Overstreet, Mark Myers,
Rick Johnson, Joe Meredith or Sheldon Travis;
(j) take any action to cause any amendment, alteration or
repeal of the Company's Articles of Incorporation or Bylaws;
(k) pay any severance in excess of amounts contractually
obligated to pay to Curtis Overstreet, Mark Myers, Rick Johnson, Joe
Meredith or Sheldon Travis; or
(l) enter into any contract, agreement or other arrangement
with any "affiliate" of the Company (as such term is defined under the
Securities Act), other than contracts, agreements or arrangements that
arise solely from the ownership by such affiliate of securities of the
Company; provided, however, that if such affiliate is represented on
the Board, such Board representative or representatives shall recuse
themselves from the vote on any such contract, agreement or
arrangement.
In the event the Investor Shareholders have not invested at least $3,000,000 in
the Company pursuant to the Purchase Agreement by May 1, 2000, through no fault
of the Company, the provisions of this Section 2.2 shall become null and void.
Section 2.3. Board Meetings; Fees; Expenses. Unless the members of the
Board unanimously agree otherwise, the Company shall hold its meetings of the
Board no less than quarterly. The Company shall reimburse reasonable
out-of-pocket expenses of non-employee directors incurred in connection with
attending Board and committee meetings and work on any
SHAREHOLDERS AGREEMENT - Page 10
<PAGE> 11
special projects. The Company shall pay the Chairman of the Board a fee of
$5,000 per month of service payable monthly in advance. Other non-management
directors shall be paid $10,000 per year payable annually in advance.
ARTICLE III
STOCK LEGEND
The Company and each Shareholder agree that all certificates
representing all Shares of the Company that at any time are subject to the
provisions of this Agreement will have endorsed upon them in boldface type
legends in substantially the following form:
RESTRICTIONS ON THE RIGHT TO OWN OR TRANSFER THE SHARES REPRESENTED BY
THIS CERTIFICATE HAVE BEEN IMPOSED PURSUANT TO A SHAREHOLDERS AGREEMENT
DATED JANUARY 25, 2000, BY AND AMONG THE COMPANY AND CERTAIN HOLDERS OF
THE COMPANY'S STOCK. A COPY OF THE AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO
THE HOLDER OF THIS CERTIFICATE UPON RECEIPT BY THE COMPANY AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST
FROM THE HOLDER REQUESTING SUCH A COPY.
ARTICLE IV
MISCELLANEOUS
Section 4.1. Notices. Any notice required to be given hereunder will be
deemed to be duly given on the date of delivery or attempted delivery during
normal business hours to the party or parties that are to receive such notice at
the addresses indicated on the signature page of this Agreement. The address of
any Shareholder or the Company may be changed only by giving written notice of
such change of address to the Company or to each of the Shareholders, in the
case of the Company.
Section 4.2. Void Transfers. Any attempted or purported Disposition of
any Shares otherwise than in accordance with the terms and conditions of this
Agreement shall be invalid, void ab initio and of no effect; however, the
persons or entities who would otherwise have been Offerees hereunder regarding
such Shares shall, instead of treating such Disposition as a nullity, have the
right (but not the obligation), exercisable at any time prior to the expiration
of six (6) months after first receiving written or other notice of such
attempted or purported Disposition, to purchase such Shares at such price and in
all other respects as if an Offer had been made in accordance with Section 1.3
of this Agreement. Such right shall constitute an "adverse claim" within the
meaning of such term as used within the Uniform Commercial Code as enacted in
the State of Florida. It is hereby agreed by all the Shareholders that the
Company, on its own behalf and on behalf of the Shareholders, upon
SHAREHOLDERS AGREEMENT - Page 11
<PAGE> 12
the written request of any Shareholder who asserts that any attempted or
purported Disposition or transfer is not in accordance with the terms of this
Agreement, shall hold and refuse to transfer any of the Shares, or any
certificate therefor, tendered to it for transfer, in addition to, and without
prejudice to, any and all other rights or remedies which may be available to any
Shareholder.
Section 4.3. Entire Agreement; Counterparts. This Agreement contains
the entire understanding between the parties concerning the subject matter
contained in this Agreement, provided Shares are also subject to other
restrictions contained in other agreements with the Company. Except for such
restrictive agreements, there are no representations, agreements, arrangements,
or understandings, oral or written, between or among the parties hereto,
relating to the subject matter of this Agreement, that are not fully expressed
herein. In the event of a conflict between the terms of this Agreement and a
share restriction agreement between the Company and the Shareholder, the terms
of such share restriction agreement shall control. This Agreement may be signed
in one or more counterparts, all of which shall be considered one and the same
agreement.
Section 4.4. Term. This Agreement will terminate, if not earlier
terminated pursuant to Section 1.6, upon the following: (1) the agreement of all
parties hereto to terminate this Agreement; or (2) disposal by Investor
Shareholders of Common Stock equivalents composing more than 60% of their
aggregate ownership as of May 1, 2000.
Section 4.5. Further Assurances. Each party to this Agreement agrees to
perform all further acts and to execute and deliver all further documents as may
be reasonably necessary to carry out the intent of this Agreement.
Section 4.6. Severability. In the event that any of the provisions, or
portions thereof, of this Agreement are held to be unenforceable or invalid by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions, or portions thereof, will not be affected, and such
unenforceable provision shall be automatically replaced by a provision as
similar in terms as may be valid and enforceable.
Section 4.7. Construction. Whenever used in this Agreement, the
singular number will include the plural, and the plural number will include the
singular and the masculine or neuter gender shall include the masculine,
feminine, or neuter gender. The headings of the Articles and Sections of this
Agreement have been inserted for purposes of convenience and shall not be used
for interpretive purposes.
Section 4.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Florida,
excluding its choice of law rules.
Section 4.9. Successors. Subject to the restrictions against any
Disposition or transfer as contained in this Agreement, the provisions of this
Agreement will benefit and will be binding upon the assigns, successors in
interest, personal representatives, estates, heirs and legatees of each of the
parties hereto. If any of the Shareholders disposes of all of its Shares in
compliance with the terms of this Agreement, it will no longer be a party to
this Agreement unless and until it acquires more
SHAREHOLDERS AGREEMENT - Page 12
<PAGE> 13
Shares. Each of the Shareholders agrees that it will not create or permit to
exist any lien, claim or encumbrance at any time on any of its Shares subject to
this Agreement, other than (i) the encumbrances created by this Agreement, (ii)
securities law restrictions that may from time to time be applicable and (iii)
liens established after compliance by the Shareholder with Section 1.5 of this
Agreement.
Section 4.10. Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching parties would be irreparably harmed and could not be made whole by
monetary damages. Each of the parties hereto accordingly agrees to waive the
defense in any action for injunction or specific performance that a remedy at
law would be adequate and that the parties hereto, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
an injunction or to compel specific performance of this Agreement.
Section 4.11. Amendment. This Agreement may only be amended or modified
by the written consent of all of the Shareholders.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
SHAREHOLDERS AGREEMENT - Page 13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
this 25th day of January, 2000.
COMPANY:
ADDRESS:
12801 Stemmons Freeway, Suite 710 MIGRATEC, INC.
Dallas, Texas 75234
By:
--------------------------------------
Curtis Overstreet
President
SHAREHOLDERS:
-----------------------------------------
Curtis Overstreet
-----------------------------------------
Joe Meredith
-----------------------------------------
Mark C. Myers
-----------------------------------------
Rick Johnson
ADDRESS:
12801 Stemmons Freeway, Suite 710
Dallas, Texas 75234
SHAREHOLDER AGREEMENT - Signature Page
<PAGE> 15
17950 Preston Road, Suite 800 MERCURY FUND NO. 1, LTD.
Dallas, Texas 75252
By: Mercury Ventures, Ltd.
Its: General Partner
By: Mercury Management, L.L.C.
Its: General Partner
By:
----------------------
Name: Kevin Howe
Its: Manager
500 Crescent Court, Suite 250 MT PARTNERS, L.P.
Dallas, Texas 75201
By: Cardinal Holding Corporation
Its: General Partner
By:
----------------------
Name: Marshall Payne
Its: President
SHAREHOLDER AGREEMENT - Signature Page
<PAGE> 1
EXHIBIT 10.14
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
this 25th day of January, 2000 between MigraTEC, Inc., a Florida corporation
(the "Corporation"), and the shareholders of the Corporation who are signatories
to this Agreement (the "Shareholders").
RECITALS:
WHEREAS, the Corporation has entered into a Note and Warrant Purchase
Agreement (as hereinafter defined) of even date herewith with MT Partners, L.P.,
a Texas limited partnership ("Cardinal"), and Mercury Fund No. 1, Ltd., a Texas
limited partnership ("Mercury"), providing for the issuance and sale to the
Shareholders of Convertible Secured Promissory Notes (the "Notes") and warrants
to purchase shares of Common Stock (the "Warrants"); and
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the consummation of the Note and Warrant Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants,
obligations and agreements contained herein, the parties hereto hereby agree as
follows:
AGREEMENT
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(b) "Common Stock" shall mean the common stock, no par value
per share, of the Corporation.
(c) "Exchange Act" shall mean the Securities Exchange Act of
1934 or any successor federal statute, and the rules and regulations of
the Commission promulgated thereunder, all as the same shall be in
effect from time to time.
(d) "Note and Warrant Purchase Agreement" shall mean the Note
and Warrant Purchase Agreement, of even date herewith, between the
Corporation and the Shareholders.
(e) "Person" shall include all natural persons, corporations,
business trusts, associations, companies, partnerships, joint ventures
and other entities and governments and agencies and political
subdivisions.
(f) "Primary Shares" shall mean at any time all authorized but
unissued Shares.
REGISTRATION RIGHTS AGREEMENT - Page 1
<PAGE> 2
(g) "Qualified Public Offering" or "QPO" shall mean a public
offering of shares of Common Stock of the Corporation, resulting in
gross proceeds to the Corporation of not less than $10,000,000.00.
(h) "Registrable Shares" shall mean all Shares held by the
Shareholders (or issuable upon conversion or exercise of any note,
option, warrant, right or other security) that constitute (or upon such
conversion or exercise will constitute) Restricted Shares.
(i) "Registration Expenses" shall mean all expenses incident
to the Corporation's performance of or compliance with, or to the
Shareholders' exercise of rights under, Sections 2, 3, 4 or 5 hereof,
including all registration, filing, listing and National Association of
Securities Dealers, Inc. fees and expenses, all fees and expenses of
complying with securities or "blue sky" laws, all printing expenses
(including expenses of printing certificates for Registrable Shares in
a form eligible for deposit with The Depository Trust Company),
messenger and delivery expenses, any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities
(excluding underwriting discounts and commissions), registrar and
transfer agent's fees, any fees and disbursements of counsel for the
Corporation, and any fees and disbursements of the Corporation's
independent public accountants, including, without limitation, fees and
expenses associated with providing assurances to the underwriters and
the Shareholders in connection with any due diligence activities by
them.
(j) "Restricted Shares" shall mean any shares of Common Stock
currently owned or hereafter acquired by the Shareholders, their
successors and assigns, including shares of Common Stock issued to the
Shareholders upon conversion of the Notes issued pursuant to the Note
and Warrant Purchase Agreement or upon conversion of shares of Series A
Preferred Stock and exercise of the Warrants.
(k) "Rule 144" shall mean Rule 144 promulgated under the
Securities Act, as amended from time to time, or any successor or
complimentary rule thereto.
(l) "Securities Act" shall mean Securities Act of 1933 or any
successor federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect
from time to time.
(m) "Series A Preferred Stock" shall mean Convertible
Preferred Stock, Series A, $0.01 par value per share, of the
Corporation.
(n) "Shareholders" shall mean the shareholders of the
Corporation who are signatories to this Agreement and their successors
and assigns.
(o) "Shareholders Agreement" shall mean the Shareholders
Agreement of even date herewith, among the Corporation, the
Shareholders and the other signatories thereto.
(p) "Shares" shall mean shares of the Common Stock.
REGISTRATION RIGHTS AGREEMENT - Page 2
<PAGE> 3
(q) "Transfer" shall include any disposition of any Restricted
Shares or of any interest therein that would constitute a sale thereof
within the meaning of the Securities Act other than any such
disposition pursuant to an effective registration statement under the
Securities Act and complying with all applicable state securities and
"blue-sky" laws.
SECTION 2. Piggyback Registration. Subject to the terms and conditions
set forth in this Agreement, if the Corporation at any time within ten (10)
years following the date hereof proposes to register Shares under the Securities
Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto), it shall promptly, but no later than thirty (30)
days prior to the filing of the registration statement, give written notice to
the Shareholders of the Corporation's intention to so register such Shares. Upon
the written request given by any of the Shareholders to the Corporation within
ten (10) days after receipt of the notice of the proposed registration of Shares
from the Corporation, requesting the inclusion in such registration of
Registrable Shares held by such Shareholder(s) (which request shall specify the
number of Registrable Shares proposed to be included in such registration by
such Shareholder(s) and shall state the intended method of disposition of such
Registrable Shares by such Shareholder(s)), the Corporation shall use its
reasonable best efforts to cause all such Registrable Shares to be included in
such registration on the same terms and conditions as the securities otherwise
being sold in such registration, provided that the managing underwriter of the
Corporation's public offering, if any, shall be of the opinion that the
inclusion in such registration of such number of Shares will not interfere with
the successful marketing of all of the Corporation's securities being
registered. If the managing underwriter requests the Shareholder to reduce in
whole or in part the number of shares sought or be registered by the
Shareholder, the Shareholder shall comply with the request of the managing
underwriter. Each such Shareholder may withdraw all or part of its Registrable
Shares from such registration at any time prior to the effective date of the
registration statement relating thereto upon written notice to the Corporation
to such effect, subject to the payment by such Shareholder of all substantiated
Registration Expenses directly allocable to such Shareholder. If the proposed
registration by the Corporation is an underwritten public offering of Common
Stock, any request pursuant to this Section 2 to register Registrable Shares
shall specify that such shares are to be included in the underwriting on the
same terms and conditions as the shares of Common Stock, if any, otherwise being
sold through underwriters under such registration. The Corporation will use its
reasonable best efforts to cause the managing underwriters of a proposed
underwritten offering to permit holders of Registrable Shares requested to be
included in the registration for such offering to include all such Registrable
Shares on the terms and conditions as any similar securities of the Corporation
or any selling securityholder included therein.
SECTION 3. Demand Registration. Subject to the terms of this Section 3,
on any date after August 31, 2000, if the Corporation shall be requested in
writing by a Shareholder to effect a registration under the Securities Act of
Registrable Shares, the Corporation shall promptly give written notice of the
proposed registration to the other Shareholders and shall promptly use its
reasonable best efforts to effect such registration under the Securities Act of
such Registrable Shares which (i) the Corporation has been so requested by the
initiating holders thereof to register and (ii) the other Shareholders have,
within ten (10) days of such notice, requested in writing to be
REGISTRATION RIGHTS AGREEMENT - Page 3
<PAGE> 4
registered; provided, however, that the Corporation shall not be obligated to
effect any registration under this Section 3 except in accordance with the
following provisions:
(a) the Corporation shall not be obligated to use its
reasonable best efforts to file and cause to become effective:
(i) more than two (2) registration statements for the
Shareholders with respect to Registrable Shares initiated
pursuant to this Section 3; provided, however, that any
registration proceeding begun pursuant to this Section 3 that
is subsequently withdrawn at the request of the holders of the
Registrable Shares shall not count toward the three (3)
registration statements which such Shareholders have the right
to cause the Corporation to effect pursuant to this Section 3;
provided, however, that the holders requesting the withdrawal
of the registration shall reimburse the Corporation for all
Registration Expenses incurred by the Corporation directly
attributable to them unless the withdrawal is based upon
material adverse information concerning the Corporation of
which such initiating holders were not aware at the time of
such request; and provided further, however, that if such
holders are required to reimburse the Corporation for such
Registration Expenses, such expenses shall be borne by such
holders requesting such registration in proportion to the
number of Registrable Shares for which registration was
requested; or
(ii) any registration statement during any period in
which a registration statement pertaining to a QPO has been
filed and not withdrawn or has been declared effective within
the prior one-hundred eighty (180) days; or
(iii) any registration statement during any period in
which the Corporation would be required under the Securities
Act to effect a special audit of its financial statements for
inclusion in such registration statement (unless the
participating holders of the Registrable Shares agree in
writing to bear the cost of such special audit);
(b) the Corporation may delay the filing or effectiveness of
any registration statement for a period of up to ninety (90) days after
the date of a request for registration pursuant to this Section 3, but
no more than once in any twelve (12) month period, if:
(i) (A) at the time of such request the Corporation
is engaged, or has formal plans to engage, within sixty (60)
days of the time of such request, in an underwritten public
offering of Shares (including an offering contemplated by
Section 2 hereof), and (B) an investment banking firm of
recognized national or regional standing has advised the
Corporation that effecting the requested registration could
impair the success of such underwritten public offering (which
period of delay shall also be subject to Section 3(a)(iii)
hereof); or
REGISTRATION RIGHTS AGREEMENT - Page 4
<PAGE> 5
(ii) the Corporation determines in good faith that
(A) it is in possession of material, non-public information
concerning an acquisition, merger, recapitalization,
consolidation, reorganization or other material transaction by
or of the Corporation or concerning pending or threatened
litigation and (B) disclosure of such information would
jeopardize any such transaction or litigation or otherwise
materially harm the Corporation; or
(iii) the Corporation shall furnish to the holders of
the Registrable Shares who have demanded registration a
certificate signed by the President of the Corporation stating
that, in the good faith judgment of the Board of Directors of
the Corporation, it would not be in the best interests of the
Corporation and its shareholders generally for such
registration statement to be filed and it is therefore
essential to defer the filing of such registration statement;
and
(c) if the Shareholder intends to distribute Registrable
Shares covered by the request by means of an underwriting, it shall so
advise the Corporation as part of the request made pursuant to this
Section 3. In such event, the right of the Shareholder to include such
Registrable Shares in such registration shall be conditioned upon the
Shareholder's participation in such underwriting and the inclusion of
such Registrable Shares in the underwriting. The Shareholder shall
(together with the Corporation as provided herein) enter into an
underwriting agreement in customary form with the managing underwriter
or underwriters of the offering, such managing underwriter or
underwriters to be selected by the Shareholder making the demand along
with the holders of other Registrable Shares which may be included
therein, subject to the Corporation's approval, which shall be not be
unreasonably withheld.
