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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-17995
ZIXIT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
TEXAS 75-2216818
(State of Incorporation) (I.R.S. Employer Identification Number)
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ONE GALLERIA TOWER
13355 NOEL ROAD
SUITE 1555
DALLAS, TEXAS 75240-6604
(Address of Principal Executive Offices)
(972) 702-7055
(Registrant's Telephone Number, Including Area Code)
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Securities Registered Pursuant to Section 12(b) of the Act:
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NONE NOT APPLICABLE
(Title of Class) (Name of Exchange on Which Registered)
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Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK
$0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 29, 2000, there were 15,344,329 shares of ZixIt Corporation
$0.01 par value common stock outstanding, 13,209,568 of which having an
aggregate market value of $710,423,777 were held by non-affiliates. For purposes
of the above statement, all directors and officers of the Registrant are
presumed to be affiliates.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
ZixIt Corporation ("ZixIt" or "the Company") develops and markets products
and services that enhance privacy, security and convenience over the Internet.
In October 1999, the Company purchased all of the outstanding shares of
Anacom Communications, Inc. ("Anacom"), a provider of Internet transaction
processing and real-time credit processing services to Internet merchants.
Successful growth of a development stage enterprise, like ZixIt, is costly.
Moreover, the Internet arena is highly competitive. ZixIt's growth depends, in
large measure, on the timely development and market acceptance of its new
products. ZixIt's future growth involves risks and uncertainties, and there are
no assurances that ZixIt will be successful in its current business endeavors.
See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" below for a description of certain management
assumptions, risks and uncertainties relating to ZixIt's operations.
ZixIt was incorporated in Texas in 1988. ZixIt's executive offices are
located at One Galleria Tower, 13355 Noel Road, Suite 1555, Dallas, Texas
75240-6604 (telephone (972) 702-7055). ZixIt's secure data center is also
located in Dallas, Texas, and its HTTP/SMTP relay systems are located in
Herndon, Virginia and San Jose, California.
PRODUCTS
ZixMail(TM) is a secure document delivery, private email and message
tracking service that enables Internet users worldwide to easily send and
receive encrypted and digitally signed email communications without changing
their existing email systems or addresses. ZixMail uses 1024-bit public key and
Triple-DES encryption. Among the features offered, ZixMail allows only intended
recipients to read email messages, protects email messages from tampering,
identifies irrefutably the sender of an email message, adds a certified
time-stamp to each email message, and compresses and encrypts email file
attachments. ZixMail was released in its commercial version in March 2000.
Following a free introductory period, the pricing for ZixMail is expected to be
$1 per month per email address, plus an additional relay fee per email message
for those ZixMail users who optionally choose to route email messages through a
ZixMail HTTP/SMTP relay, rather than using their existing SMTP mail server. The
HTTP/SMTP relay enables ZixMail to be used with Web-based or proprietary email
systems. Potential ZixMail customers include individuals and businesses having a
need for secure communication and document transmission, such as the academic,
accounting, banking, brokerage, healthcare and legal industries. ZixIt has
received worldwide encryption export approval from the U.S. Department of
Commerce for ZixMail. Countries excluded from the approval are Cuba, Iran, Iraq,
Libya, North Korea, Serbia, Sudan and Syria.
ZixCharge(TM), which is currently under development, is a shopping portal
and Internet payment authorization system that enables consumers, using their
existing charge cards, to purchase goods and services over the Internet without
being required to provide personal and charge card information to Internet
merchants. ZixCharge, which will be free to consumers, uses a charge slip user
interface to deliver privacy, security and convenience to consumers.
EMPLOYEES
ZixIt had 82 employees as of February 29, 2000.
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RESEARCH AND DEVELOPMENT; PATENTS AND TRADEMARKS
ZixIt's continuing operations incurred research and development expenses of
$23,548,000 in 1999 and none in 1998 and 1997. Research and development expenses
related to ZixIt's discontinued operations amounted to $4,931,000 and
$11,332,000 in 1998 and 1997, respectively.
ZixIt has filed several patent applications covering concepts ZixIt is
employing, or may employ, in implementing its Internet businesses. In addition,
ZixIt and certain of its subsidiaries have filed for trademarks and service
marks, as applicable, for "ZixCharge", "ZixIt", ZixMail", "ZixMall", "ZixWallet"
and other marks.
CUSTOMERS
ZixIt, a development stage company, had no significant revenues in 1999.
SALES BACKLOG
As a development stage company, ZixIt had no measurable backlog as of
February 29, 2000 and February 28, 1999.
GEOGRAPHIC INFORMATION
ZixIt's operations are based in the United States, and corporate assets at
December 31, 1999 were primarily comprised of cash investments and marketable
securities invested in U.S. corporate debt securities and U.S. government agency
securities.
ITEM 2. PROPERTIES.