SECTION 4. Shelf Registration.
(a) Upon the written request of the Shareholders made at any
time on or after August 31, 2000, the Corporation agrees to file as
soon as reasonably practicable, but in no event later than ninety (90)
days after the date of such request (the "Target Filing Date"), one or
more "shelf" registration statements with respect to all of the
Registrable Shares on any appropriate form pursuant to Rule 415 under
the Securities Act and/or any similar rule that may be adopted by the
Commission (the "Shelf Registration"). The Corporation agrees to use
its reasonable best efforts to have the Shelf Registration declared
effective no later than one hundred twenty (120) days after receipt of
the written request of the Shareholders and to keep the Shelf
Registration with respect to the Registrable Shares continuously
effective for a period of thirty-six (36) months following the date on
which the Shelf Registration is declared effective; provided, however,
that if for any reason the effectiveness of the Shelf Registration is
suspended, such period shall be extended by the aggregate number of
days of each such suspension period; and provided, further, that the
effectiveness of the Shelf Registration may be terminated earlier with
respect to any Registrable Shares if and to the extent that all the
Registrable Shares registered therein cease to be Registrable Shares in
accordance with the terms hereof or if the managing underwriter of a
public offering by the
REGISTRATION RIGHTS AGREEMENT - Page 5
<PAGE> 6
Corporation, if any, shall be of the opinion that the shelf
registration will interfere with the successful marketing of such
public offering of the Corporation's securities.
(b) The Corporation further agrees, if necessary, to
supplement or amend any Shelf Registration, as required by the
registration form utilized by the Corporation or by the instructions
applicable to such registration form or by the Securities Act or the
rules and regulations thereunder and the Corporation agrees to furnish
to the Shareholders copies of any such supplement or amendment prior to
its being used and/or filed with the Commission. The Corporation agrees
to pay all registration expenses in connection with the Shelf
Registration, whether or not it becomes effective. In no event shall
the Shelf Registration include securities other than Registrable
Shares.
SECTION 5. Registration on Form S-3. Anything contained in Section 2 to
the contrary notwithstanding, at such time as the Corporation shall have
qualified for the use of Form S-3 promulgated under the Securities Act, or any
successor form thereto, the holders of the Restricted Shares then outstanding
shall have the right to request in writing three (3) registrations on Form S-3
(or such successor form) of Registrable Shares, which request or requests shall
(i) specify the number of Registrable Shares intended to be sold or disposed of,
(ii) state the intended method of disposition of such Registrable Shares and
(iii) relate to Registrable Shares having an anticipated aggregate offering
price of at least $500,000; provided, however, that the Corporation shall not be
obligated to file and cause to become effective any registration on Form S-3
within a period of one-hundred eighty (180) days after the effective date of any
previous registration statement filed by the Corporation pursuant to Sections 2,
3, 4 or 5. Upon such a request, the Corporation shall promptly give written
notice of the proposed registration to all other Shareholders and shall promptly
use its reasonable best efforts to effect such registration under the Securities
Act of such Registrable Shares which (i) the Corporation has been so requested
by the initiating holders thereof to register and (ii) the other Shareholders
have, within ten (10) days of such notice, requested in writing to be
registered. A requested registration on Form S-3 or any such successor form in
compliance with this Section 5 shall not count as a registration statement
initiated pursuant to Section 3 but shall otherwise be treated as a registration
initiated pursuant to, and shall, except as otherwise expressly provided in this
Section 5, be subject to Section 3.
SECTION 6. Filing Obligations of the Corporation. In connection with
any registration of the Registrable Shares effected pursuant to Sections 2, 3, 4
or 5, the Corporation shall:
(a) prepare and file the registration statement and such
amendments and supplements to the registration statement and the
prospectus or offering circular used in connection therewith as may be
necessary to keep the registration statement current and effective
until such time as all of such Registrable Shares covered by such
registration statement have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement, but, in the case of Sections 2, 3
and 5, in no event for a period of more than three (3) years after such
registration statement becomes effective, and to comply with the
provisions of the Securities Act and the rules and regulations
thereunder with respect to the disposition of all the Registrable
Shares
REGISTRATION RIGHTS AGREEMENT - Page 6
<PAGE> 7
covered by the registration statement for the period required to effect
the distribution thereof, and to use its best efforts to make any
corrections or updates to the registration statement or prospectus as
promptly as practicable;
(b) furnish to the Shareholders who have elected to sell
Shares (the "Selling Shareholders") such number of copies of any
prospectus or offering circular, including a preliminary prospectus,
and of a full registration statement and exhibits in conformity with
the requirements of the Securities Act and rules and regulations
thereunder, and each amendment and supplement thereto, and such other
documents as the Selling Shareholders may reasonably request in order
to facilitate the disposition of such securities;
(c) use its best efforts to register or qualify the
Registrable Shares covered by the registration statement under the
securities or blue sky laws of such jurisdictions of the United States
(including territories and commonwealths thereof) as the Selling
Shareholders may reasonably request, and accomplish any and all other
acts and things which may be necessary or advisable to permit sales in
such jurisdictions of such Registrable Shares; provided, however, that
the Corporation shall not be required to keep such registration or
qualification in effect for a period of more than three (3) years after
such registration or qualification becomes effective; and provided
further, that the Corporation shall not be required to consent to
general service of process for all purposes, or to qualify as a foreign
corporation, in any jurisdiction where it is not then qualified or to
register or qualify the Registrable Shares covered by such registration
statement in any jurisdiction which would require the Corporation to
amend its Articles of Incorporation or Bylaws or covenant or undertake
to do any other act or make any other change regarding its
capitalization or share ownership prior to the effectiveness of such
registration or qualification;
(d) if such registration is an underwritten public offering,
enter into an underwriting agreement in form and substance customary
under the circumstances;
(e) furnish to each Selling Shareholder, upon request, a copy,
addressed to such Selling Shareholder (and the underwriters, if any)
of:
(i) an opinion of counsel for the Corporation, dated
the effective date of such registration statement (and, if
such registration includes an underwritten public offering,
dated the date of the closing under the underwriting
agreement), covering the matters that are customarily covered
in opinions of issuer's counsel delivered in similar
registrations; and
(ii) in the event the registration to be effected is
underwritten, a "comfort" letter, dated the effective date of
such registration statement (and, if such registration
includes an underwritten public offering, dated the date of
the closing under the underwriting agreement), signed by the
independent public accountants who have audited the
Corporation's financial statements included in such
registration statement, covering substantially the same
matters with respect to such registration statement
REGISTRATION RIGHTS AGREEMENT - Page 7
<PAGE> 8
(and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered
in accountants' letters delivered to the underwriters in
underwritten public offerings of securities;
(f) notify each Selling Shareholder covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery
that, or upon 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 any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
under which they were made, and at the request of any such Selling
Shareholder, 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
securities, 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 in
the light of the circumstances under which they were made;
(g) use its reasonable best efforts to list all Registrable
Shares covered by such registration statement on any securities
exchange on which any Shares are then listed; and
(h) make reasonably available appropriate management-level
employees to assist in customary due diligence and marketing activities
incident to such registration.
SECTION 7. Conditions to Registration Obligations. The Corporation
shall not be obligated to effect the registration of the Registrable Shares
pursuant to Sections 2, 3, 4 or 5 unless the Selling Shareholders consent to
customary conditions of a reasonable nature that are imposed by the Corporation,
including but not limited to, the following:
(a) conditions prohibiting the sale of Registrable Shares by
the Selling Shareholders electing to participate until the registration
is effective;
(b) conditions requiring the Selling Shareholders to comply
with all applicable provisions of the Securities Act and the Exchange
Act including, but not limited to, the prospectus delivery requirements
of the Securities Act, and to furnish to the Corporation information
about sales made in such public offering;
(c) conditions prohibiting the Selling Shareholders, upon
receipt of telegraphic or written notice from the Corporation that it
is required by law to correct or update the registration statement or
prospectus, from effecting sales of any Registrable Shares until the
Corporation has completed the necessary correction or updating;
REGISTRATION RIGHTS AGREEMENT - Page 8
<PAGE> 9
(d) conditions requiring the Selling Shareholders to execute a
power of attorney and custody arrangement with respect to Registrable
Shares to be registered prior to the filing of the registration
statement; and
(e) if such registration is an underwritten public offering,
conditions requiring the Selling Shareholders to enter into an
underwriting agreement in form and substance customary under the
circumstances.
SECTION 8. Underwriting Agreement; Lock-up Agreement. If the
Corporation at any time shall register Shares under the Securities Act
(including any registration pursuant to Sections 2, 3 or 5) for sale through an
underwritten public offering, the Shareholders shall not sell, make any short
sale of, grant any option for the purchase of, or otherwise dispose of any
Restricted Shares (other than those Shares included in such registration
pursuant to Sections 2, 3 or 5) without the prior written consent of the
underwriters managing the registered public offering for a period designated by
such underwriters in writing to the Shareholders, which period shall not exceed
one-hundred eighty (180) days after the effective date of such registration
statement, provided, that each officer, director and 5% shareholder of the
Corporation shall enter into similar agreements. Notwithstanding the foregoing,
to the extent that the Shareholders shall enter into an underwriting agreement
that contains provisions covering one or more issues addressed in this Section
8, the provisions contained in such underwriting agreement shall control as to
the party or parties so entering into such underwriting agreement.
SECTION 9. Information Provided by the Shareholders. Whenever under
this Agreement Registrable Shares are being registered, the Shareholders shall,
as a condition to the inclusion of Registrable Shares held by the Shareholders
in such registration, provide the Corporation on a timely basis with such
information and materials as the Corporation may reasonably request in order to
effect the registration of the Registrable Shares.
SECTION 10. Rule 144. With a view to making available to the
Shareholders the benefits of Rule 144 under the Securities Act, the Corporation
agrees at all times to use its best efforts:
(a) to make available adequate current public information with
respect to it within the meaning of, and as required pursuant to, Rule
144 (c);
(b) file with the Commission in a timely manner all reports
and other documents required of the Corporation under the Securities
Act and the Exchange Act;
(c) furnish to the Shareholders promptly upon request a
written statement by the Corporation as to its compliance with the
reporting requirements of Rule 144, and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of
the Corporation filed with the Commission, if any, and such other
reports and documents of the Corporation and other information in the
possession of or reasonably obtainable by the Corporation as the
Shareholders may reasonably request in availing themselves of any rule
REGISTRATION RIGHTS AGREEMENT - Page 9
<PAGE> 10
or regulation of the Commission allowing the Shareholders to sell
securities without registration; and
(d) furnish to the Shareholders such information as is
reasonably available to the Corporation in order to permit the
Shareholders to sell securities pursuant to Rule 144A under the
Securities Act.
SECTION 11. Terms and Conditions of Registration. In connection with
any registration pursuant to this Agreement (other than a demand registration or
shelf registration) subject to the other terms and conditions of this Agreement,
the Corporation shall in its sole discretion determine the terms and conditions
of such registration, including, without limitation, the following: the timing
thereof; the scope of the offering contemplated thereby (i.e. whether the
offering shall be a combined primary offering and a secondary offering or
limited only to a secondary offering); the manner of distribution of Registrable
Shares; the period of effectiveness of registration for permissible sales of
Registrable Securities thereunder consistent with the plan of distribution
agreed upon by the Corporation and the Selling Shareholders; and all other
material aspects of the registration and the registration process. In connection
therewith, the Corporation may require that any such registration be
underwritten, in which event (i) the managing underwriter shall be selected by
the Corporation and (ii) the inclusion of Registrable Shares in such
registration shall be conditioned upon each holder thereof entering into an
underwriting agreement in customary form with such underwriters participating in
such registration.
SECTION 12. Expenses. Except as otherwise provided herein, the
Corporation shall bear and pay all Registration Expenses incurred in effecting a
registration under this Agreement.
SECTION 13. Indemnification.
(a) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, the
Corporation shall indemnify and hold harmless each Selling Shareholder
and each of their respective agents, officers, directors and partners
and each other Person, if any, acting on behalf of such Selling
Shareholder or who controls such Selling Shareholder within the meaning
of the Securities Act, against any losses, claims, damages or
liabilities, joint or several (or actions or proceedings in respect
thereof), and any legal or any other expenses reasonably incurred by
them in connection with defending any such loss, claim, damage,
liability, action or proceeding to which such Selling Shareholder may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) or expenses arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
the registration statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable
Shares, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the
REGISTRATION RIGHTS AGREEMENT - Page 10
<PAGE> 11
statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances
under which they were made not misleading, or any violation by the
Corporation of the Securities Act or state securities or "blue-sky"
laws applicable to the Corporation and relating to action or inaction
required of the Corporation in connection with such registration or
qualification under state securities or "blue-sky" laws; provided,
however, that the Corporation shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or action
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration
statement, preliminary prospectus, final prospectus, amendment,
supplement or document incident to registration or qualification of any
Registrable Shares in reliance upon and in strict conformity with
written information furnished to the Corporation by such Selling
Shareholder with respect to information regarding the Selling
Shareholder expressly for inclusion therein; and provided, however,
that the Corporation shall not be liable to any Selling Shareholder in
the offering or sale of Registrable Shares or any other Person, if any,
who controls such Selling Shareholder within the meaning of the
Securities Act, in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of such Person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or
amended, to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Shares to such Person if such
statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Selling Shareholder or any
such agent, officer, director, partner or controlling Person.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each Selling
Shareholder shall indemnify and hold harmless (in the same manner and
to the same extent as set forth in Section 12(a)) the Corporation, each
director of the Corporation, each officer of the Corporation who shall
sign such registration statement, each underwriter, broker or other
Person (as such term is defined in the Securities Act) acting on behalf
of the Corporation and each Person who "controls" any of the foregoing
Persons within the meaning of the Securities Act with respect to any
statement or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable
Shares, if such statement or omission was made in reliance upon and in
strict conformity with written information furnished to the Corporation
or such underwriter by such Selling Shareholder expressly for inclusion
in such registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document; provided, however that
such Selling Shareholder shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable
Shares or any other Person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's
failure to send or give a copy of the final prospectus, as the same may
be then supplemented or amended, to the Person asserting an untrue
statement or
REGISTRATION RIGHTS AGREEMENT - Page 11
<PAGE> 12
alleged untrue statement or omission or alleged omission at or prior to
the written confirmation of the sale of Registrable Shares to such
Person if such statement or omission was corrected in such final
prospectus.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the
preceding paragraphs of this Section 13, such indemnified party will,
if a claim in respect thereof is made against an indemnifying party,
give written notice to the latter of the commencement of such action;
provided, however, that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding paragraphs of this Section 13,
except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnifying party,
and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying
party shall not be responsible for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and
expenses to be paid by the indemnifying party, if such indemnified
party shall have reasonably concluded that representation of such
indemnified party or parties by the counsel retained by the
indemnifying party or parties would be inappropriate due to actual or
potential differing interests between such indemnified party or parties
and any other party represented by such counsel in such proceeding.
(d) If the indemnification provided for in this Section 13 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage, liability or
action referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amounts paid or payable by such indemnified party as a result of such
loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 13(d) were determined by pro rata
allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning
REGISTRATION RIGHTS AGREEMENT - Page 12
<PAGE> 13
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 13, the indemnifying
parties shall indemnify each indemnified party to the full extent
provided herein without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 13(d).
SECTION 14. Termination. Anything contained herein to the contrary
notwithstanding, the rights of the Shareholders and the obligations of the
Corporation under Sections 2, 3, 4 and 5 hereof shall cease and terminate upon
the tenth (10th) anniversary of the date hereof.
SECTION 15. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the Corporation, the Shareholders and the respective
successors, assigns, heirs and legal representatives (as the case may be) of the
Corporation and the Shareholders.
SECTION 16. Transfer of Registrable Shares. In the event of a transfer
of Registrable Shares by a Shareholder under the terms of the Shareholders
Agreement (a "Permitted Transfer"), the registration rights granted to such
Principal Shareholder under this Agreement also may be transferred without the
prior written consent of the Corporation, so long as such rights are transferred
to the same party who receives the related Registrable Shares in such Permitted
Transfer. In all other cases, any transfer of registration rights granted
hereunder shall require the prior written consent of the Corporation. As a
condition to the transfer of the registration rights of any Shareholder
hereunder, all transferees of such registration rights shall agree to be subject
to and bound by the provisions of this Agreement.
SECTION 17. Exchange Act Compliance. From the Registration Date or such
earlier date as a registration statement filed by the Corporation pursuant to
the Securities Act relating to any class of the Corporation's securities shall
have become effective, the Corporation shall comply with all of the reporting
requirements of the Exchange Act applicable to it (whether or not it shall be
required to do so) and shall comply with all other public information reporting
requirements of the Commission which are conditions to the availability of Rule
144 for the sale of the Common Shares. The Corporation shall cooperate with the
Shareholders in supplying such information as may be necessary for the Investor
to complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of Rule 144.
SECTION 18. Mergers. Etc. The Corporation shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Corporation shall not be the surviving corporation unless the surviving
corporation shall, prior to such merger, consolidation or reorganization, agree
in writing to assume the obligations of the Corporation under this Agreement,
and for that purpose references hereunder to "Registrable Shares" shall be
deemed to include the common stock, if any, that holders of Registrable Shares
would be entitled to receive in exchange for Common Stock under any such merger,
consolidation or reorganization; provided, however, that, to the extent holders
of Registrable Shares receive securities that are by their terms convertible
into
REGISTRATION RIGHTS AGREEMENT - Page 13
<PAGE> 14
common stock of the issuer thereof, then only such shares of common stock as are
issued or issuable upon conversion of said convertible securities shall be
included within the definition of "Registrable Shares."
SECTION 19. No Conflict of Rights. The Corporation represents and
warrants to the Shareholders that the registration rights granted to the
Shareholders hereby do not conflict with any other registration rights granted
by the Corporation. The Corporation shall not, after the date hereof, grant any
registration rights which conflict with or impair the registration rights
granted hereby.
SECTION 20. Severability. It is the desire and intent of the parties
hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction..
SECTION 21. Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 22. Notices. All notices and other communications pursuant to
this Agreement shall be in writing and deemed to be sufficient if delivered
personally, by facsimile, sent by nationally recognized overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following address:
(a) if to the Corporation; to
MigraTEC, Inc.
12801 Stemmons Freeway, Suite 710
Dallas, Texas 75231
Attention: Curtis Overstreet
President
Telecopier: (214) 969-0315
(b) if to a Shareholder, to the address shown opposite such
Shareholder's name on the signature page hereto.
REGISTRATION RIGHTS AGREEMENT - Page 14
<PAGE> 15
A party hereto may change its or his address by giving written notice of such
change in accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received on the date of delivery or attempted
delivery during normal business hours.
SECTION 23. Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may only be amended or waived either (a) with the
written consent of the Corporation and the Shareholders, or (b) in a writing by
the party or parties against whom such amendment or waiver is sought to be
enforced.
SECTION 24. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 25. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 26. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts made and to be performed wholly therein (without reference to any
principles of conflicts of laws).
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
REGISTRATION RIGHTS AGREEMENT - Page 15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed and delivered as of the date first above
written.
CORPORATION
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet
President
Addresses SHAREHOLDERS:
500 Crescent Court, Suite 250 MT Partners, L.P.
Dallas, Texas 75201
By: CARDINAL HOLDING CORPORATION
General Partner
By:
----------------------------------
Marshall Payne
President
17950 Preston Road, Suite 800 MERCURY FUND NO. 1, LTD.
Dallas, Texas 75252
By: MERCURY VENTURES, LTD.,
General Partner
By: MERCURY MANAGEMENT, L.L.C.
Its: General Partner
By:
----------------------------------
Kevin Howe
Manager
REGISTRATION RIGHTS AGREEMENT - Signature Page
<PAGE> 1
EXHIBIT 10.15
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this 25th day of January, 2000
by and between MigraTEC, Inc., a Florida corporation (the "Corporation"), and
__________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as a Director of the Corporation; and
WHEREAS, the shareholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Florida Business Corporation Act, as amended
(the "Code"); and
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to serve and continue to serve as
Director of the Corporation, the Corporation has determined and agreed to enter
into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's service and continued
service as after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. Services to the Corporation. Agent will serve as Director of the
Corporation or as a director, officer or other fiduciary of an affiliate of the
Corporation (including any employee benefit plan of the Corporation) faithfully
and to the best of his ability so long as he is duly elected and qualified in
accordance with the provisions of the Bylaws or other applicable charter
documents of the Corporation or such affiliate; provided, however, that Agent
may at any time and for any reason resign from such position.
2. Indemnification of Agent. The Corporation hereby agrees to defend,
hold harmless and indemnify Agent to the fullest extent authorized or permitted
by the provisions of the Bylaws and the Code, as the same may be amended from
time to time (but, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than the Bylaws or the
Code permitted prior to adoption of such amendment).
3. Additional Indemnification. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to defend, hold harmless and indemnify Agent:
<PAGE> 2
(i) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay
because of any claim or claims made against or by him in connection
with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative
(including an action by or in the right of the Corporation) to which
Agent is, was or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that Agent is, was or at any time
becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership joint venture, trust, employee benefit plan or
other enterprise; and
(ii) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the
Code and the Bylaws.
4. Limitations on Additional Indemnification. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(i) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law; or
(ii) if such indemnification is not lawful, and in such case,
only to the extent such indemnification is not lawful.
5. Continuation of Indemnification. All agreements and obligations of
the Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. Partial Indemnification. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the maximum portion
thereof to which Agent is lawfully entitled.
7. Notification and Defense of Claim. Not later than fifteen (15) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in
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<PAGE> 3
respect thereof is to be made against the Corporation under this Agreement,
notify the Corporation of the commencement thereof, but the omission so to
notify the Corporation will not relieve it from any liability which it may have
to Agent otherwise than under this Agreement, or under this Agreement except to
the extent the Corporation is directly prejudiced by such failure to so notify
the Corporation. With respect to any such action, suit or proceeding:
(i) the Corporation will be entitled to participate therein at
its own expense;
(ii) except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense
thereof, with counsel reasonably satisfactory to Agent. After notice
from the Corporation to Agent of its election to assume the defense
thereof, the Corporation will not be liable to Agent under this
Agreement for any legal or other expenses subsequently incurred by
Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have
the right to employ separate counsel in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at
the expense of Agent unless (i) the employment of counsel by Agent has
been authorized by the Corporation, (ii) Agent shall have reasonably
concluded that there may be a conflict of interest between the
Corporation and Agent in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel
reasonably satisfactory to Agent to assume the defense of such action,
in each of which cases the fees and expenses of Agent's separate
counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which
Agent shall have made the conclusion provided for in clause (ii) above;
and
(iii) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be
unreasonably withheld. The Corporation shall be permitted to settle any
action except that it shall not settle any action or claim in any
manner which would impose any penalty or limitation on Agent, or any
non-monetary obligation, without Agent's written consent, which may be
given or withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws or the Code.
9. Enforcement. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, (ii) no disposition of such claim
-3-
<PAGE> 4
is made within thirty (30) days of request therefor, or (iii) the Corporation
should fail to comply with the provisions of Section 8 hereof Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under Section 3 hereof
(other than an action brought to enforce a claim for expenses pursuant to
Section 8 hereof, provided that the required undertaking has been tendered to
the Corporation) that Agent is not entitled to indemnification because of the
limitations set forth in Section 4 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have made
a determination prior to the commencement of such enforcement action that
indemnification of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.
10. Non-Exclusivity of Rights. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Articles of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
11. Survival of Rights.
(i) The rights of Agent by this Agreement shall continue after
Agent has ceased to be a director, officer, employee or other agent of
the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise and shall inure to the benefit of Agent's heirs, executors
and administrators.
(ii) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Corporation,
expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to
perform if no such succession had taken place.
12. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
13. Choice of Law. This Agreement shall be governed by the laws of the
State of Florida, excluding its choice of law provisions.
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<PAGE> 5
14. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
15. Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
16. Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given upon
delivery or attempted delivery during normal business hours to Agent, to its
most recent address as set forth in the Company's records, or to the Company, to
its principal executive offices, or to such other address as may have been
furnished to Agent by the Corporation.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
MIGRATEC, INC.
By:
--------------------------------------
Curtis Overstreet
President
AGENT
-----------------------------------------
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<PAGE> 1
EXHIBIT 10.16
Property: CROWN PLAZA BUSINESS PARK
LEASE AGREEMENT
(OFFICE)
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions and Basic Provisions ........................................................................... 1
2. Lease of Premises; Parking Privileges ...................................................................... 2
3. Services by Landlord ....................................................................................... 2
4. Adjustment of Base Rental .................................................................................. 3
5. Electricity ................................................................................................ 4
6. Payments and Performance ................................................................................... 5
7. Installation of Improvements; ADA Compliance ............................................................... 5
8. Completion of Improvements and Commencement of Rent ........................................................ 5
9. Limited Right to Calculate Rentable Space; Subsequent Liquidation .......................................... 5
10. Repairs and Reentry ........................................................................................ 6
11. Alterations and Additions by Tenant ........................................................................ 6
12. Entry by Landlord .......................................................................................... 7
13. Mechanic's Liens ........................................................................................... 7
14. Tenant's Use ............................................................................................... 7
15. Laws and Regulations; Rules of the Building ............................................................... 7
16. Indemnity, Liability and Loss or Damage .................................................................... 8
17. No Subrogation; Insurance .................................................................................. 8
18. Fire and Casualty .......................................................................................... 9
19. Condemnation ............................................................................................... 9
20. Intentionally Deleted....................................................................................... 9
21. Assignment and Subletting .................................................................................. 10
22. Holding Over ............................................................................................... 11
23. Abandoned Property ......................................................................................... 11
</TABLE>
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<TABLE>
<S> <C> <C>
24. Taxes ...................................................................................................... 12
25. Transfer of Landlord's Rights .............................................................................. 12
26. Default .................................................................................................... 12
27. Security Deposit ........................................................................................... 15
28. Intentionally Deleted....................................................................................... 15
29. Remedies ................................................................................................... 15
30. Joint and Several Liability ................................................................................ 16
31. Constructive Eviction ...................................................................................... 16
32. Building Name .............................................................................................. 16
33. Subordination .............................................................................................. 16
34. Lease Certificates; Financial Statements ................................................................... 17
35. Limitation of Landlord Liability ........................................................................... 17
36. Consents ................................................................................................... 17
37. Notices .................................................................................................... 17
38. Brokerage .................................................................................................. 18
39. Force Majeure .............................................................................................. 18
40. No Third Party Beneficiary ................................................................................. 18
41. Severability ............................................................................................... 18
42. Binding Effect ............................................................................................. 18
43. Applicable Law; Consent to Jurisdiction .................................................................... 18
44. Entire Agreement; No Warranties ............................................................................ 18
45. NO IMPLIED REPRESENTATIONS ................................................................................. 19
46. Effective Date ............................................................................................. 19
</TABLE>
Exhibits
Exhibit A: Legal Description of the Land
Exhibit B: Floor Plan(s) of the Premises
Exhibit C: Parking Privileges
Exhibit D: Leasehold Improvements Agreement
Exhibit E: Building Rules and Regulations
Rider 101: Tenant's Option to Renew
Rider 102: Tenant's Right of First Refusal to Lease Additional Space
Rider 103: Project Description and Application
Rider 104: Special Sign Rights for Tenant
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LEASE AGREEMENT
(OFFICE)
THIS LEASE AGREEMENT (this "LEASE") is entered into by the Landlord and
Tenant hereinafter named.
1. DEFINITIONS AND BASIC PROVISIONS. The terms defined below shall have
the respective meanings stated when used elsewhere in this Lease, and such terms
and the following basic provisions constitute an integral part of this Lease:
(a) "LANDLORD": CHARTER CROWN PLAZA PARTNERS, L.P., a Texas limited
partnership.
(b) "TENANT": MigraTEC, Inc.
(c) "PREMISES": certain space in Landlord's building (the "BUILDING")
located at 11494 Luna Road, in the City of Farmers Branch, Texas, on a tract of
land (the "LAND") situated in the City of Farmers Branch, Texas, being described
on Exhibit A attached hereto and made a part hereof for all purposes. The
Premises are located on the first (1st) floor(s) of the Building, Suite(s) 100,
as shown on the floor plan(s) attached hereto as Exhibit B and made a part
hereof for all purposes. Subject to Paragraph 9 below, the parties hereby agree
that for purposes of this Lease the Premises is deemed to contain approximately
9,988 square feet of Rentable Space (as defined below), and that there are
approximately 27,790 square feet of Rentable Space in the Building.
(d) "LEASE TERM": a period of 39 months, commencing on May 1, 2000 (the
"COMMENCEMENT DATE"), subject to the possibility of extension as explained in
Paragraph 8 below.
(e) "BASE RENTAL": Months 1-3 - $0.00 per month and Months 4-39 -
$14,982.00 per month, plus $500.00 per month for every month Tenant has a sign
on the Building and does not occupy the entire 1st floor which Tenant agrees to
pay to Landlord at the following address: 5757 Alpha Road, Suite 101, Dallas,
Texas 75240 (or at such other place as Landlord may designate from time to time
in writing) in monthly installments, in advance and without demand on the first
day of each calendar month during and throughout the Lease Term.
(f) "PREPAID RENTAL": $14,982.00, representing payment of Base Rental
for the fourth month of the Lease Term, to be paid on the date of execution of
this Lease.
(g) "SECURITY DEPOSIT": $7,491.00, to be paid on the date of the
execution of this Lease, and held by Landlord pursuant to the provisions of
Paragraph 27 of this Lease.
(h) "SOLE PERMITTED USE": General office use, consistent with a
reputable office building and subject to Paragraph 14 and other relevant
provisions of this Lease.
(i) "BASE EXPENSE AMOUNT": The aggregate of Operating Expenses incurred
in connection with the Building during calendar year 2000.
(j) "LEASING AGENT(S)": Fobare Commercial, Inc. (representing Landlord)
and Dillon Corporate Services, Inc. (representing Tenant).
(k) "PROPERTY MANAGER": Fobare Commercial, Inc., 5757 Alpha Road, Suite
101, Dallas, Texas 75240, subject to change by Landlord upon written notice to
Tenant.
(l) "SUBMISSION DATES": N/A and N/A, as those dates are referred to the
Paragraph 4 of the Leasehold Improvements Agreement attached as Exhibit D of
this Lease.
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(m) "RENTABLE SPACE": The total area attributable to a leased premises
within the Building, i.e., being deemed by the parties to be appropriate for
purposes of determining the Base Rental, the Allowance, rental adjustments, etc.
under this Lease, with such total attributed area being determined by (a) using
the American National Standard method for measuring Rentable Area in office
buildings, as described in the pamphlet entitled "Standard Method for Measuring
Floor Area in Office Buildings", published by the Building Owners and Managers
Association International (ANSI/BOMA Z65.1-1996), and then (b) adjusting the
floor-by-floor results thus achieved by the factor being used by Landlord to
more uniformly allocate to the tenants in the Building the first floor lobby,
the elevator lobbies and the other common areas of the Building.
(n) "NORMAL BUSINESS HOURS": 7:00 a.m. until 6:00 p.m. on weekdays
(except holidays, as defined below), and from 8:00 a.m. until 1:00 p.m. on
Saturdays (except holidays). For purposes of this Lease, holidays are deemed to
mean the following:
January 1st New Years Day
Last Monday in May Memorial Day
July 4th Independence Day
First Monday in September Labor Day
Fourth Thursday in November
plus Friday following Thanksgiving Holidays
December 25th Christmas Day
2. LEASE OF PREMISES; PARKING PRIVILEGES. (a) In consideration of the
obligation of Tenant to pay rent as provided in this Lease, and in further
consideration of the other terms, covenants and conditions of this Lease,
Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord, the
Premises for the Lease Term specified herein, all upon and subject to the terms
and conditions set forth in this Lease. Landlord hereby covenants that Tenant,
upon paying rent as herein reserved, and performing all covenants and agreements
contained in this Lease on the part of Tenant, shall have quiet and peaceful
possession of the Premises.
(b) In addition, at all times during the Lease Term, and conditioned
upon the Lease being in full force and effect and there being no uncured default
under this Lease by Tenant, Landlord hereby agrees to make parking privileges
available to Tenant, as explained on, and governed by, Exhibit C attached to
this Lease. In this regard, Tenant acknowledges that in order for Landlord to be
able to comply with parking allotments for all tenants in the Building, Tenant
must assure that the aggregate of all parking utilized by Tenant, its owners,
officers, employees, agents and invitees, does not exceed the parking allotment
for Tenant as specified in Exhibit C.
3. SERVICES BY LANDLORD. At all times during the Lease Term, and
conditioned upon the Lease being in full force and effect and there being no
uncured default under this Lease by Tenant, Landlord shall furnish the following
services to the Premises, all of such services to be at Landlord's cost and
expense except as specifically provided to the contrary elsewhere in this Lease:
(a) Cold and warm water at those points of supply provided for general
use of tenants in the Building.
(b) Heated and refrigerated air conditioning in season during Normal
Business Hours and at such temperatures and in such amounts as are reasonably
considered by Landlord to be standard. Such services at all other times and on
Sundays and holidays shall be furnished only at Landlord's discretion and in any
event upon forty-eight (48) hours prior written request by Tenant, who shall
bear the entire cost thereof. Whenever machines or equipment that generate
abnormal heat and affect the temperature otherwise maintained by the air
conditioning system are used in the Premises, Landlord shall have the right to
install supplemental air conditioning units in the Premises; and the cost
thereof, including the cost of installation, operation, use and maintenance,
shall be paid by Tenant to Landlord promptly on demand.