ZixIt leases approximately 6,910 square feet of space for its corporate
offices in Dallas, Texas, under a lease that expires in July 2003 and
approximately 29,000 square feet of space for its primary secure data center
operations in Dallas, Texas, under a sublease that expires in September 2004. In
1999, ZixIt invested approximately $23,000,000 in property and equipment to
establish the secure data center. Features of the secure data center include:
- Multi-level security, including cameras, access controlled with badge and
biometric hand readers and 24-hour operations personnel and security
guards
- Communications:
- Three redundantly configured DS3 (45 Mbit) fiber connections
- Three independent ISPs
- Redundant Cisco 7,500 routers
- Power:
- Redundant electrical feeds from two independent utility power grids
- Redundant 400 kw UPS systems
- 1,000 kw diesel generator located underground
- Four redundantly configured Power Distribution Units (PDU's)
- Two Sun (Starfires) Enterprise 10,000 Application Servers; currently 64
Central Processing Units (CPUs), but expandable to 128 CPUs
- 64 Sun UltraSparc Web Servers, expandable to 320
- 4 EMC Symmetrix(TM) 3830 Enterprise Storage units for online storage (5
Terabytes currently, but expandable to 12 Terabytes)
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- StorageTek automated tape library (360-tape capacity) for offline storage
(12-20 Terabytes)
- Email-based customer response center systems, including 3 Intel-based
servers with estimated intelligent response capacity of 20,000 inquiries
per day
ZixIt is currently in the process of completing a smaller, redundant system to
be used as a backup secure data center and building an additional HTTP/SMTP
relay system to be located in Dallas.
ZixIt also leases space in Herndon, Virginia and San Jose, California for
its HTTP/SMTP relay systems under leases that expire in June 2000 and June 2001,
respectively. These relays enable ZixIt to serve those ZixMail users who choose
not to use their existing SMTP mail servers or who desire to use a HTTP-based
email address, such as a Yahoo(TM) or HotMail(TM) address.
ITEM 3. LEGAL PROCEEDINGS.
On December 30, 1999, ZixIt and ZixCharge.com, Inc., a wholly-owned
subsidiary of ZixIt, filed a lawsuit against Visa U.S.A., Inc. and Visa
International Service Association (collectively "Visa") in the 192nd Judicial
District Court of Dallas County, Texas. The suit alleges that Visa undertook a
series of actions that interfered with ZixIt's business relationships and
disparaged ZixIt, its products, its management and its stockholders. The suit
alleges that Visa intentionally set out to destroy ZixIt's ability to market its
ZixCharge shopping portal and payment authorization system, which competed
against the MasterCard and Visa-owned Secure Electronic Transaction system. The
suit seeks monetary damages and such other relief as the court deems
appropriate.
From time-to-time, ZixIt is involved in legal proceedings that arise in the
ordinary course of business. In the opinion of management, the outcome of
pending legal proceedings will not have a material adverse affect on ZixIt's
consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
ZixIt's common stock trades on The Nasdaq Stock Market under the symbol
ZIXI. The following table shows the high and low sales prices by quarter for
1999 and 1998. These prices do not include adjustments for retail mark-ups,
mark-downs or commissions.
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1999 1998
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QUARTER ENDED HIGH LOW HIGH LOW
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March 31............................................ $19.75 $ 6.69 $ 4.87 $3.25
June 30............................................. $90.00 $15.00 $ 5.62 $3.37
September 30........................................ $56.00 $25.62 $ 7.00 $4.56
December 31......................................... $71.31 $23.50 $12.31 $3.50
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At February 29, 2000, there were 15,344,329 shares of common stock
outstanding held by 1,584 stockholders of record. On that date, the last
reported sales price of the common stock was $53.78.
ZixIt has not paid any cash dividends on its common stock during the last
two years and does not anticipate doing so in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data regarding the
Company's results of operations and financial position for, and as of the end
of, each of the years in the five-year period ended December 31, 1999, which are
derived from the consolidated financial statements of the Company, which have
been audited. The consolidated financial statements and notes thereto as of
December 31, 1999 and 1998, and for the years ended December 31, 1999, 1998 and
1997, and the report of Ernst & Young LLP thereon are included elsewhere in this
Form 10-K. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere herein.
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YEAR ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA(1):
Revenues.................................. $ 99 $ -- $ -- $ -- $ --
Research and development expenses(5)...... (23,548) -- -- -- --
Operating costs and general corporate
expenses(2)(5).......................... (16,696) (4,022) (2,931) (3,012) (2,246)
Investment income, net.................... 3,533 1,956 1,068 2,793 2,127
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Loss from continuing operations before
income taxes............................ (36,612) (2,066) (1,863) (219) (119)
Income taxes.............................. 807 576 (8) (77) 43
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Loss from continuing operations........... (35,805) (1,490) (1,871) (296) (76)
Discontinued operations(1)
Income (loss) from discontinued
operations, net of income
taxes(3)(4).......................... -- 6,105 (12,089) (348) (4,011)
Gain (loss) on sale of discontinued
operations, net of income taxes...... 1,453 21,651 (3,657) -- --
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1,453 27,756 (15,746) (348) (4,011)
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Net income (loss)......................... $(34,352) $26,266 $(17,617) $ (644) $(4,087)
======== ======= ======== ======= =======
Basic and diluted earnings (loss) per
common share
Continuing operations................... $ (2.35) $ (0.09) $ (0.12) $ (0.02) $ (0.01)
Discontinued operations................. 0.10 1.75 (1.05) (0.02) (0.27)
-------- ------- -------- ------- -------
Net income (loss)....................... $ (2.25) $ 1.66 $ (1.17) $ (0.04) $ (0.28)
======== ======= ======== ======= =======
Shares used in computing basic and diluted
earnings (loss) per share............... 15,244 15,836 15,081 14,637 14,655
Cash dividends declared per common
share................................... -- -- -- -- $ 0.02
BALANCE SHEET DATA:
Working capital........................... $ 39,766 $81,291 $ 63,648 $43,047 $49,349
Total assets.............................. 66,523 86,898 63,919 72,206 73,479
Total stockholders' equity................ 62,894 81,449 63,696 71,756 72,561
Stockholders' equity per share............ 4.10 5.40 3.76 4.87 4.97
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(1) In 1995, the Company acquired Cotag International Limited, Cardkey Systems,
Inc., Cardkey Systems Limited and WaveNet International, Inc. WaveNet
International, Inc. was sold in 1997, while the remainder of these
businesses and the Company's Transportation Systems Group ("TSG") were sold
in 1998. The operating results of these businesses have been classified as
discontinued operations for all periods presented. See Note 2 to
consolidated financial statements included herein.
(2) Operating costs and general corporate expenses for the years 1995 through
1998 represent the costs associated with a holding company function.
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(3) In 1997, loss from discontinued operations includes a $5.7 million pre-tax
contract loss provision related to a multi-year implementation of an
electronic toll collection system by the TSG.
(4) In 1997, income taxes related to discontinued operations includes $4.7
million representing the effect of establishing a valuation allowance for
U.S. deferred tax assets.
(5) In 1999, expenses associated with continuing operations include non-cash
stock-based compensation of $12.3 million. See Note 4 to consolidated
financial statements included herein.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Historically, the Company operated in one industry segment, the provision
of systems and solutions for the intelligent transportation, electronic security
and other markets through the design, manufacturing, installation and support of
hardware and software products utilizing the Company's wireless data and
security technologies. The businesses comprising this industry segment were sold
during 1998 and 1997 and have been reclassified as discontinued operations in
the consolidated financial statements. See Note 2 to the consolidated financial
statements, "Discontinued Operations," for additional discussion.
During 1999, the Company has been developing a digital signature and
encryption technology and is planning a series of products that enhance privacy,
security and convenience over the Internet. ZixMail(TM), which was commercially
released in March 2000, is a secure document delivery, private email and message
tracking service that enables Internet users worldwide to easily send and
receive encrypted and digitally signed communications without changing their
existing email systems or addresses. ZixCharge(TM), which has not been
commercially released, is a shopping portal and payment authorization system
that enables consumers to purchase goods and services over the Internet without
being required to provide personal and charge card information to Internet
merchants. Additionally, in October 1999, the Company purchased all of the
outstanding shares of Anacom Communications, Inc. ("Anacom"), a provider of
Internet transaction processing and real-time credit processing services to
Internet merchants.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Revenues
Revenues in 1999 are attributable to Anacom since it was acquired by the
Company in October 1999.
Research and development expenses
The Company began incurring development expenses for its current business
endeavors in the first quarter of 1999, resulting in total research and
development expenses of $23,548,000 for the year. These expenses include a net
non-cash charge of $6,915,000 representing the fair value of options granted to
Lante Corporation ("Lante"), a third party Internet services company who
assisted the Company with its development efforts reduced by $1,872,000, the
fair value, on the date of grant, of options granted to the Company by Lante.
Lante's engagement was completed in November 1999, resulting in a final
valuation for the options granted to Lante. The remaining research and
development expenses of $16,633,000 primarily consists of expenditures to third
parties, including $11,282,000 paid to Lante, for development of software for
the Company's base technology and related ZixMail and ZixCharge systems.
Operating costs and general corporate expenses
Operating costs and general corporate expenses increased from $2,931,000 in
1997 to $4,022,000 in 1998 and further increased to $16,696,000 in 1999.