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(c) Elevator service in common with other tenants for ingress and
egress from the Premises, provided that Landlord may reasonably limit the number
of elevators to be in operation at times other than Normal Business Hours.
(d) Janitorial cleaning services as may, in the reasonable judgment of
Landlord, be required in the normal operation of the Building (but no less
frequently than five times per week).
(e) Electric current in the manner and to the extent reasonably deemed
by Landlord to be standard for office use.
The failure to any extent to furnish or any stoppage of these defined utilities
and services resulting from any cause whatsoever shall not render Landlord
liable in any respect for damages to either person, property or business, nor be
construed as an eviction of Tenant, nor entitle Tenant to any abatement of rent,
nor relieve Tenant from fulfillment of any covenant or agreement contained
herein. Should any malfunction of the Building improvements or facilities occur
for any reason, Landlord shall use reasonable diligence to repair same promptly.
Tenant shall have no claim for rebate or abatement of rent or damages on account
of such malfunction or of any interruptions in service occasioned thereby or
resulting therefrom; provided, however, that if any interruption or cessation of
service continues for ten (10) consecutive business days after written notice
from Tenant to Landlord (and to any mortgagee of Landlord of whom Tenant has
received written notice, designating a specific address for notice to such
mortgagee), identifying the problem with reasonable specificity and being
labeled "URGENT/IMMEDIATE ACTION REQUIRED" in all capital letters, and if such
interruption or cessation after the 10-business-day cure period causes the
Premises to be untenantable in the reasonable judgment of Tenant, then
notwithstanding any provision of this Lease to the contrary, Tenant's Base
Rental and Tenant's share of Operating Expenses under this Lease will abate as
of the eleventh (11th) business day and continue abated until the service is
resumed.
4. ADJUSTMENT OF BASE RENTAL. The Base Rental payable pursuant to this
Lease shall be adjusted upward from time to time in accordance with the
following provisions:
(a) Tenant's Base Rental is based, in part, upon the assumption that
Landlord is contributing as its share of the annual Operating Expenses [as
defined in Paragraph 4(e) hereof] of the Building the Base Expense Amount.
Tenant shall during the term of this Lease pay, as an adjustment to Base Rental
pursuant to this Lease, an amount equal to the product of the following: (i) the
excess (the "EXCESS"), if any, from time to time of the Operating Expenses in
the Building over the Base Expense Amount, times (ii) a fraction, the numerator
of which is the net rentable space in the Premises and the denominator of which
is the net rentable space in the Building. Prior to the commencement of each
calendar year of Tenant's occupancy, Landlord shall make a good faith estimate
of the Excess, if any, for such upcoming calendar year and upon thirty (30)
days' written notice to Tenant shall require the monthly payment of Base Rental
to be adjusted in accordance with such estimate. Tenant's proportionate share of
any such estimated Excess shall be payable in equal monthly installments over
the remaining months of the calendar year after notice of such estimate is
delivered to Tenant. Any amounts paid based on such an estimate shall be subject
to adjustment pursuant to Paragraph 4(b) when actual Operating Expenses are
available for each calendar year.
(b) By April 1 of each calendar year during Tenant's occupancy, or as
soon thereafter as practical, Landlord shall furnish to Tenant a statement of
Landlord's actual Operating Expenses for the previous calendar year. If any
additional Base Rental collected for a prior year, as a result of Landlord's
estimate of the Excess, is in excess of the additional Base Rental actually due
during such prior year, then Landlord shall refund to Tenant any overpayment (or
at Landlord's option, apply such amount against rentals due or to become due
hereunder). Likewise, Tenant shall pay to Landlord, on demand, any underpayment
with respect to the prior year.
(c) Tenant shall have the right at any time within 180 days after the
conclusion of a calendar year (but not after such 180-day period and not more
frequently than once per calendar year), following prior written notice to
Landlord, to audit, at Tenant's expense, Landlord's books and records relating
to Operating Expenses for such calendar year, or at Landlord's sole discretion,
Landlord will provide such audit prepared by an independent certified public
accountant.
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(d) Notwithstanding anything to the contrary contained herein, if the
Building is not fully occupied during any calendar year of the Lease Term,
Operating Expenses and the Excess for purposes of Paragraphs 4(a) and 4(b)
hereof shall be determined as if the Building had been fully occupied during
such year and Operating Expenses had been in an amount which would be normal if
the Building were fully occupied. For the purposes of this Lease, "fully
occupied" shall mean (i) occupancy of 95% of the Rentable Space in the Building
if the occupancy of the Building is less than 95% of said Rentable Space, or
(ii) the actual percentage of occupancy of the net rentable space in the
Building if the occupancy of the Building is equal to or greater than 95% of
said net rentable space.
(e) The term "Operating Expenses" shall mean all costs of management,
operation, and maintenance of the Land, the Building, and all other improvements
on the Land and all appurtenances thereto, including the costs of maintaining
any common facilities allocated from time to time to the Building, all accrued
and based on an annual period consisting of a calendar year, as determined by
generally accepted accounting principles. By way of illustration but not
limitation, Operating Expenses shall include expenditures for maintenance and
repairs; a reasonable amortization of any capital expenditures incurred by
Landlord with a principal purpose to (i) effect a reduction in the Operating
Expenses of the Building, or (ii) keep the Building in compliance with all
applicable governmental rules and regulations from time to time; assessments and
governmental charges (including taxes on rents or services); ad valorem property
taxes with respect to such year; charges for electricity, water, sewerage, and
gas; cleaning, including supplies, janitorial services and pest control;
licenses, permits and inspection fees; refuse collection; insurance;
administrative expenses, including salaries and other expenses for labor and
management, office equipment, telephone, and supplies; management fees payable
by Landlord with respect to the Land, Building and common facilities; a
reasonable allocation of the salary and other compensation paid to Landlord's
director of engineering and/or operations; fire protection; snow and ice
removal; landscape maintenance; professional services; and security (if and to
the extent provided by Landlord, i.e., with Landlord making no representation or
warranty to Tenant in this regard). The following shall be excluded from
Operating Expenses: depreciation of the original construction of the Building;
capital expenditures other than those referenced in the previous sentence; cost
of Building alterations or renovations for other tenants in the Building;
advertising; commissions paid for leasing; cost of repairs occasioned by fire,
windstorm, or other casualty (but only to the extent reimbursed by insurance
proceeds); and wages, salaries, or other compensation paid to any executive
above the grade of building manager (i.e., with the director of engineering
and/or operations not being deemed to be included in this proscription).
(f) Notwithstanding anything to the contrary contained in this
Paragraph 4, Tenant's share of Operating Expenses shall not increase by more
than eight percent (8%) per year (determined cumulatively for the entire term of
this Lease) to the extent attributable to any and all controllable expenses,
i.e., with the limitation expressed in this subsection (f) not being applicable
to uncontrollable expenses such as utilities, taxes and insurance cause the
Operating Expenses to increase by more than eight percent per year.
5. ELECTRICITY. (a) If Landlord, in its reasonable discretion, believes
that Tenant is consuming substantially more electricity in the Premises than
Landlord, in its reasonable discretion, considers standard for normal office
usage (whether by reason of type of usage, hours of operation, heat generation
or otherwise), Landlord may have an electric power consumption survey conducted
with respect to the Premises by a qualified electrical engineer selected by
Landlord for the purpose of establishing as closely as reasonably possible
Tenant's average monthly consumption of electricity, which consumption shall be
expressed by such engineer in terms of kilowatt hours per month. Tenant agrees
to pay to Landlord within ten (10) days after receipt of any such monthly
statement, the amount, if any, by which (i) the product of the number of
kilowatt hours estimated by such engineer to be consumed by Tenant, multiplied
by the average rate paid by Landlord for one kilowatt hour, exceeds (ii) the
product of the number of kilowatt hours of usage that Landlord considers
standard for normal office usage for the amount of space occupied by Tenant,
multiplied by the average paid by Landlord for one kilowatt hour.
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(b) Without Landlord's prior written consent, Tenant shall not install
any equipment in the Premises that will require any electrical current or
equipment for its use, other than that supplied by Landlord for normal office
usage, and the cost of special electrical installations approved by Landlord
shall be paid by Tenant.
6. PAYMENTS AND PERFORMANCE. Tenant agrees to pay all rents and sums
provided to be paid by Tenant pursuant to this Lease at the times and in the
manner herein provided, without any setoff, deduction or counterclaim
whatsoever. Should this Lease commence on a day other than the first day of a
calendar month or terminate on a day other than the last day of a calendar
month, the rent for such partial month shall be proportionately reduced. The
Base Rental for the first partial month, if any, shall be payable at the
beginning of said period or as Prepaid Rental. The obligation of Tenant to pay
rentals is an independent covenant, and no act or circumstance whatsoever,
whether such act or circumstance constitutes a breach of covenant by Landlord or
not, shall release Tenant from the obligation to pay rentals. Time is of the
essence in the performance of all of Tenant's obligations hereunder. In the
event any rental is not received within ten (10) days after its due date for any
reason whatsoever, or if any rental payment is by check which is returned for
insufficient funds, then in addition to the past due amount Tenant shall pay to
Landlord a late charge in an amount equal to two percent (2%) of the rental then
due, in order to compensate Landlord for its administrative and other overhead
expenses. Any such late charge shall be payable on demand as additional rental.
In addition, if rental is paid by a check which is returned for insufficient
funds, Tenant shall immediately make the required payment to Landlord in good
funds; moreover, in such event Tenant shall also pay to Landlord not only the
late charge specified above in this Paragraph 6 (i.e., if and to the extent that
such dishonored check causes the rental to become past due by more than ten
days), but also an additional fee of $50.00 to compensate Landlord for its
expense and effort in connection with the dishonored check.
7. INSTALLATION OF IMPROVEMENTS; ADA COMPLIANCE. All improvements to be
installed in the Premises at the commencement of this Lease shall be installed
as specified in the Leasehold Improvements Agreement attached hereto as Exhibit
D and made a part hereof. Tenant will assure that the plans and specifications
for its improvements, as well as its business operations within the Premises,
comply with the Americans With Disabilities Act of 1990, as amended, and all
related state and local laws (collectively, the "ADA"); and Landlord agrees that
the remainder of the Building, i.e., other than the Premises, shall be in
compliance with the ADA (taking into account the fact that the Building was
constructed before the effective date of the ADA).
8. COMPLETION OF IMPROVEMENTS AND COMMENCEMENT OF RENT. If the Premises
are not ready for occupancy by Tenant on the Commencement Date of this Lease,
the obligations of Landlord and Tenant shall nevertheless continue in full force
and effect, including the obligation of Tenant to commence paying rent on the
Commencement Date stated in Paragraph 1(d); provided, however, that if the
Premises are not ready for occupancy for any reason other than Tenant's Delay
(as defined in Exhibit D), then (i) the rent shall abate and not commence until
the date the leasehold improvements to the Premises are substantially complete,
and (ii) the Lease Term shall be extended to be the number of months provided in
Paragraph 1(d) above, i.e., after the Commencement Date, as extended. Any such
abatement of rent, however, shall constitute full settlement of all claims that
Tenant might otherwise have against Landlord by reason of the Premises not being
ready for occupancy by Tenant on the Commencement Date of this Lease.
Notwithstanding the foregoing, if Tenant, with Landlord's consent, occupies the
Premises after substantial completion of Tenant's leasehold improvements but
prior to the beginning of the Lease Term set forth herein, all of the terms and
provisions of this Lease shall be in full force and effect from the commencement
of such occupancy and the Lease Term shall commence on the date on which Tenant
first occupies the Premises and shall expire the same period of months
thereafter as shown in Paragraph 1(d); no change shall occur in the length of
the Lease Term.
9. LIMITED RIGHT TO CALCULATE RENTABLE SPACE; SUBSEQUENT LIQUIDATION.
(a) Landlord and Tenant agree that at any time within sixty (60) days after the
date of this Lease, Tenant may, at its sole expense, employ a licensed architect
to calculate the Rentable Space of the Premises and/or of the Building. If the
architect performing any such services should issue a written statement within
ninety (90) days after the date of this Lease, which indicates that the Rentable
Space specified for either the Premises or the Building should be modified (a
"MODIFICATION STATEMENT"), and if the other party to this Lease agrees with such
Modification
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Statement, then Landlord and Tenant shall execute a written Amendment to Lease
confirming the mutually agreed information and the appropriate rental adjustment
which results from the corrected information (e.g., increasing or decreasing the
Base Rental proportionate with the increase or decrease in the Rentable Space).
If the architect performing any such services should issue a Modification
Statement within ninety (90) days after the date of this Lease, and if the other
party to this Lease does not agree with such Modification Statement, then the
other party may, at its sole expense, within sixty (60) days after the date of
the Modification Statement, employ a licensed architect to review and respond to
the Modification Statement (the "RESPONSE"). If the two architects fail to reach
agreement within thirty (30) days after the date of the Response, then they
shall select a third licensed architect (either by agreement between the two
architects or, if they fail to agree on the third architect, by requesting that
the Dallas chapter of the American Institute of Architects provide the third
architect), with the fees of the third architect to be shared equally by
Landlord and Tenant. Upon agreement between the two architects selected by the
parties, or upon the final decision of the third architect, Landlord and Tenant
shall execute a written Amendment to Lease confirming the final determination
and, if necessary, the appropriate rental adjustment.
(b) Notwithstanding anything contained in this Lease to the contrary,
both Landlord and Tenant acknowledge and confirm their mutual desire to have all
financial obligations under this Lease fixed and liquidated as soon as possible
so that they can account for and plan such obligations with greater certainty.
Accordingly, the parties agree that if neither party employs a licensed
architect to perform any of the above-listed services within sixty (60) days
after the date of this Lease, or if no Modification Statement is delivered
within ninety (90) days after the date of this Lease, then the provisions of
Paragraph 9(a) shall be null and void and of no further force or effect; and in
such event (i) so that both parties to this Lease can be assured that they will
not have to expend monies for professional fees regarding Rentable Space
determinations after the deadlines established in Paragraph 9(a), they hereby
agree that the Rentable Space for the Premises and for the Building, as
specified in Paragraph 1(c) above, shall conclusively be deemed to be applicable
to this Lease; and (ii) so that both parties to this Lease can be assured as to
their financial obligations after the deadlines established in Paragraph 9(a),
they further agree that Base Rental, the Allowance, rental adjustments and all
other aspects of this Lease which are based in whole or in part upon Rentable
Space shall be deemed to be liquidated and no longer subject to adjustment based
upon inaccuracies and/or errors, if any, in the Rentable Space determinations
specified in Paragraph 1(c).
10. REPAIRS AND REENTRY. Tenant will, at Tenant's own cost and expense,
maintain and keep the Premises and any alterations and additions thereto in
sound condition and good repair, and shall pay for the repair of any damage or
injury done to the Building or any part thereof by Tenant or Tenant's agents,
employees and invitees; provided, however, that Tenant shall make no repairs to
the Premises without the prior written consent of Landlord which shall not be
unreasonably withheld or delayed. The performance by Tenant of its obligation to
maintain and make repairs shall be conducted only by contractors approved by
Landlord after plans and specifications have been approved by Landlord. Tenant
will not commit or allow any waste or damage to be committed on any portion of
the Premises, and upon the termination of this Lease by lapse of time or
otherwise, Tenant shall deliver up the Premises to Landlord in as good condition
as at date of possession, ordinary wear and tear excepted. Upon such termination
of this Lease, Landlord shall have the right to reenter and resume possession of
the Premises. Notwithstanding the foregoing provisions of this Paragraph 10, any
repairs to the Premises or the Building that are necessitated because of any
damage caused by fire or other casualty shall be governed by the provisions of
Paragraph 18 below. Landlord shall be responsible for maintenance to the
exterior, structural and common areas of the Building.
11. ALTERATIONS AND ADDITIONS BY TENANT. Tenant shall make no
alterations in or additions to the Premises without the prior written consent of
Landlord; and all alterations, additions, and improvements made to or fixtures
or improvements placed in or upon the Premises by either party (except only
moveable trade fixtures of Tenant) shall be deemed a part of the Building and
the property of the Landlord at the time they are placed in or upon the
Premises, and they shall remain upon and be surrendered with the Premises as a
part thereof at the termination of this Lease, unless Landlord shall elect
otherwise, whether such termination shall occur by the lapse of time or
otherwise. In the event Landlord shall elect that certain alterations, additions
and improvements made by Tenant in the Premises shall be removed by Tenant,
Tenant shall remove them and Tenant shall restore the Premises to its original
condition,
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at Tenant's own cost and expense, prior to the termination of the Lease Term.
Alterations and additions to the Premises will be performed by Landlord at
Tenant's cost and expense.
12. ENTRY BY LANDLORD. Landlord and its agents and representatives
shall have the right to enter into and upon any and all parts of the Premises at
all reasonable hours and upon 24 hours notice (or, in any emergency, at any
hour) to inspect same, to clean or make repairs or alterations or additions as
Landlord may deem necessary, and to obtain access to mechanical rooms and other
Building facilities (including, without limitation, the roof if the Premises
includes the top floor of the Building); and Tenant shall not be entitled to any
abatement or reduction of rent by reason thereof. During the period of 180 days
prior to the expiration date of this Lease, Landlord and Landlord's agents may
exhibit the Premises to prospective tenants at reasonable hours and upon 24
hours prior notice to Tenant.
13. MECHANIC'S LIENS. Nothing contained in this Lease shall authorize
Tenant to do any act which shall in any way encumber the title of Landlord in
and to the Premises or the Building or any part thereof; and if any mechanic's
or materialman's lien is filed or claimed against the Premises or Building or
any part thereof in connection with any work performed, materials furnished or
obligation incurred by or at the request of Tenant, Tenant will promptly pay
same or cause it to be released of record. If the lien is not released of record
and default in payment thereof shall continue for twenty (20) days after written
notice thereof from Landlord to Tenant, Landlord shall have the right and
privilege at Landlord's option of paying the same or any portion thereof without
inquiry as to the validity thereof, and any amounts so paid, including expenses
and interest, shall be repaid to Landlord immediately on demand therefor.
14. TENANT'S USE. Tenant will be solely responsible for obtaining all
necessary certificates (e.g., Certificate of Occupancy) and licenses necessary
for Tenant's occupancy of the Premises and conducting its business therein.
Tenant will not occupy or use any portion of the Premises for any purpose other
than the Sole Permitted Use or for any purpose which is unlawful or which, in
the good faith judgment of Landlord, is disreputable or which is hazardous due
to risk of fire, explosion or other casualty, nor permit anything to be done
which will in any way (i) increase the rate of fire and casualty insurance on
the Building or its contents, or (ii) tend to lower the first-class character of
the Building, or (iii) create unreasonable elevator loads or otherwise interfere
with standard building operations, or (iv) affect the structural integrity or
design capabilities of the Building or any portion thereof (e.g., a floor being
occupied by Tenant). In the event that, by reason of any act or conduct or
business of Tenant, there shall be any increase in the rate of insurance on the
Building or its contents created by Tenant's acts or conduct or business, then
Tenant hereby agrees to pay Landlord the amount of such increase on demand.
Tenant will conduct its business, and control its agents, employees, and
invitees in such a manner as not to create any nuisance or interfere with, annoy
or disturb other tenants or Landlord in the management of the Building.
15. LAWS AND REGULATIONS; RULES OF THE BUILDING. (a) Tenant at its sole
expense will maintain the Premises in a clean and healthful condition and will
comply with all laws, ordinances, orders, rules and regulations of any
governmental authority having jurisdiction over the use, conditions or occupancy
of the Premises. Without limiting the generality of the foregoing, Tenant shall
comply strictly and in all respects with the requirements of all Hazardous Waste
Laws and shall indemnify Landlord and hold Landlord harmless from and against
any liability, costs or expenses that may arise on account of the release,
discharge, storage, disposal, treatment, processing or other handling or
discovery of any Hazardous Substance within the Premises, or the discharge,
release, disposal, storage, treatment, processing or other handling of any
Hazardous Substance by Tenant, its employees, agents, contractors, or invitees
anywhere on the Land or within the Building, or off site. As used herein,
"HAZARDOUS SUBSTANCE" means any substance, material or matter that may give rise
to liability under any Hazardous Waste Laws, including (but not limited to)
medical waste and petroleum products or petroleum wastes. "HAZARDOUS WASTE LAWS"
shall mean any local, state or federal laws, rules, ordinances, regulations, and
policy and guidance statements by the Environmental Agencies, either in
existence as of the date hereof, or enacted, promulgated or issued after the
date of this Lease, that concern the management, control, discharge, treatment,
containment or removal of substances or materials that are or may become a
threat to public health or the environment.
(b) Tenant and Tenant's agents, employees, and invitees will comply
fully with all Rules and Regulations of the Building which are attached hereto
as Exhibit E and made a part hereof as though fully set out herein. As more
particularly provided therein, Landlord shall at all
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times have the right to change such rules and regulations or to amend them in
such reasonable manner as may be deemed advisable for the safety, protection,
care and cleanliness of the Building and appurtenances and for preservation of
good order therein, all of which rules and regulations, changes and amendments
will be forwarded to Tenant in writing and shall be complied with and observed
by Tenant; provided, however, that no new rules or regulations shall deprive
Tenant of any rights expressly granted to Tenant pursuant to this Lease.
16. INDEMNITY, LIABILITY AND LOSS OR DAMAGE. By moving into the
Premises or taking possession thereof, Tenant accepts the Premises as suitable
for the purposes for which they are leased and accepts the Building and each and
every appurtenance thereof, and waives any and all defects therein (with the
exception of latent defects). Landlord shall not be liable to Tenant or Tenant's
agents, employees, guests, invitees or any person claiming by, through or under
Tenant for any injury to person, loss of or damage to property, or for loss of
or damage to Tenant's business, occasioned by or through the acts or omissions
of Landlord, or by any cause whatsoever except Landlord's gross negligence or
willful wrongdoing. Unless arising from or out of Landlord's gross negligence or
willful wrongdoing, Landlord shall not be liable for, and Tenant shall indemnify
Landlord and save it harmless from, all suits, actions, damages, liability and
expense in connection with loss of life, bodily or personal injury or property
damage arising from or out of any occurrence in, upon, at or from the Premises
or the occupancy or use by Tenant of the Premises or any part thereof, or
occasioned wholly or in part by any action or omission of Tenant, its agents,
contractors, employees, invitees, or licensees. If Landlord shall, without fault
on its part, be made a party to any action commenced by or against Tenant,
Tenant shall protect and hold Landlord harmless therefrom and shall pay all
costs, expenses, and reasonable attorney's fees to Landlord incurred in
connection therewith.
(b) Tenant shall not be liable to Landlord or Landlord's agents,
employees, guests, invitees or any person claiming by, through or under Landlord
for any injury to person, loss of or damage to property, or for loss of or
damage to Landlord's business, occasioned by or through the acts or omissions of
Tenant, its agents, contractors or employees. Except to the extent arising from
or out of Tenant's negligence or willful wrongdoing, Tenant shall not be liable
for, and Landlord shall indemnify Tenant and save it harmless from, all suites,
actions, damages, liability and expense in connection with loss of life, bodily
or personal injury or property damage arising from or out of any occurrence in,
upon, at or from the Building (with the exception of the Premises) or the
occupancy or use by Landlord of the Building or any part thereof (i.e., other
than the Premises), or occasioned wholly or in part by any action or omission of
Landlord, its agents, contractors or employees. If Tenant shall, without fault
on its part, by made a party to any action commenced by or against Landlord, the
subject of which is covered by the immediately foregoing indemnity, Landlord
shall protect and hold Tenant harmless therefrom and shall pay all costs,
expenses, and reasonable attorney's fees to Tenant incurred in connection
therewith.
(c) This Paragraph 16 is subject to Paragraph 17 below.
17. NO SUBROGATION; INSURANCE. (a) Tenant hereby waives any cause of
action it might have against Landlord on account of any loss or damage that is
insured against under any insurance policy that covers the Premises, Tenant's
fixtures, personal property, leasehold improvements or business and which names
Tenant as a party insured. Landlord hereby waives any cause of action it might
have against Tenant because of any loss or damage that is insured against under
any insurance policy that covers the Building or any property of Landlord used
in connection with the Building and which names Landlord as a party insured,
provided that if the cost of restoring the loss or damage exceeds the amount of
property damage insurance proceeds paid to Landlord on account of the loss or
damage, Tenant shall remain liable to Landlord for the amount of such excess.
This provision is cumulative of Paragraph 16.
(b) Tenant shall procure and maintain throughout the term of this Lease
a policy or policies of insurance, at its sole cost and expense, insuring Tenant
and Landlord against any and all liability for injury to or death of a person or
persons, occasioned by or arising out of or in connection with the use or
occupancy of the Premises as follows:
(1) FIRE INSURANCE, including extended coverage,
vandalism and malicious mischief, and demolition and
debris removal, insuring for an amount no less than
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80% of the current replacement cost of all Tenant
improvements, alterations or additions made to the
Premises by Landlord for Tenant, and Tenant's trade
fixtures, inventory, furniture and equipment owned,
controlled or in use by Tenant and situated in the
Premises. Landlord shall have no interest in the
insurance upon Tenant's equipment and fixtures and
will sign all documents necessary in the settlement
of any claim. Landlord will not carry insurance of
Tenant's property or improvements to the Premises
made by Tenant.
(2) COMMERCIAL GENERAL LIABILITY INSURANCE including
Bodily Injury and Property Damage Liability and
Personal Advertising Injury Liability on an
occurrence basis with respect to Tenant's business
and occupancy of the Premises for any one occurrence
or claim of not less than $1,000,000 with $1,000,000
Products Aggregate and $1,000,000 General Aggregate
or such greater amount as Landlord may reasonably
require in writing from time to time. Such insurance
shall contain a provision including coverage for all
liabilities assumed by Tenant under this Lease and
shall name Landlord as Additional Insurance.
(3) BUSINESS INTERRUPTION INSURANCE in an amount
sufficient to reimburse Tenant for direct or indirect
loss of earnings attributable to perils commonly
insured against by prudent tenants or attributable to
prevention of access to the Building or Premises as a
result of such perils.
(4) INSURANCE against such other perils and in such
amounts as Landlord may from time to time reasonably
require in writing. Such request shall be made on the
basis that the insurance coverage requested is
customary at the time for prudent tenants.
(5) Tenant shall provide Landlord with an original
certificate of insurance upon execution of the lease.
18. FIRE AND CASUALTY. (a) If the Premises are damaged by fire or other
casualty and if such damage is not susceptible of repair within 150 days (as
estimated, as soon as reasonably practicable after the occurrence of such
damage, by an architect of recognized good reputation selected by Landlord),
then in such event this Lease, at the option of Landlord exercised by giving
written notice thereof to Tenant within 30 days after receipt of a certificate
of the architect so selected, shall terminate as of the date of such loss, and
Tenant shall pay the rent hereunder apportioned to the time of such loss and
shall pay all other obligations of Tenant owing on the date of termination, and
Tenant shall immediately surrender the Premises to Landlord.
(b) If the damage described above is susceptible of repair within 180
days, or if the damage is not susceptible of repair within 150 days but Landlord
fails to exercise its option to terminate this Lease, Landlord shall enter and
make the necessary repairs without affecting this Lease, but the rent hereunder
shall be reduced or abated as shall be equitable, in the good faith judgment of
Landlord, until such repairs are made, unless such damage has been so slight
that Tenant's occupancy of the Premises is not materially interfered with, in
which case the rent hereunder shall not be abated or reduced. Notwithstanding
the foregoing, Landlord shall have the option to terminate this Lease and shall
not be obligated to repair the Premises or the Building if the damage is not
covered by insurance or if Landlord's mortgagee applies any portion of the
insurance proceeds to the unpaid balance of its loan.
(c) In the event the Building is so badly damaged or injured by fire or
other casualty, even though the Premises may not be affected, that Landlord
decides, within 90 days after such destruction, not to rebuild or repair the
Building (such decision being vested exclusively in the discretion of Landlord),
then in such event Landlord shall so notify Tenant in writing and this Lease
shall terminate as of the date of such loss, and the Tenant shall pay rent
hereunder apportioned to the date of such loss and shall pay all other
obligations of Tenant owing on the date of termination, and Tenant shall
immediately surrender the Premises to Landlord.
(d) Notwithstanding the foregoing provisions of this Paragraph 18,
Tenant agrees that if the Premises or any other portion of the Building is
damaged by fire or other casualty resulting from the fault or gross negligence
of Tenant or any of its agents, employees, or invitees, then the
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cost of restoring the damage in excess of any property damage insurance proceeds
paid to Landlord shall be repaired at the sole cost and expense of Tenant, and
there shall be no abatement of rent before or during the repair of such damage.
19. CONDEMNATION. If all of the Premises, or so much thereof as would
materially interfere with Tenant's use of the remainder, shall be taken or
condemned for any public use or purpose by right of eminent domain, with or
without litigation, or be transferred by agreement in connection with or in lieu
of or under threat of condemnation, then the term of this Lease and the
leasehold estate created hereby shall terminate as of the date title shall vest
in the condemnor or transferee. If only a portion of the Building, but not the
Premises, is taken or condemned or transferred as aforesaid, Landlord shall have
the option to terminate this Lease effective as of the date title shall vest in
the condemnor or transferee. Landlord shall receive the entire award from any
taking or condemnation (or the entire compensation paid because of any transfer
by agreement), and Tenant shall have no claim thereto.
20. Intentionally Deleted.
21. ASSIGNMENT AND SUBLETTING. (a) In the event that Tenant desires to
assign or mortgage this Lease or sublet all or any part of the Premises (with
the term "sublet" being deemed, for purposes of this Paragraph 21, to include
Tenant's grant of a license, concession or other right of occupancy of any
portion of the Premises), Tenant shall notify Landlord in writing (a "PROPOSAL
NOTICE") and shall state in the Proposal Notice the name of the proposed
assignee, mortgagee or sublessee and the terms of the proposed assignment,
mortgage or sublease. In the Proposal Notice Tenant shall also provide financial
information and state the nature and character of the business of the proposed
assignee, mortgage or sublessee. Notwithstanding such Proposal Notice to
Landlord, Tenant shall not assign or mortgage this Lease or any right hereunder
or interest herein, and Tenant shall not sublet the Premises in whole or in part
or grant any license, concession or other right of occupancy of any portion of
the Premises, without the prior written consent of Landlord (which, subject to
subsections (b) and (c) below, shall not be unreasonably withheld). Any such
assignment, mortgage or subletting without Landlord's consent shall be void and
shall, at the sole option of the Landlord, be deemed a breach of this Lease.
Notwithstanding any assignment, mortgage or subletting consented to by Landlord,
Tenant and each assignee shall at all times remain fully responsible and liable
for the payment of the rent herein specified and for compliance with all of
Tenant's other covenants and obligations under this Lease. No consent to any
assignment or mortgage of this Lease or any subletting of the Premises shall
constitute a waiver of the provisions of this paragraph except as to the
specific instance covered thereby. If Tenant is a corporation or partnership, an
assignment prohibited by this Paragraph 21 shall be deemed to include one or
more sales or transfers, by operation of law or otherwise, or creation of new
stock or partnership interests, by which a majority of the voting shares of the
corporation or interests in the partnership shall be vested in a party or
parties who are not owners of a majority of the voting shares or partnership
interests of Tenant as of the date hereof; provided, however, that the foregoing
provisions of this sentence shall not be applicable if Tenant's stock is listed
on a recognized security exchange. Any transfer by operation of law shall also
constitute an assignment prohibited by this Paragraph 21. Unless Landlord's
withholding of consent is attributable primarily to a malicious intent to injure
Tenant (i.e., as opposed to a difference of opinion between Landlord and
Tenant), Landlord shall not be liable to Tenant for wrongfully withholding its
consent to an assignment or subletting under this Lease and Tenant's sole remedy
on account thereof shall be to enforce specific performance of Landlord's
obligation to consent.
(b) Landlord and Tenant hereby agree that the granting of consent by
Landlord (i.e., if such consent is granted) shall, at a minimum, be
preconditioned upon the fulfillment of the following requirements of Landlord,
as well as any other reasonable requirements of Landlord:
(1) Landlord shall be entitled to review Tenant's Proposal
Notice for at least twenty (20) days after receiving same from Tenant;
(2) Tenant shall remain primarily liable under this Lease and
shall guaranty the Lease if Landlord so requests;
(3) Any proposed assignee or sublessee shall assume, in a
written instrument acceptable to Landlord, all of the obligations of
Tenant hereunder;
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(4) No use shall be employed in connection with the Premises
other than the Sole Permitted Use set forth in this Lease;
(5) The Premises shall remain intact and shall not be altered
in any manner whatsoever unless Tenant and the prospective assignee or
sublessee shall pay the entire cost thereof, and Landlord's prior
written approval is obtained pursuant to Paragraph 10 above;
(6) The tangible net worth of the proposed subtenant/assignee
must be reasonably sufficient for the obligations under this Lease;
(7) Any use of the Premises permitted hereunder by the
proposed sublessee/assignee must not (i) violate or create any
potential violation of any laws, nor (ii) violate any other agreements
affecting the Premises, the Building or Landlord, nor (iii) increase by
more than 5% the density of employees and/or other persons using the
Premises from the density maintained by Tenant;
(8) The proposed subtenant/assignee will not create traffic
congestion or an unreasonable burden on existing parking or elevators;
(9) Tenant shall pay any and all reasonable attorney's fees or
other costs associated with Landlord's review and approval of a
prospective assignee or sublessee, not to exceed $200.00;
(10) No assignment or sublease shall be to a person or entity
with whom Landlord is then negotiating, has negotiated with within the
previous six months or currently is a tenant within the Building.
(c) Notwithstanding anything contained above in this Paragraph 21,
Tenant agrees that after Landlord receives a Proposal Notice from Tenant, then
in addition to the rights granted to Landlord in subsections (a) and (b)
immediately above and if Tenant is proposing to sublet more than 70% of the
space, Landlord shall also be entitled to terminate this Lease; moreover, in the
event of a proposed sublease, Landlord shall also be entitled either to
terminate this Lease as to only the subject of the sublease (with all remaining
portions of the Premises to remain subject to this Lease, prorated as
appropriate to account for a smaller Premises), or, as a further option, to
become Tenant's subtenant under the same terms and conditions as were set forth
in the Proposal Notice. The options granted to Landlord pursuant to this
subsection (c) are cumulative with the rights granted to Landlord pursuant to
subsections (a) and (b) of this Paragraph 21.