Expenditures in 1997 and 1998 represent general corporate expenses, with the
change between these years primarily attributable to an expense charge of
approximately $1,000,000 incurred in connection with the Company's former
chairman, president and chief executive officer's severance agreement and stock
options. The change from 1998 to 1999, amounting to $12,674,000, is primarily
due to expenditures for marketing, expanded lease facilities, personnel and
start-up operating costs
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relating to establishing the Company's Internet related businesses. Included in
1999 are non-cash charges of $8,257,000, including a non-recurring expense of
$3,335,000, relating to stock options granted in January 1999 to certain of the
Company's outside directors under a plan that was approved by the stockholders
in September 1999.
The Company has granted options to two service providers to purchase up to
150,000 shares of the Company's common stock. These options had an estimated
fair value aggregating $4,617,000 as of December 31, 1999 using the
Black-Scholes option valuation model. Accounting for these options require that
they be revalued on each subsequent reporting date until performance is complete
with a cumulative catch up adjustment recognized for any changes in their fair
value. The Company's future results of operations could be materially impacted
by a change in valuation of these stock options as a result of future increases
or decreases in the price of the Company's common stock. Separately,
consideration for the purchase of Anacom included common stock, valued at a
minimum of $7,500,000, to be delivered in two annual installments beginning in
October 2000, assuming continued employment by the former owners. The minimum
stock value of $7,500,000 is treated as compensation for financial accounting
purposes and is being charged to operating costs and general corporate expenses
over two years. If the price of the Company's common stock exceeds $39.48 on the
dates the stock is delivered, causing the value of the delivered shares to
exceed $7,500,000, the Company's results of operations in 2000 and 2001 could be
materially adversely impacted. However, the future accounting treatment for both
the stock options granted to the service providers and the common stock issuable
to Anacom will have no impact on the Company's cash flows or total stockholders'
equity. Additionally, in February 2000, Mr. David P. Cook, the Company's
chairman, president and chief executive officer, reallocated options to acquire
254,627 shares of the Company's common stock to certain of the Company's
employees, as allowed by Mr. Cook's option agreement with the Company. These
options have an exercise price of $9.50 per share. Non-cash compensation expense
of $7,163,000 will be recognized over a two year vesting period, representing
the intrinsic value of the reallocated options based upon the difference between
the fair market value of the Company's common stock on the date the options were
reallocated and the option exercise price.
Investment income, net
Investment income increased from $1,068,000 in 1997 to $1,956,000 in 1998
and further increased to $3,533,000 in 1999. The change in all periods is
attributable to the increase in invested cash and marketable securities
resulting from the sale of the Company's businesses during the latter half of
1998, reduced by expenditures in 1999 related to establishing the Company's new
Internet related businesses.
Income taxes
The income tax benefit on the loss from continuing operations in 1999 of
$807,000 is different from the U.S. statutory rate of 34%, primarily due to
unbenefitted U.S. losses and unbenefitted tax credits. The income tax benefit on
the loss from continuing operations in 1998 of $576,000 is different from the
U.S. statutory rate of 34%, primarily due to unbenefitted U.S. losses and the
nondeductible investment in subsidiary. The provision for income taxes on
continuing operations in 1997 of $8,000 is different from the U.S. statutory
rate of 34%, primarily due to providing a valuation allowance for all of the
Company's U.S. deferred tax assets in light of continued operating losses.
Loss from continuing operations
As a result of the foregoing, the Company experienced losses from
continuing operations of $1,871,000 in 1997, $1,490,000 in 1998 and $35,805,000
in 1999.
DISCONTINUED OPERATIONS
The Company sold its operating businesses realizing a net after-tax loss of
$3,657,000 in 1997 and net after-tax gains of $21,651,000 and $1,453,000 in 1998
and 1999, respectively. Net operating results from discontinued operations was a
loss of $12,089,000 in 1997 and income of $6,105,000 in 1998.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's principal source of liquidity is its
net working capital position of $39,766,000, including cash and marketable
securities of $39,784,000. The Company plans to continue to invest its excess
cash in short-term, high-grade U.S. corporate debt securities or U.S. government
and agency securities. The Company's 1999 loss from continuing operations
included significant non-cash expenses. Net cash used by continuing operations
in 1999 was $20,831,000, primarily representing development and start-up costs
relating to the Company's Internet related businesses. Additionally, in 1999,
the Company invested $23,165,000 in property and equipment primarily for
leasehold improvements, computer equipment and software to establish a secure
data center necessary to implement the Company's new Internet products. The
Company's near-term liquidity will be negatively impacted as the Company
continues its development stage activities; however, the Company expects
additional investment in property and equipment for 2000 to be no more than
$4,000,000. The Company believes its existing net working capital position will
be sufficient to meet near-term anticipated needs; however, to expand the
Company's product offerings the Company will consider various capital funding
alternatives in 2000. Additionally, in February 2000, following Lante's initial
public offering, the Company fully exercised its option to acquire shares of
Lante common stock; however, the net number of Lante shares the Company is to
receive from this cashless exercise is being disputed and there are certain
short-term restrictions regarding the sale or transfer of such shares (see Notes
4 and 10 to the consolidated financial statements). The Company's near-term
liquidity could be positively impacted from the value derived from the Lante
shares. The Company currently has no existing borrowings or credit facilities.