(d) In the event of a sublease approved by Landlord where the monthly
rental per square foot of space subleased which is payable by any sublessee to
Tenant (including any bonuses or any other consideration paid directly or
indirectly by the sublessee to Tenant) exceeds the monthly rental per square
foot for the same space payable for the same month by Tenant to Landlord, Tenant
shall be obligated to pay fifty percent (50%) of the amount of such excess to
Landlord as additional rent hereunder within twenty (20) days after it is
received by Tenant from the sublessee. In the event of an assignment approved by
Landlord where Tenant receives any consideration from an assignee other than the
assumption by the assignee of Tenant's obligations hereunder, Tenant shall be
obligated to pay the amount of such consideration to Landlord as additional rent
hereunder within twenty (20) days after the date it is received by Tenant.
Landlord, at Landlord's option, may elect to require that rental payable by any
sublessee be paid directly to Landlord and offset Tenant's rent obligations
accordingly.
22. HOLDING OVER. Should Tenant continue to hold the Premises after
this Lease terminates, whether by lapse of time or otherwise, such holding over
shall, unless otherwise agreed by Landlord in writing, constitute and be
construed as a tenancy at will at a daily rental equal to one-thirtieth (1/30)
of an amount equal to 150% of the amount of the monthly rental payable during
the last month prior to the termination of this Lease, and upon and subject to
all of the other terms and provisions set forth herein except any right to renew
this Lease. This provision shall not be construed, however, as permission by
Landlord for Tenant to hold over.
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23. ABANDONED PROPERTY. All personal property of Tenant remaining in
the Premises after the expiration of the Lease Term or after the abandonment of
the Premises by Tenant may be treated by Landlord as having been abandoned by
Tenant, and Landlord shall have the right to remove such personal property from
the Premises without any obligation to deliver such personal property to Tenant
and without any liability to Tenant whatsoever, it being agreed that Tenant
shall have no right to reclaim such property. Landlord shall have no duty to
notify Tenant that Landlord may dispose of Tenant's property. Tenant shall be
presumed conclusively to have abandoned the Premises if the amount of Tenant's
property removed or being removed by Tenant from the Premises is substantial
enough to indicate a probable intent to abandon the Premises, and such removal
is not within the normal course of Tenant's business, or if Tenant removes or is
removing any material amount of Tenant's personal property from the Premises at
a time when Tenant is in default in the payment of rental due hereunder and such
removal is not within the normal course of Tenant's business. Nothing contained
in this paragraph shall prejudice or impair Landlord's rights as a lienholder
and secured party under Paragraph 28 hereof, and the rights granted to Landlord
under this paragraph shall be cumulative of its rights as a lienholder and
secured party.
24. TAXES. (a) Tenant shall be liable for all taxes levied or assessed
against all personal property, furniture and fixtures placed by Tenant, or on
Tenant's behalf, in the Premises. If any such taxes for which Tenant is liable
are levied or assessed against Landlord or Landlord's property and if Landlord
elects to pay the same or if the assessed value of Landlord's property is
increased by inclusion of personal property, furniture or fixtures placed by
Tenant in the Premises, and Landlord elects to pay the taxes based on such
increase, Tenant shall pay Landlord upon demand that part of such taxes for
which Tenant is primarily liable hereunder.
(b) Tenant agrees that, as between Tenant and Landlord, Landlord has
the sole and absolute right to contest taxes levied against the Premises and the
Building (other than taxes levied directly against Tenant's personal property
within the Premises). Accordingly, Tenant, to the maximum extent permitted by
law, irrevocably waives any and all rights that Tenant may have to receive from
Landlord a copy of notices received by Landlord regarding the appraisal or
reappraisal, for tax purposes, of all or any portion of the Premises or the
Building (including, without limitation, any rights set forth in ss.41.413 of
the Texas Property Tax Code, as such section may be amended and/or supplemented
from time to time). Additionally, Tenant, to the maximum extent permitted by
law, hereby assigns to Landlord any and all rights of Tenant to protest or
appeal any governmental appraisal or reappraisal of the value of all or any
portion of the Premises or the Building (including, without limitation, any
rights set forth in ss.41.413 and ss.42.015 of the Texas Property Tax Code, as
such sections may be amended and/or supplemented from time to time). To the
maximum extent permitted by law, Tenant agrees that it will not protest or
appeal any such appraisal or reappraisal before a governmental taxing authority
without the express written authorization of Landlord.
25. TRANSFER OF LANDLORD'S RIGHTS. In the event Landlord transfers its
interest in the Building, Landlord shall thereby be released from any further
obligations hereunder, and Tenant agrees to look solely to the successor in
interest of the Landlord for the performance of such obligations.
26. DEFAULT. (a) The following events shall be deemed to be events of
default by Tenant under this Lease: (i) Tenant shall fail to pay any rental or
other sums payable by Tenant hereunder as and when such rental or other sums
become due and payable and any such failure shall continue for a period of ten
(10) days after written notice from Landlord to Tenant (provided, however, that
if in any calendar year Landlord has given at least two written notices of
rental defaults to Tenant, then for the remainder of that particular calendar
year the grace period shall be reduced to five days and there shall be no
requirement of written notice from Landlord to Tenant); (ii) Tenant shall fail
to comply with any other provision, condition or covenant of this Lease and any
such failure shall continue for a period of thirty (30) days after Landlord
gives written notice thereof to Tenant; (iii) Tenant shall abandon, vacate or
fail to physically occupy any substantial portion of the Premises; (iv) any
petition shall be filed by or against Tenant or any guarantor of Tenant's
obligations under this Lease pursuant to any section or chapter of the present
federal Bankruptcy Act or under any future federal Bankruptcy Act or under any
similar law or statute of the United States or any state thereof, or Tenant or
any
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guarantor of Tenant's obligations under this Lease shall be adjudged bankrupt or
insolvent in proceedings filed under any section or chapter of the present
federal bankruptcy act or under any future federal bankruptcy act or under any
similar law or statute of the United States or any state thereof; (v) Tenant or
any guarantor of Tenant's obligations under this Lease shall become insolvent or
make a transfer in fraud of creditors; (vi) Tenant or any guarantor of this
Lease shall make an assignment for the benefit of creditors; or (vii) a receiver
or trustee shall be appointed for Tenant or any of the assets of Tenant.
(b) Upon the occurrence of any event of default, Landlord shall have
the option to do any one or more of the following WITHOUT ANY FURTHER NOTICE OR
DEMAND, in addition to and not in limitation of any other remedy permitted by
law or by this Lease:
(1) Landlord may enforce, by all legal suits and other means, its
rights hereunder, including the collection of Base Rental and
any other sums payable by Tenant hereunder, without reentering
or resuming possession of Premises and without terminating
this Lease.
(2) Landlord may do whatever Tenant is obligated to do by the
provisions of this Lease; and to the extent that Landlord
deems it necessary or otherwise appropriate for Landlord to
enter the Premises, Landlord may enter the Premises, by force
if necessary (but only if and to the extent permitted by law),
in order to accomplish this purpose. Tenant hereby waives any
and all claims for damages caused by Landlord's actions
pursuant to this subparagraph (b)(2), and Tenant also agrees
to reimburse Landlord immediately upon demand for any expenses
which Landlord may incur in thus effecting compliance with
this Lease on behalf of Tenant.
(3) If (but only if) Tenant is in arrears in its rentals by more
than one month, Landlord may enter upon and take possession of
the Premises without terminating this Lease and expel or
remove Tenant and its effects therefrom without being liable
to prosecution of any claims for damages therefor, and
Landlord may relet the Premises for the account of Tenant.
Tenant shall pay to Landlord all arrearages of Base Rental and
other sums due and owing by Tenant to Landlord, and Tenant
shall also pay to Landlord during each month of the unexpired
Lease Term the installments of Base Rental and other sums due
hereunder, less such part, if any, that Landlord shall have
been able to collect from a new tenant upon reletting. In this
regard the parties further agree that although Landlord shall
use its reasonable efforts to relet the Premises after Tenant
has vacated the Premises, Landlord shall have no obligation to
agree to any lease terms which it deems to be unacceptable,
nor shall Landlord be obligated (i) to travel outside a radius
of thirty (30) miles from its principal office in order to
meet with a prospective tenant, (ii) to accept a prospective
tenant for the Premises (or any portion thereof) which is an
existing or prospective tenant elsewhere in the Building, or
(iii) to expend monies for finish-out requested by a
prospective tenant unless Landlord, in its sole and absolute
discretion, approves both the lease terms and the credit of
such prospective tenant. Tenant further agrees that in the
event of any reletting, Tenant shall pay to Landlord on demand
all Reimbursable Costs prescribed in the final portion of this
Paragraph 26. In the event Landlord exercises the rights and
remedies afforded to it under this Paragraph 26(b)(3) and then
subsequently elects to terminate this Lease, Tenant shall be
liable to Landlord for damages as set forth in the final two
sentences of Paragraph 26(b)(5) below and Landlord shall have
the right at any time to demand final settlement as provided
therein.
(4) If (but only if) Tenant is in arrears in its rentals by more
than one month, Landlord may enter upon the Premises by use of
a duplicate key, a master key, an electronic pass card, a
locksmith's entry procedures or any other means not involving
personal confrontation, and change, alter or modify the door
locks on all entry doors of the Premises, thereby excluding
Tenant and its agents, employees, representatives and
invitees, from the Premises. In such event Landlord shall not
be obligated to place any written notice on the Premises
explaining Landlord's action; moreover, Landlord shall not be
required to provide the new key (if any) to Tenant until and
unless all rental defaults of Tenant have been fully cured.
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(5) If (but only if) Tenant is in arrears in its rentals by more
than one month, Landlord may terminate this Lease, in which
event Tenant shall immediately surrender the Premises to
Landlord, but if Tenant shall fail to do so, Landlord may
without notice and without prejudice to any other remedy
Landlord may have, enter upon and take possession of the
Premises and expel or remove Tenant and its effects without
being liable to prosecution or any claim for damages therefor;
and upon any such termination, Tenant agrees that in addition
to its liability for the payment of arrearages of Base Rental
and other sums due and owing by Tenant to Landlord under this
Lease upon such termination, Tenant shall be liable to
Landlord for damages. Tenant shall pay to Landlord as damages
on the same days as Base Rental and other payments are
expressed to be due under the provisions of this Lease, the
total amount of such Base Rental and other payments, less such
part, if any, of such payments that Landlord shall have been
able to collect from a new tenant upon reletting. In this
regard the parties further agree that although Landlord shall
use its reasonable effort to relet the Premises after Tenant
has vacated the Premises, Landlord shall have no obligation to
agree to any lease terms which it deems to be unacceptable,
nor shall Landlord be obligated (i) to travel outside a radius
of thirty (30) miles from its principal office in order to
meet with a prospective tenant, (ii) to accept a prospective
tenant for the Premises (or any portion thereof) which is an
existing or prospective tenant elsewhere in the Building, or
(iii) to expend monies for finish-out requested by a
prospective tenant unless Landlord, in its sole and absolute
discretion, approves both the lease terms and the credit of
such prospective tenant. Tenant further agrees that in the
event of any reletting, Tenant shall pay to Landlord on demand
all Reimbursable Costs prescribed in the final portion of this
Paragraph 26. Landlord shall have the right at any time to
demand final settlement. Upon demand for a final settlement,
Landlord shall have the right to receive, and Tenant hereby
agrees to pay, as damages for Tenant's breach and in addition
to the Reimbursable Costs prescribed in the final section of
this Paragraph 26, the difference between the total rental
provided for in this Lease for the remainder of the Lease Term
and the reasonable rental value of the Premises for such
period, such difference to be discounted to present value at a
rate equal to the rate of interest allowed by law (at the time
the demand for final settlement is made) when the parties to a
contract have not agreed on any particular rate of interest
(or, in the absence of such law, at the rate of 6% per annum).
Pursuit of any of the foregoing remedies shall not preclude pursuit of any of
the other remedies herein provided or any other remedies provided by law or
equity. Any entry by Landlord upon the Premises may be by use of a master or
duplicate key or electronic pass card or any locksmith's entry procedure or
other peaceable means. Any reletting by Landlord shall be without notice to
Tenant, and if Landlord has not terminated this Lease, the reletting may be in
the name of Tenant or Landlord, as Landlord shall elect. Any reletting shall be
for such term or terms (which may be greater or less than the period which
constitutes the balance of the Lease Term) and on such terms and conditions
(which may include free rent, rental concessions or tenant inducements of any
nature) as Landlord in its absolute discretion may determine, and Landlord may
collect and receive any rents payable by reason of such reletting. In the event
any rentals actually collected by Landlord upon any such reletting for any
calendar month are in excess of the amount of rental payable by Tenant under
this Lease for the same calendar month, the amount of such excess shall belong
solely to Landlord, and Tenant shall have no right with respect thereto (except,
however, same shall be applied to Tenant's deficiency, if any). In the event it
is necessary for Landlord to institute suit against Tenant in order to collect
the rental or any other sum due hereunder or any deficiency between the rental
and any other sum provided for by this Lease for a calendar month and the rental
and any other sum actually collected by Landlord for such calendar month,
Landlord shall have the right to allow such deficiency to accumulate and to
bring an action upon several or all of such rental deficiencies at one time. Any
suit shall not prejudice in any way the right of Landlord to bring a similar
action for any subsequent rental deficiency or deficiencies.
27. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord
without liability for interest and as security for the performance by Tenant of
Tenant's covenants and
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obligations under this Lease, it being expressly understood that the Security
Deposit shall not be considered an advance payment of rental or a measure of
Landlord's damages in case of default by Tenant upon the occurrence of any event
of default by Tenant or upon termination of this Lease. Landlord may commingle
the Security Deposit with Landlord's other funds. Landlord may, from time to
time, without prejudice to any other remedy, use the Security Deposit to the
extent necessary to make good any arrearages of rent or to satisfy any other
covenant or obligation of Tenant hereunder. Following any such application of
the Security Deposit, Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount. If
Tenant is not in default at the termination of this Lease, the balance of the
Security Deposit remaining after any such application shall be returned by
Landlord to Tenant. If Landlord transfers its interest in the Premises during
the term of this Lease, Landlord may assign the Security Deposit to the
transferee and thereafter shall have no further liability for the return of such
Security Deposit.
28. Intentionally Deleted.
29. REMEDIES. No act or thing done by Landlord or its agents during the
term hereof shall be deemed an acceptance of an attempted surrender of the
Premises, and no agreement to accept a surrender of the Premises shall be valid
unless made in writing and signed by Landlord. No reentry or taking possession
of the Premises by Landlord shall be construed as an election on its part to
terminate this Lease, unless a written notice of such intention is given to
Tenant. Notwithstanding any such reletting or reentry or taking possession,
Landlord may at any time thereafter elect to terminate this Lease for a previous
default. Landlord's acceptance of rent following an event of default hereunder
shall not be construed as Landlord's waiver of such event of default. No waiver
by Landlord of any violation or breach of any of the terms, provisions and
covenants herein contained shall be deemed or construed to constitute a waiver
of any other violation or breach of any of the terms, provisions and covenants
herein contained. Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of any other violation or default. The failure of Landlord
to enforce the rules described in Paragraph 15 against Tenant or any other
tenant in the Building shall not be deemed a waiver of any such rules. No
provisions of this Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing and is signed by Landlord. The rights granted to
Landlord in this Lease shall be cumulative of every other right or remedy which
Landlord may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies. If Landlord brings any action under this
Lease, or consults or places this Lease or any amount payable by Tenant
hereunder with an attorney for the enforcement of any of Landlord's rights
hereunder, then Tenant agrees to pay to Landlord the reasonable attorney's fees
and other costs and expenses incurred by Landlord in connection therewith.
30. JOINT AND SEVERAL LIABILITY. If there are two or more parties
comprising Tenant, the obligations imposed upon Tenant pursuant to this Lease
shall be joint and several. If there is a guarantor of Tenant's obligations
under this Lease, the obligations of Tenant shall be joint and several
obligations of Tenant and such guarantor, and Landlord need not first proceed
against Tenant hereunder before proceeding against such guarantor; nor shall any
such guarantor be released from its guarantee for any reason whatsoever,
including, without limitation, any amendment of this Lease, any forbearance by
Landlord or waiver of any of Landlord's rights, the failure to give Tenant or
such guarantor any notices, or the release of any party liable for the payment
of Tenant's obligations hereunder.
31. CONSTRUCTIVE EVICTION. Tenant shall not be entitled to claim a
constructive eviction from the Premises unless Tenant shall have first notified
Landlord in writing of the condition or conditions giving rise thereto, and, if
the complaints be justified, unless Landlord shall have failed to remedy such
conditions within a reasonable time after receipt of said notice.
32. BUILDING NAME. Landlord reserves the right at any time to change
the name by which the Building is designated, and Landlord shall have no
obligation or liability whatsoever for costs or expenses incurred by Tenant as a
result of such name change of the Building.
33. SUBORDINATION. This Lease and all rights of Tenant hereunder are
subject and subordinate to any deeds of trust, mortgages or other instruments of
security which do now or
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may hereafter cover the Building and the Land or any interest of Landlord
therein, and to any and all advances made on the security thereof, and to any
and all increases, renewals, modifications, consolidations, replacements and
extensions of any of such deeds of trust, mortgages or instruments of security.
This provision is hereby declared by Landlord and Tenant to be self-operative
and no further instrument shall be required to effect such subordination of this
Lease. Tenant shall, however, upon demand at any time or times execute,
acknowledge and deliver to Landlord any and all instruments and certificates
that, in the judgment of Landlord, may be necessary or proper to confirm or
evidence such subordination, and Tenant hereby irrevocably appoints Landlord as
Tenant's agent and attorney-in-fact for the purpose of executing, acknowledging
and delivering any such instruments and certificates. However, notwithstanding
the generality of the foregoing provisions of this Paragraph 33, Tenant agrees
that any such mortgagee shall have the right at any time to subordinate any such
deeds of trust, mortgages or other instruments of security to this Lease on such
terms and subject to such conditions as such mortgagee may deem appropriate in
its discretion. Tenant further covenants and agrees upon demand by Landlord's
mortgagee at any time, before or after the institution of any proceedings for
the foreclosure of any such deeds of trust, mortgages or other instruments of
security, or sale of the Building pursuant to any such deeds of trust, mortgages
or other instruments of security or voluntary sale, to attorn to such purchaser
upon any such sale and to recognize and attorn to such purchaser as Landlord
under this Lease. The agreement of Tenant to attorn upon demand of Landlord's
mortgagee contained in the immediately preceding sentence shall survive any such
foreclosure sale or trustee's sale. Tenant hereby agrees to execute, acknowledge
and deliver to Landlord's mortgagee any and all instruments and certificates
that in the judgment of Landlord's mortgagee may be necessary or proper to
confirm or evidence such attornment, and Tenant hereby irrevocably appoints
Landlord's mortgagee as Tenant's agent and attorney-in-fact for the purpose of
executing, acknowledging and delivering any such instruments and certificates.
34. LEASE CERTIFICATES; FINANCIAL STATEMENTS. Tenant agrees to furnish
from time to time, within ten (10) days after requested by Landlord, a
certificate signed by Tenant and addressed to Landlord -- or at Landlord's
direction to any potential successor to Landlord or any existing or potential
holder of a deed of trust or mortgage covering the Land and Building or any
interest of Landlord therein -- to the effect that this Lease is then presently
in full force and effect and specifying any modifications; that the term of this
Lease has commenced and the full rental is then accruing hereunder; that Tenant
has accepted possession of the Premises and that any improvements required by
the terms of this Lease to be made by Landlord have been completed to the
satisfaction of Tenant; that no rent under this Lease has been paid more than
thirty (30) days in advance of its due date; that the address for notices to be
sent to Tenant is as set forth in this Lease; that Tenant, as of the date of
such certificate, has no charge, lien or claim of offset under this Lease or
otherwise against rents or other charges due or to become due hereunder; and
that to the knowledge of Tenant, Landlord is not then in default under this
Lease. The certificate shall also contain an acknowledgment by Tenant of receipt
of notice of the assignment of this Lease to such holder and the agreement by
Tenant with such holder that from and after the date of such certificate, Tenant
will not pay any rent under this Lease more than 30 days in advance of its due
date, will not surrender or consent to the modification of any of the terms of
this Lease nor to the termination of this Lease by Landlord, and will not seek
to terminate this Lease by reason of any act or omission of Landlord until
Tenant shall have given written notice of such act or omission to the holder of
such deed of trust or mortgage (at such holder's last address furnished to
Tenant) and until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such holder shall have the right, but
shall not be obligated, to remedy such act or omission; provided, however, that
if Tenant's certificate is executed before the assignment of Landlord's interest
in the Lease to such holder, then the agreement of Tenant described in this
sentence will be of no effect under such certificate unless Tenant is furnished
with a copy of the assignment to such holder within ninety (90) days after the
date of such certificate. Tenant shall also furnish to Landlord when requested
by Landlord, but no more often than one time per calendar year, a statement of
the financial condition of Tenant prepared by an independent Certified Public
Accountant and in form reasonably satisfactory to Landlord.
35. LIMITATION OF LANDLORD LIABILITY. The liability of Landlord to
Tenant for any default by Landlord under the terms of this Lease shall be
limited to the interest of Landlord in the Building and the Land, and Landlord
shall not be personally liable for any deficiency. This clause shall not be
deemed to limit or deny any remedies which Tenant may have in the event of
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default by Landlord hereunder which do not involve the personal liability of
Landlord. Notwithstanding anything to the contrary contained in this Lease, in
the event Landlord sells, assigns, transfers or conveys its interest in the
Land, Landlord shall have no liability for any acts or omissions that occur
after the date of said sale, assignment, transfer or conveyance.
36. CONSENTS. In all circumstances under this Lease where the prior
consent of one party (the "consenting party"), whether it be Landlord or Tenant,
is required before the other party (the "requesting party") is authorized to
take any particular type of action, such consent shall not be withheld in a
wholly unreasonable and arbitrary manner; however, the requesting party agrees
that its exclusive remedy if it believes that consent has been withheld
improperly (including, but not limited to, consent required from Landlord
pursuant to Paragraph 11 or Paragraph 21 of this Lease) shall be to institute
litigation either for a declaratory judgment or for a mandatory injunction
requiring that such consent be given (with the requesting party hereby waiving
any claim for damages, attorneys fees or any other remedy unless the consenting
party refuses to comply with a court order or judgment requiring it to grant its
consent).
37. NOTICES. Any notice required or permitted to be given hereunder by
one party to the other shall be deemed to be given when deposited in the United
States mail, certified or registered mail, return receipt requested, with
sufficient postage prepaid, or hand delivered, addressed to the respective party
to whom notice is intended to be given at the address of such party set forth
below its name where it has executed this Lease. Either party hereto may at any
time by giving written notice to the other party in the aforesaid manner
designate any other address in substitution of the foregoing address to which
any such notice shall be given.
38. BROKERAGE. Landlord and Tenant warrant to each other that they have
not had any dealings with any broker or agent in connection with the negotiation
or execution of this Lease except for the Leasing Agent, or Agents, if any,
listed in Paragraph 1(j) of this Lease; and each party agrees to indemnify the
other party and hold the other party harmless from and against any and all
costs, expenses or liability for commissions or other compensation or charges
claimed by any other broker or agent, through commitments of the indemnifying
party with respect to this Lease.
39. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord or Tenant, the party taking the action shall not
be liable or responsible for, and there shall be excluded from the computation
for any such period of time, any reasonable delays due to strikes, riots, acts
of God, shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
reasonable control of such party; provided, however, in no event shall the
foregoing apply to the financial obligations of either Landlord or Tenant to the
other under this Lease, including Tenant's obligation to pay Base Rentals and
all other amounts payable to Landlord hereunder.
40. NO THIRD PARTY BENEFICIARY. This Lease is for the sole benefit of
Landlord, its successors and assigns, and Tenant, its permitted successors and
assigns, and it is not for the benefit of any third party.
41. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during the term
of this Lease, then and in that event, it is the intention of the parties hereto
that the remainder of this Lease shall not be affected thereby, and it is also
the intention of the parties to this Lease that in lieu of each clause or
provision that is illegal, invalid or unenforceable, there be added as a part of
this Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
42. BINDING EFFECT. The provisions of this Lease shall be binding upon
and inure to the benefit of Landlord and Tenant, respectively, and to their
respective heirs, personal representatives, successors and assigns, subject to
the provisions of Paragraph 21, Paragraph 25, Paragraph 35 and Paragraph 46
hereof.
43. APPLICABLE LAW; CONSENT TO JURISDICTION. This Lease shall be
governed by and construed in accordance with the laws of the State of Texas and
the laws of the United States applicable to transactions in the State of Texas.
Tenant hereby irrevocably agrees that any legal action or proceeding against it
with respect to this Lease may be maintained in the courts of
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county where rent is payable under this Lease, or at Landlord's option in the
U.S. District Court for the Northern District of Texas; and Tenant hereby
consents to the jurisdiction and venue of such courts.
44. ENTIRE AGREEMENT; NO WARRANTIES. This Lease contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior and contemporaneous agreements, understandings,
promises, and representations made by either party to the other concerning the
subject matter hereof and the terms applicable hereto. It is expressly agreed by
Tenant, as a material consideration for the execution of this Lease, that there
have been no agreements pertaining to the Premises, the Building or this Lease
not incorporated in writing herein and that this Lease shall not be altered,
waived, amended or extended, except by a written agreement signed by the parties
hereto, unless otherwise expressly provided herein. Landlord's duties and
warranties are limited to those set forth in this Lease, and shall not include
any implied duties or warranties, all of which are hereby disclaimed by Landlord
and waived by Tenant. In particular, Landlord disclaims, and Tenant waives, any
warranty that the Premises are suitable or fit for any particular purpose or
use.
45. NO IMPLIED REPRESENTATIONS. LANDLORD AND TENANT HEREBY ACKNOWLEDGE
THAT THEY ARE NOT RELYING UPON ANY BROCHURE, RENDERING, INFORMATION,
REPRESENTATION, PROMISE OR UNDERSTANDING OF THE OTHER, OR OF ANY LEASING AGENT,
EXCEPT AS MAY BE EXPRESSLY SET FORTH [place an "X" or other mark designating a
choice in the appropriate box]:
[X] IN THIS LEASE.
[ ] IN _______________________________AS WELL AS IN THIS
LEASE.
NOTE: IF NO "X" (OR OTHER MARK DESIGNATING A CHOICE) IS PLACED IN EITHER BOX IN
THIS PARAGRAPH 45, THEN THE FIRST BOX WILL BE DEEMED TO HAVE BEEN MARKED.
46. EFFECTIVE DATE. The submission by Landlord of this instrument to
Tenant for examination, negotiation or signature does not constitute an option
for, or a representation by Landlord regarding, a prospective lease. This Lease
shall be effective if and when (and only if and when) it has been executed by
both Landlord and Tenant. When such condition has been satisfied, the effective
date of this Lease shall be the latest date accompanying a signature by Landlord
and Tenant below; and if either or both signatures fail to be accompanied by a
date, then the date of such signature(s) shall be established by the best
alternative evidence. If for any reason whatsoever this Lease has not been fully
executed within fifteen (15) business days after the signature of the first
party to sign, then this Lease shall be null and void and of no force or effect;
provided, however, that if more than 15 business days elapse between the dates
upon which Landlord and Tenant sign this Lease, but this Lease nevertheless is
in fact fully executed by both parties and following the execution of this Lease
by both parties and Tenant occupies the Premises, then the immediately preceding
provision of this sentence shall be inoperative and the remainder of this Lease
shall be in full force and effect.
[SIGNATURES ON THE NEXT PAGE]
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LANDLORD:
CHARTER CROWN PLAZA PARTNERS, L.P.
a Texas limited partnership
By: Charter Crown Plaza Investments, Inc.,
its General Partner
By:
---------------------------------------
Ray W. Washburne
President
Address: 2711 Cedar Springs Road
Dallas, TX 75201
Date of Signature:
------------------------
TENANT:
MIGRATEC, INC.,
a Florida corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address (Before Commencement Date):
------------------------------------
------------------------------------
Address (After Commencement Date):
------------------------------------
------------------------------------
Date of Signature:
------------------------
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EXHIBIT A TO LEASE AGREEMENT
[legal description of the Land]
BEING LOT 2A, BLOCK A, LUNA 635 BUSINESS PARK ADDITION, an addition to the City
of Farmers Branch, Dallas County, Texas, according to the Revised Map thereof
recorded in Volume 81138, Page 2802, Map Records of Dallas County, Texas, and
being more particularly described by metes and bounds as follows:
BEGINNING at a 1/4" iron rod found for corner in the south right-of-way line of
Crown Drive (a 64ft, R.O.W.): said iron rod being the most northerly point of a
corner cut-off at the present intersection of the south line of Crown Drive with
the east R.O.W. line of Luna Road (a 105' R.O.W.);
THENCE EAST, 577.41 feet with the south ROW line of Crown Drive to a 1/4" iron
rod found for corner at the northwest corner of Lot 3, Block A of the LUNA 635
BUSINESS PARK ADDITION, an addition to the City of Farmers Branch, Dallas
County, Texas, as recorded in Volume 79042, Page 2188, of the Deed Records of
Dallas County, Texas;
THENCE South 36935 feet with the west line of Lot 3 and 4 of said addition to a
5/8" iron rod set for corner;
THENCE North 89 degrees 54 minutes 30 seconds West, 592.36 feet to a 3/8" iron
rod found for corner in the east line of Luna Road;
THENCE North 00 degrees 47 minutes 49 seconds East, 358.59 feet with the east
line of Luna Road to a 1/4" iron rod found for corner at a corner cut-off;
THENCE North 45 degrees 20 minutes 33 seconds East, 14.01 feet with the cut-off
line to the POINT OF BEGINNING and containing 217,514 square feet or 4.9934
acres of land, more or less.
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EXHIBIT B TO LEASE AGREEMENT
[Floor Plan(s) of the Premises]
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EXHIBIT C TO LEASE AGREEMENT
PARKING PRIVILEGES
1. PARKING SPACES. At all times during the Lease Term, and conditioned
upon the Lease being in full force and effect and there being no
uncured default under this Lease as defined in Paragraph 26 of this
Lease, Landlord hereby agrees to make available to Tenant one parking
space for each 250 square feet of Rentable Space in the Premises. The
location of such spaces shall be selected by Landlord in its sole
discretion, and Landlord reserves the right to change the location of
such spaces from time to time.
2. PARKING RENTAL. The rent for all parking spaces which are allotted to
Tenant pursuant to Paragraph 1 immediately above shall be the rate
which is from time to time designated by Landlord as standard for the
Building. On the execution date of the Lease, the rate is $0.00 for
each parking space. After the initial term of the lease, Landlord shall
provide Tenant at least thirty (30) days notice of any change in the
parking rates, and Tenant shall pay the adjusted rent after the
expiration of the 30-day notice period. All payments of rent for
parking spaces shall be made (i) at the same time as each Base Rental
is due under the Lease and (ii) to Landlord or to such persons as
Landlord may direct from time to time.
3. PARKING ALLOCATION DEVICES. Landlord reserves the right to institute,
and from time to time change, a system for allocating parking spaces,
e.g., magnetic parking cards, parking stickers and other devices or
forms of identification. If Landlord issues magnetic parking cards,
parking stickers or any other device or form of identification, they
shall remain the property of Landlord and shall not be transferable.
Tenant will be obligated to pay a replacement charge, equal to the
amount posted from time to time by Landlord, for loss or other
replacement of any magnetic parking card, parking sticker or other
parking allocation device issued by Landlord.
4. DAMAGE TO OR CONDEMNATION. If Landlord fails or is unable to provide
any parking space to Tenant pursuant to Paragraph 1 above because of
damage or condemnation, such failure or inability shall never be deemed
to be a default by Landlord as to permit Tenant to terminate the Lease,
either in whole or in part. Instead, Tenant's obligation to pay rent
for any such parking space, which is not provided by Landlord shall be
abated for so long as Tenant does not have the use of such parking
space, and such abatement shall constitute full settlement of all
claims that Tenant might otherwise have against Landlord by reason of
such failure or inability to provide Tenant with such parking space.
5. RULES AND REGULATIONS. A condition of any parking shall be compliance
by the parker with garage or lot rules and regulations, including any
sticker or other identification system which may be established by
Landlord. The following rules and regulations are in effect until
notice is given to Tenant of any change. Landlord reserves the right to
modify and/or adopt such other reasonable and generally applicable
rules and regulations for the applicable parking areas as it deems
necessary for the operation of such areas.
(a) Cars must be parked entirely within the painted stall lines.
(b) All directional signs and arrows must be observed.
(c) The speed limit shall be five (5) miles per hour.
(d) Parking is prohibited in areas not striped for parking,
aisles, areas where "no parking" signs are posted, in cross
hatched areas and in such other areas as may be designated by
Landlord or Landlord's agent(s) including, but not limited to,
areas designated as "Visitor Parking" or reserved spaces not
rented under this Agreement.
(e) Every parker is required to park and lock his or her own car.
All responsibility for damage to cars or persons or loss of
personal possessions is assumed by the parker.
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<PAGE> 25
(f) Spaces which are designated for small, intermediate or
full-sized cars shall be so used. No intermediate or full-size
cars shall be parked in parking spaces limited to compact
cars.
6. SPECIAL PROVISIONS REGARDING OVER-PARKING. Landlord agrees to use its
good faith efforts to monitor the parking usage of tenants in the
Building and attempt to restrict tenants against permitting their
owners, officers, employees, agents and invitees to utilize more
parking spaces than they are allotted pursuant to their respective
leases. Tenant agrees to cooperate with Landlord's efforts in this
regard. In addition, and without limiting the generality of the
immediately preceding sentence, Tenant further agrees that if and to
the extent requested in writing by Landlord because of Landlord's
concern that Tenant's owners, officers, employees, agents and/or
invitees are utilizing more parking spaces than Tenant has been
allotted under this Exhibit C, then at Landlord's option any one or
more of the following shall apply (i.e., the following are cumulative
and not mutually exclusive):
(a) Tenant shall deliver written notices to all employees and
other persons who might be utilizing parking spaces, advising
them of the parking limits under this Exhibit C.