Acquisitions, if any, would be financed by the most attractive alternative
available, which could be cash or the issuance of debt or equity securities.
IMPACT OF THE YEAR 2000
The Year 2000 Issue is primarily the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has not experienced any problems with respect to the Year 2000 Issue.
Software systems developed for use in connection with the Company's new Internet
related businesses are designed and tested for Year 2000 compliance. The Company
continues to assess the impact, if any, the Year 2000 Issue has on its key
vendors and development partners.
RECENT FINANCIAL ACCOUNTING PRONOUNCEMENT
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," which is required to be adopted in years
beginning after June 15, 1999. Because the Company does not currently use
derivatives, management does not anticipate that the adoption of SFAS 133 will
have a significant effect on operating results or the financial position of the
Company.
RISKS AND UNCERTAINTIES
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: Certain matters discussed in this Annual Report
on Form 10-K contain statements that constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The words "expect," "estimate," "anticipate," "predict," "believe," and
similar expressions and variations thereof are intended to identify
forward-looking statements. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
These risks and uncertainties include, but are not limited to, the following:
Limited Operating History; Product Development; and Market Acceptance
ZixIt has only a limited operating history in the Internet arena on which
to base an evaluation of its business and prospects. ZixIt currently has no
significant revenues. ZixIt's prospects must be considered in light of the risks
and uncertainties encountered by other companies in the early stages of
development. These
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risks and uncertainties are often worse for companies in new and rapidly
evolving markets, particularly Internet-related businesses. The ZixMail and
ZixCharge products are targeted at the new and rapidly evolving market for
secure Internet communications and e-commerce. Although the competitive
environment in this market has yet to fully develop, ZixIt anticipates that it
will be intensely competitive, subject to rapid change and significantly
affected by new products and service introductions and other market activities
of industry participants. ZixIt's success will depend on many factors,
including, but not limited to, the following:
- ZixIt must be able to successfully and timely develop its products. The
commercial version of ZixMail was released in March 2000. ZixCharge has
not been commercially released, however.
- ZixIt must be able to achieve broad market acceptance for its products.
There is currently no known Internet secure document delivery and private
messaging system that currently operates at the scale required for ZixIt,
at its current expenditure levels and proposed pricing, to become
profitable from its ZixMail operations. There is no assurance that enough
paying users of ZixMail will be ultimately obtained to enable ZixIt to
operate profitably.
- Since the commercial version of ZixCharge has not yet been released,
there are currently no consumers or merchants using ZixCharge. However,
once released, the success of ZixCharge will depend on ZixIt's ability to
obtain, as users, large numbers of consumers that desire to shop
privately over the Internet and its ability to obtain large numbers of
merchants that will permit them to do so using ZixCharge. One strategy
ZixIt has been pursuing for obtaining access to large numbers of
consumers is entering into strategic relationships with financial
institutions or other companies that have existing business relationships
with large numbers of people. There is no assurance that ZixIt will be
successful in obtaining these consumers, merchants and/or strategic
relationships.
Competition and Technological Change
ZixIt is a new entrant into the rapidly evolving secure Internet
communications and e-commerce markets. ZixIt will be competing with larger
companies that have access to greater capital, research and development,
marketing, distribution and other resources than ZixIt. In addition, the
Internet arena is characterized by extensive research efforts and rapid product
development and technological change that could render ZixIt's products obsolete
or noncompetitive. ZixIt's failure to develop and introduce new products and
services successfully on a timely basis and to achieve market acceptance for
such products and services could have a significant adverse effect on its
business, financial condition and results of operations.
System Interruptions and Security Breaches
ZixIt's business depends on the uninterrupted operation of its secure data
center. ZixIt must protect this center from loss, damage or interruption caused
by fire, power loss, telecommunications failure or other events beyond its
control. Any damage or failure that causes interruptions to ZixIt's secure data
center operations could materially harm its business, financial condition and
results of operations.
In addition, ZixIt's ability to issue digitally-signed certified
time-stamps and public encryption codes in connection with its ZixMail service
depends on the efficient operation of the Internet connections between customers
and the ZixIt data center. These connections depend on the efficient operation
by Internet service providers, which have experienced periodic operational
problems or outages in the past. Any of these problems or outages could
adversely affect customer satisfaction.
Furthermore, it is critical that ZixIt's facilities and infrastructure
remain secure and are perceived by the market to be secure. Despite its security
measures, ZixIt's infrastructure may be vulnerable to physical break-ins,
computer viruses, attacks by hackers or similar disruptive problems. It is
possible that ZixIt may have to use additional resources to address these
problems. ZixIt's ZixCharge business will retain certain confidential customer
information in its secure data centers. Any physical or electronic break-ins or
other security breaches or compromises of this information could expose ZixIt to
significant liability, and customers could be reluctant to use its
Internet-related products.
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Lack of Standards
There is no assurance that ZixCharge or ZixMail will become a generally
accepted standard or that they will be compatible with any standards that become
generally accepted.
Intellectual Property Rights
ZixIt relies, in part, on patents, trade secrets and proprietary technology
to remain competitive. It may be necessary to defend these rights or to defend
against claims that ZixIt is infringing the rights of others. Intellectual
property litigation and controversies are disruptive and expensive.
Sales of Businesses
ZixIt disposed of its remaining operating businesses in 1998 and 1997. In
connection with those dispositions, ZixIt agreed to provide customary
indemnification to the purchasers of those businesses for breaches of
representations and warranties, covenants and other specified matters. Although
ZixIt believes that it has adequately provided for future costs associated with
these indemnification obligations, indemnifiable claims could exceed ZixIt's
estimates.
Other Uncertainties
There are no assurances that ZixIt will be successful or that it will not
encounter other, and even unanticipated, risks. Other operating, financial or
legal risks or uncertainties are discussed in this Form 10-K in specific
contexts and in ZixIt's other periodic SEC filings. ZixIt is, of course, also
subject to general economic risks, dependence on key personnel and other risks
and uncertainties. ZixIt may decide, at any time, to delay or discontinue the
development and release of any one or more of its planned products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not believe that it faces material market risk with
respect to its cash investments and marketable securities, which totalled
$39,784,000 and $81,221,000 at December 31, 1999 and 1998, respectively. These
investments, which mature at various dates through September 2001, consist of
high-grade U.S. corporate debt securities and U.S. government agency securities,
and do not include derivative financial instruments or derivative commodity
instruments, as such terms are defined by the Securities and Exchange Commission
in applicable regulations. The Company has not undertaken any additional actions
to cover interest rate market risk and is not a party to any interest rate
market risk management activities. A hypothetical ten percent change in market
interest rates over the next year would not materially impact the Company's
operating results or cash flows due to the short-term, high credit quality
nature of the Company's investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item begins on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE
REGISTRANT.
The following table sets forth, as of February 29, 2000, the names of the
directors, executive officers and other significant employees of ZixIt and their
respective ages and positions with ZixIt.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David P. Cook(1)(3)....................... 48 Director, Chairman, President and Chief
Executive Officer
Donald D. Druckenbrodt.................... 46 President and Chief Executive Officer,
ZixIt.com, Inc.
Michael E. Keane(2)(4).................... 44 Director
Douglas H. Kramp.......................... 38 Executive Vice President, Strategic
Business Development; and President and
Chief Executive Officer, ZixMail.com, Inc.
Dr. G. Gary Liu........................... 44 Vice President and Chief Technical
Officer, ZixIt.com, Inc.
James S. Marston(1)(4).................... 66 Director
Jack L. Martin(4)......................... 46 Director
Antonio R. Sanchez, Jr.(1)(3)............. 57 Director
Dr. Ben G. Streetman(2)(3)................ 60 Director
Mark A. Tebbe............................. 38 Director
Ronald A. Woessner........................ 42 Vice President, General Counsel and
Secretary
Steve M. York............................. 49 Senior Vice President, Chief Financial
Officer and Treasurer
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
(4) Member of the Compensation and Stock Option Committee.
David P. Cook became a director of ZixIt in December 1995 and was appointed
Chairman, President and Chief Executive Officer in April 1998. He most recently
served as Chairman and Chief Executive Officer of ARBImetrics Corporation, a
Dallas-based investment company that he founded. Mr. Cook founded Amtech
Corporation (now ZixIt) and served as a director from 1984 until 1990, serving
as Chairman of the Executive Committee until 1990. Mr. Cook founded Blockbuster
Entertainment Corporation and was its Chief Executive Officer from its inception
until 1987. Prior to that, he was Chairman of Cook Data Services, Inc., a
software company that he also founded.
Donald D. Druckenbrodt rejoined ZixIt in January 1999 as President and
Chief Executive Officer of ZixIt.com, Inc., a wholly-owned subsidiary of ZixIt,
where he is responsible for ZixIt.com, Inc.'s secure data center and its ongoing
operations and software development activities. Mr. Druckenbrodt previously
served as Vice President of Amtech Systems Corporation, a former wholly-owned
subsidiary of ZixIt, from 1987 until 1990. Prior to rejoining ZixIt, Mr.
Druckenbrodt served as Vice President of OGRE Partners, Ltd., an oil and gas
economic modeling software firm, from 1992 until 1999. Mr. Druckenbrodt also
served as President of Blockbuster Computer Systems, Inc., a wholly-owned
subsidiary of Blockbuster Entertainment, from its inception until 1987.