(b) Tenant shall furnish to Landlord a complete list of license
numbers of all automobiles operated by Tenant and its owners,
officers, employees, agents and invitees who might be
utilizing parking spaces.
(c) If any automobile or other vehicle owned by Tenant or any of
its employees, agents or other invitees is utilizing a parking
space in excess of those allotted to Tenant under this Exhibit
C, Tenant shall pay to Landlord as additional rent upon demand
an amount equal to the daily rate or charge for such parking
as established by Landlord from time to time for each day, or
part thereof, that such automobile or other vehicle is so
parked.
(d) If any overparking by Tenant, its employees, agents and other
invitees, persists after written notice thereof from Landlord
to Tenant, such continued overparking shall constitute a
failure of Tenant to comply with this Exhibit C; and such
written notice from Landlord shall constitute the "written
notice thereof" which is contemplated in item (ii) of Section
26(a) of this Lease, i.e., the overparking shall constitute an
event of default under this Lease if not cured within 30 days
after such written notice.
25
<PAGE> 26
EXHIBIT D TO LEASE AGREEMENT
LEASEHOLD IMPROVEMENTS AGREEMENT
THIS LEASEHOLD IMPROVEMENTS AGREEMENT (this "AGREEMENT") is hereby incorporated
into the attached Lease Agreement (the "LEASE"), executed concurrently herewith
by and between the "LANDLORD" and the "TENANT" described in such Lease, and
constitutes the entire agreement of Landlord and Tenant with respect to the
construction and completion of the Premises described in the Lease. In the event
of a conflict between the provisions of this Agreement and other provisions of
the Lease, the provisions of this Agreement, as amended, will control. Terms
defined in the Lease, when used herein, shall have the same meanings as are
ascribed to them in the Lease.
1. Premises Condition. Subject to the provisions of this Agreement,
Tenant has agreed to accept the Premises "as is," in their presently existing
condition. Tenant acknowledges having inspected the Premises.
2. At such time that Landlord leases the Refusal Space to a third party
or Landlord deems necessary Landlord will construct a building standard demising
wall in the area shown on Exhibit B.
26
<PAGE> 27
EXHIBIT E TO LEASE AGREEMENT
BUILDING RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, corridors, stairways and other
similar areas shall not be obstructed by Tenant or used by Tenant for any
purpose other than ingress and egress to and from the Premises and for going
from or to another part of the Building.
2. Plumbing fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable
materials shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances or surrounding areas from misuse by Tenant shall be
repaired at the sole cost and expense of Tenant, and Landlord shall not in any
case be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on
or to any windows or doors or other parts of the Building except of such color,
size and style and in such places as shall be first approved in writing by
Landlord. No nails, hooks or screws shall be driven or inserted in any part of
the Building except by the Building maintenance personnel nor shall any part of
the Building be defaced by Tenant. No curtains or other window treatments will
be placed between the glass and the Building standard window treatments.
4. Landlord will provide and maintain an alphabetical directory of each
Tenant's firm name on the first floor (main lobby) of the Building. No other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Tenant shall not place any additional lock or locks on any doors in
or to the Premises without Landlord's prior written consent. A reasonable number
of keys to the locks on the doors which access the Premises from the Common
Areas shall be furnished by Landlord to Tenant, and Tenant shall not have any
duplicate keys made. Upon termination of the Lease, Tenant shall return all keys
to Landlord and shall provide to Landlord a means of opening all safes, cabinets
and vaults being left with the Premises.
6. With respect to work being performed by Tenant in the Premises with
the approval of Landlord, Tenant will refer all contractors, contractor's
representatives and installation technicians rendering any service to them to
Landlord for Landlord's supervision, approval and control before the performance
of any contractual services. This provision shall apply to work performed in the
Building including, but not limited to, installation of telephones, telegraph
equipment, electrical devices and attachments, and any and all installation of
every nature affecting floors, walls, woodwork, trim, windows, ceilings,
equipment and any other physical portion of the Building. Tenant must have
Landlord's written approval prior to employing any contractor. Any and all such
contractors shall comply with these Rules and Regulations for such services
including, but not limited to, insurance requirements. All work in or on the
Building shall comply with any and all codes.
7. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by Tenant of any bulky materials, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be restricted to such hours as Landlord shall
designate. All such movement shall be under the supervision of Landlord and in
the manner agreed between Tenant and Landlord by prearrangement before
performance. Such prearrangement initiated by Tenant will include determination
by Landlord, and subject to its decision and control, as to the time, method and
routing of movement and as to limitations for safety or other concerns which may
prohibit any article, equipment or any other item from being brought into the
Building. Tenant is to assume all risk as to damage to articles moved and injury
to person or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord and other tenants if damaged or
injured as a result of acts in connection with carrying out this service for
Tenant from the time of entering the property to completion of work; and
Landlord shall not be liable for acts of any person engaged in, or any damage or
loss to any of said property or persons resulting from any act in connection
with such service performed for Tenant.
27
<PAGE> 28
8. Landlord shall have the power to prescribe the weight and position
of safes and other heavy equipment, which shall, in all cases, be positioned to
distribute the weight and stand on supporting devices approved by Landlord. All
damage done to the Building by taking in or putting out any property of Tenant,
or done by Tenant's property while in the Building, shall be repaired at the
expense of Tenant.
9. Tenant, in its capacity as an employer, shall establish -- and
shall use reasonable measures to enforce -- a policy for its employees which
prohibits firearms (including, but not limited to, concealed handguns) in the
Building and the Premises.
10. Tenant shall cooperate with Landlord's employees in keeping its
Premises neat and clean. Tenant shall not employ any person for the purpose of
such cleaning other than the Building's cleaning and maintenance personnel.
Landlord shall be in no way responsible to Tenant, its agents, employees or
invitees for any loss of property from the Premises or public areas or for any
damage to any property thereon from any cause whatsoever.
11. To insure orderly operation of the Building, no ice, mineral or
other water, towels, newspapers, etc. shall be delivered to the Premises except
by persons appointed or approved by Landlord in writing.
12. Corridor doors, when not in use, shall be kept closed.
13. Should Tenant require telegraphic, telephonic, annunciator or other
communication service, Landlord will direct the electrician in writing where and
how wires are to be introduced and placed and none shall be introduced or placed
except as Landlord shall direct. Electric current shall not be used for power in
excess of standard office use or heating without Landlord's prior written
permission. Landlord shall have the sole discretion as to which communication
company or companies are permitted to enter the Building and service tenants in
the Building.
14. Tenant shall not make or permit any improper odors or noises in the
Building or otherwise interfere in any way with other tenants or persons having
business with them.
15. Nothing shall be swept or thrown into the corridors, halls,
elevator shafts or stairways. No animals shall be brought into or kept in, on or
about the Premises.
16. No machinery other than standard office equipment shall be operated
by Tenant in its Premises without the prior written consent of Landlord, nor
shall Tenant use or keep in the Building any flammable or explosive fluid or
substance.
17. No portion of the Premises shall at any time be used or occupied as
sleeping or lodging quarters.
18. Landlord will not be responsible for money, jewelry or other
personal property lost or stolen in or from the Premises or public areas
regardless of whether such loss or theft occurs when the area is locked against
entry or not.
19. Landlord reserves the right to rescind any of these rules and
regulations and to make such other and further rules and regulations as in its
judgment shall from time to time be advisable for the safety, protection, care
and cleanliness of the Building, the use and operation thereof, the preservation
of good order therein and the protection and comfort of the tenants and their
agents, employees and invitees, which rules and regulations, when made and
written notice thereof is given to Tenant, shall be binding upon Tenant in like
manner as if originally herein prescribed; provided, however, that no new rules
or regulations shall deprive Tenant of any rights expressly granted to Tenant
pursuant to this Lease.
28
<PAGE> 29
Rider No. 101
TENANT'S OPTION TO RENEW
Tenant may, at its option, renew the term of this Lease for one (1)
additional term(s) of 60 months each, provided that this Lease must be in full
force and effect under the original term or any valid renewal thereof, and
Tenant shall not be in default in any of its obligations under this Lease at the
time of exercise of such option or at the time the renewal term would begin.
Each renewal shall be upon the same terms and conditions as provided elsewhere
in this Lease, except that (i) the original term of this Lease may not be
renewed more often than as set forth above, (ii) Landlord shall have no
obligation to install improvements in the Premises, and (iii) the annual Base
Rental for such renewal period(s), i.e., to be payable in equal monthly
installments in the same manner as during the primary Lease Term, shall be the
Prevailing Rental Rate (described below) . Each such option shall be exercised
by Tenant's giving notice to Landlord by certified mail, return receipt
requested, at least one year prior to the end of the then-existing term; and, if
not so exercised, such option shall automatically expire and terminate (i.e.,
time being of the essence).
For purposes of determining the annual Base Rental for each renewal
period, the "PREVAILING BUILDING RENTAL RATE" shall mean the annual rental rate
then being charged by Landlord in the project for space comparable to the
Premises, taking into consideration use, location and floor level within the
Building, rental concessions then being granted by Landlord under similar
circumstances, the date the particular rate under consideration is to become
effective, and the term of the lease under consideration.
29
<PAGE> 30
Rider No. 102
TENANT'S RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE
1. Provided that this Lease continues in full force and effect without any
uncured default by Tenant, Tenant shall have a right of first refusal to lease
any vacant space in the area(s) designated in Paragraph 2 below (with the
designated area(s) being hereinafter referred to as the "DESIGNATED AREA"),
which Landlord intends to market for lease to a party or parties other than the
current tenant(s) thereof. The right granted by this Rider, however, is subject
to the following terms and conditions:
(a) If a proposed tenant, i.e., other than the current tenant in the
space, gives Landlord an expression of interest in leasing then vacant
space within the Designated Area (either as a separate leased premises
or together with space outside the Designated Area), and if Landlord
intends to enter into a lease with the proposed tenant for such space,
Landlord shall deliver to Tenant a written notice which (i) specifies
the portion or portions of the Designated Area and, if applicable, any
other space in the Building which the proposed tenant wishes to lease
and Landlord intends to allow to be leased along with the portion or
portions of the Designated Area (all such space being referred to
collectively as the "REFUSAL SPACE"), (ii) identifies the proposed
tenant, (iii) summarizes what Landlord considers to be the most
significant business terms of the proposed lease, and (iv) offers to
lease the Refusal Space to Tenant on the same terms and conditions as
Landlord intends to offer to the proposed tenant. Tenant shall then
have a period of seven (7) business days from the delivery of such
notice (the "DELIVERY DATE") to accept the lease offered by Landlord.
If within the 7 business-day period Tenant does not give Landlord
written notice of its acceptance of the lease offered by Landlord (time
being of the essence), then Landlord shall be entitled to execute with
the proposed tenant identified in Landlord's notice to Tenant (or with
an "affiliated entity," i.e., an entity affiliated to such identified
proposed tenant by common ownership), a lease of the Refusal Space for
the same or better (for Landlord) terms as stated in the notice to
Tenant. If within one hundred eighty (180) days after the Delivery Date
Landlord does so execute a lease of the Refusal Space, this right of
first refusal shall terminate (i.e., as to the entirety of the
Designated Area) and this Rider shall have no further force or effect.
If Landlord does not execute a lease of the Refusal Space with the
proposed tenant or an affiliated entity within one hundred eighty (180)
days after the Delivery Date, then Landlord shall again comply with the
terms of this Rider in marketing the portion of the Refusal Space which
is in the Designated Area.
(b) Notwithstanding the fact that this Rider is a right of first
refusal, Landlord and Tenant further agree that if the Refusal Notice
for any Refusal Space is delivered by Landlord on or before October 31,
2000, then the Refusal Space shall be leased under the same conditions
as to rent, Landlord's obligation for a finish-out Allowance and lease
term (i.e., 39 months) and other provisions as if included in the
Premises on the Commencement Date of the Lease Term, with the following
exceptions:
(1) The Commencement Date for the Refusal Space shall be as
designated by Landlord in the Refusal Notice.
2. For purposes of this Rider, the term "DESIGNATED AREA" shall be deemed to
mean:
The remaining 3,835 rentable square feet on the first floor of 11494
Luna Road.
30
<PAGE> 31
Rider No. 103
PROJECT DESCRIPTION AND APPLICATION
Landlord and Tenant acknowledge that the Building described in this
Lease is included within an office building project identified below (the
"PROJECT"), which contains more than one office building. Accordingly, the
parties agree that all references to the term "Building" in Paragraph 1(n) of
this Lease (entitled "Rentable Space") and Paragraph 4 of this Lease (entitled
"Adjustment of Base Rental") shall be changed to the term "Project"; moreover,
such change shall also be effected in other provisions of this Lease where in
Landlord's reasonable determination a "Project" reference is more appropriate
than a "Building" reference.
PROJECT DESCRIPTION:
Name of the Project: Crown Plaza Business Park
Number of Office Buildings Within the Project: 3
31
<PAGE> 32
Rider No. 104
SPECIAL SIGN RIGHTS FOR TENANT
1. At all times during the Lease Term, and conditioned upon this Lease being in
full force and effect and there being no uncured event of default (as specified
in Paragraph 26 of the text of this Lease) under this Lease by Tenant, Tenant
shall have the following sign rights:
(i) For as long as MigraTEC, Inc. ("MIGRATEC") occupies at least
9,988 square feet of the Premises, MigraTEC may place its
building fascia sign on the top of the 2nd story of the west
side of the Building which face Luna Road. The exact location,
manner of installation, size, shape, specifications and design
of the fascia sign shall be subject to Landlord's approval
(not to be unreasonably withheld or delayed), as well as the
approvals (if any, and with Landlord making no representations
or warranties in this regard, except as expressly set out in
Paragraph 2 of this Rider) required by any city government or
other zoning or regulatory authority. Landlord hereby reserves
the right to place or to permit to be placed additional signs
on the Land and/or Building, i.e., the right granted in this
subsection is a non-exclusive right. The cost of Tenant's sign
shall be borne solely by Tenant; moreover, at the conclusion
of the Lease Term, if Landlord so requests, Tenant shall, at
its sole expense, promptly remove its fascia sign and restore
any damage caused to the Building by the fascia sign.
(ii) Notwithstanding anything to the contrary contained above in
this Paragraph 1, the parties agree as follows:
(A) Tenant's sign rights in this Paragraph 1 are
contingent upon MigraTEC's leasing and being "in
possession" (as defined in subsection (B) immediately
below) of at least 9,988 square feet of Rentable
Space in the Building. Accordingly, if at any time
MigraTEC is not leasing and in possession of at least
9,988 square feet of Rentable Space in the Building,
and if Tenant fails to cure such failure within
thirty (30) days after Landlord's written notice to
Tenant, then for as long as MigraTEC is not "in
possession," Tenant shall not be entitled to the sign
rights specified in this Paragraph 1.
(B) For purposes of subsection (A) immediately above,
MigraTEC shall not be entitled to include as space
which it is "in possession" (as that term is used in
subsection (A) above) any Rentable Space which it has
assigned or subleased to any party other than as
permitted in Paragraph 21 of this Lease; however,
MigraTEC shall be deemed to be "in possession" of
space which it has vacated but has not subleased or
assigned.
32
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE:
COMPUTATIONS OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Numerator:
Numerator for basic and diluted loss per share -
Net loss before extraordinary item $ (3,688,009) $ (3,741,074)
Extraordinary item (496,069) 282,999
--------------- ---------------
Net loss $ (4,184,078) $ (3,458,075)
=============== ===============
Denominator:
Denominator for basic loss per share - weighted average
shares 53,216,891 40,220,420
Effect of dilutive securities:
Stock options and warrants -- --
--------------- ---------------
Dilutive potential common shares -- --
--------------- ---------------
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed
conversions 53,216,891 40,220,420
=============== ===============
Basic loss per share $ (0.079) $ (0.086)
=============== ===============
Diluted loss per share $ (0.079) $ (0.086)
=============== ===============
</TABLE>
The Company incurred a net loss for the years ended December 31, 1999 and 1998,
there were no adjustments for potentially dilutive securities as the adjustments
would have been anti-dilutive.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY OF MIGRATEC, INC.
MigraTEC, Inc. owns a majority interest in One Up Computer Services,
Ltd., incorporated under the laws of the Province of Ontario, Canada.
The operations of One Up Computer Services, Ltd. ceased in 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998, FILED AS PART OF FORM 10-KSB ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,417
<SECURITIES> 0
<RECEIVABLES> 160,700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 190,333
<PP&E> 839,091
<DEPRECIATION> 765,726
<TOTAL-ASSETS> 367,746
<CURRENT-LIABILITIES> 1,584,804
<BONDS> 0
0
0
<COMMON> 9,912,535
<OTHER-SE> (11,154,606)
<TOTAL-LIABILITY-AND-EQUITY> 367,746
<SALES> 0
<TOTAL-REVENUES> 905,179
<CGS> 0
<TOTAL-COSTS> 4,225,048
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415,292
<INCOME-PRETAX> (3,734,882)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,734,882)
<DISCONTINUED> 0
<EXTRAORDINARY> (496,069)
<CHANGES> 0
<NET-INCOME> (4,230,951)
<EPS-BASIC> (0.079)
<EPS-DILUTED> (0.079)
</TABLE>