Michael E. Keane became a director of ZixIt in November 1997. Mr. Keane has
been Senior Vice President and Chief Financial Officer of UNOVA, Inc. ("UNOVA")
since November 1997. UNOVA comprises the former industrial technology businesses
spun off from Western Atlas, Inc. in October 1997, where Mr. Keane was also
Senior Vice President and Chief Financial Officer from October 1996 until
October
10
<PAGE> 12
1997 and Vice President and Treasurer from March 1994 until October 1996. Prior
to that, he was Corporate Director, Pensions and Insurance, for Litton
Industries, Inc. from February 1991 until March 1994.
Douglas H. Kramp joined ZixIt in May 1999 as Executive Vice President,
Strategic Business Development. Mr. Kramp was subsequently appointed President
and Chief Executive Officer of ZixMail.com, Inc., a wholly-owned subsidiary of
ZixIt. He is responsible for the sales and marketing for ZixIt's ZixMail system.
Prior to joining ZixIt, Mr. Kramp was Executive Vice President, Strategic
Business Units, for PageMart Wireless, Inc. Mr. Kramp was also the founder of
Artificial Linguistics, Inc., a Dallas-based software company, where he directed
the release of "PowerEdit," a software program that won PC Magazine's "Editor's
Choice Award" in 1992.
Dr. G. Gary Liu became an employee of ZixIt in January 1999 and was
subsequently appointed Vice President and Chief Technical Officer of ZixIt.com,
Inc., a wholly-owned subsidiary of ZixIt. From 1997 until beginning employment
with ZixIt, Dr. Liu was President of Securisys Corporation, an encryption,
start-up enterprise that he founded. Dr. Liu was also President of American
Advanced Technology, Inc., a privately-held telecommunications design consulting
company, from its founding in January 1993 until its dissolution in January
1997. Dr. Liu has a doctorate degree in physics from the California Institute of
Technology (Caltech).
James S. Marston became a director of ZixIt in September 1991. From
September 1987 through February 1998, Mr. Marston served as a Senior, or
Executive, Vice President and the Chief Information Officer of APL Limited, a
U.S.-based intermodal shipping company. Between 1986 and 1987, Mr. Marston
served as President of AMR Technical Training Division, AMR Corporation.
Jack L. Martin became a director in August 1998. Mr. Martin is Chairman and
founder of Public Strategies, Inc., an international strategic communications
firm that specializes in advising Fortune 500 companies. Mr. Martin currently
serves as a director for the Scott and White Memorial Hospital and Scott,
Sherwood and Brindley Foundation, the Caesar Kleberg Foundation and KLRU-TV. For
many years, Mr. Martin served on former U.S. Senator Lloyd Bentsen's staff and
held the position of Executive Assistant to the Senator. He served on the Board
of Regents of the Texas State University System from 1985 to 1991 and was
elected Chairman in 1988. Mr. Martin served as the chair of the Texas National
Research Laboratory Commission, the Texas state agency that oversaw the National
Superconducting Super Collider project.
Antonio R. Sanchez, Jr. was one of ZixIt's early investors and became a
director of ZixIt in February 1993. Presently, Mr. Sanchez is Chairman and Chief
Executive Officer of Sanchez Oil & Gas Corporation. Mr. Sanchez also holds
interests in banking, real estate development, industrial parks and various
other investments. Mr. Sanchez serves as a director of International Bank of
Commerce ("IBC") and as a director and stockholder of IBC's publicly-traded
holding company, International Bancshares Corporation. Mr. Sanchez is also a
member of the Board of Regents of the Texas State University System and is a
director of Conoco, Inc.
Dr. Ben G. Streetman became a director in July 1998. Dr. Streetman is Dean
of the College of Engineering at The University of Texas at Austin and holds the
Dula D. Cockrell Centennial Chair in Engineering. He is a Professor of
Electrical and Computer Engineering and was the founding director of the
Microelectronics Research Center, The University of Texas at Austin, from 1984
until 1996. Dr. Streetman also serves as a director of National Instruments
Corporation and Global Marine, Inc.
Mark A. Tebbe became a director in March 1999. Mr. Tebbe is the founder and
Chairman of Lante Corporation, an Internet services company, and served as its
President and Chief Executive Officer from its inception in 1984 until June
1999. Mr. Tebbe is affiliated with several technology, charity and software
corporate boards.
Ronald A. Woessner joined ZixIt in April 1992 as General Counsel and was
subsequently appointed Vice President. He was previously a corporate and
securities attorney with the Dallas-based law firm of Johnson & Gibbs, P.C.
11
<PAGE> 13
Steve M. York joined ZixIt in April 1990 as Vice President, Chief Financial
Officer and Treasurer and was subsequently appointed Senior Vice President. Mr.
York, a Certified Public Accountant, previously held various financial
management positions with commercial operating companies and was employed by
Arthur Young & Co. (now Ernst & Young LLP).
Each director serves until the next annual meeting of stockholders, and
until the director's successor is duly elected and qualified, unless earlier
removed in accordance with ZixIt's bylaws. Officers serve at the discretion of
the Board of Directors.
See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for a
description of transactions between ZixIt and certain directors and executive
officers of ZixIt.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth certain information regarding compensation
paid by ZixIt for the last three years to ZixIt's five most highly compensated
executive officers. Immediately following the table are summaries of
employment-related contracts with these executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------- ------------------------
OTHER NUMBER OF PAYOUTS
ANNUAL RESTRICTED SECURITIES ------- ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD OPTIONS PAYOUTS SATION(4)
- --------------------------- ---- -------- ------- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David P. Cook (1)............... 1999 $ -- $ -- $ -- $ -- -- -- $ --
President, Chief Executive 1998 -- -- 3,750(1) -- 4,254,627 -- --
Officer and Chairman 1997 -- -- 15,000(1) -- 2,500 -- --
of the Board
Donald D. Druckenbrodt.......... 1999 142,546 -- -- -- 50,000 -- 2,403
President and Chief Executive 1998 -- -- -- -- -- -- --
Officer, ZixIt.com, Inc. 1997 -- -- -- -- -- -- --
Douglas H. Kramp................ 1999 93,750 -- -- -- 125,000 -- --
Executive Vice President, 1998 -- -- -- -- -- -- --
Strategic Business 1997 -- -- -- -- -- -- --
Development; President and
Chief Executive Officer,
ZixMail.com, Inc.
Ronald A. Woessner.............. 1999 150,000 -- -- -- -- -- 11,688
Vice President, General 1998 150,000 50,000 -- -- 38,625 -- 5,156
Counsel and Secretary 1997 130,000 9,100 -- -- 20,000 -- 1,820
Steve M. York................... 1999 193,000 -- -- 112,970(2)(3) -- -- 5,093
Senior Vice President, 1998 193,000 50,000 -- 93,750(3) -- -- 2,800
Chief Financial Officer and 1997 193,000 -- -- -- 25,000 -- 2,000
Treasurer
</TABLE>
- ---------------
(1) In February 1998, Mr. Cook became Chairman, President and Chief Executive
Officer of ZixIt. See "Employment and Severance Contracts with Certain
Executive Officers" below for a description of the employment arrangement
with Mr. Cook. "Other Annual Compensation" and the 1997 option award
represent director fees and director options paid or given prior to Mr.
Cook's employment.
(2) Represents 15,000 restricted shares issued in conjunction with the 1999
exercise of certain option shares granted in 1996.
(3) The "restricted shares" can be forfeited to ZixIt if, during the three years
following their issuance, (i) the recipient fails to hold the shares
received upon exercise of the related stock option for the requisite period
12
<PAGE> 14
or (ii) the recipient's employment is terminated for cause or the recipient
separates from employment with ZixIt under certain other circumstances. The
"restricted share" awards provide for, with the consent of the Board of
Directors, lapsing of restrictions if the recipient's employment is
terminated other than for cause or if the recipient separates from
employment with ZixIt under certain other circumstances.
(4) Represents ZixIt's contributions to ZixIt's 401(k) Retirement Plan or
ZixIt's Employee Stock Purchase Plan.
Employment and Severance Contracts with Certain Executive Officers
ZixIt and Mr. Cook are parties to an employment agreement, dated April 29,
1998, which expires April 28, 2001. In consideration of the employment
agreement, ZixIt issued to Mr. Cook options to acquire 4,254,627 shares of
ZixIt's common stock at an exercise price of $7.00 per share (twice the closing
price of ZixIt's common stock on the day preceding the date of the employment
agreement). The options have a five-year term and vest quarterly over two years.
The options will be fully vested on May 1, 2000. Mr. Cook receives no salary
under the employment arrangement. In February 2000, Mr. Cook reallocated options
to acquire 254,627 shares of ZixIt's common stock to certain of ZixIt's
employees, as allowed by Mr. Cook's option agreement with ZixIt.
ZixIt and Messrs. Woessner and York are parties to severance agreements,
which, per the severance agreement formulas (which are based on years of
service), as of February 29, 2000, provide for the payment to each of Messrs.
Woessner and York of 18 months of each of their base salaries in the event each
has good reason (as defined) to resign his employment or if his employment is
terminated other than for cause. The severance agreements also provide for the
payment to Mr. Woessner of two times, and to Mr. York of three times, each of
their annual base salaries in the event his employment terminates after a change
in control (as defined) of ZixIt. The severance agreements also contain
confidentiality and non-competition provisions.
Option Grants Table
The following table sets forth information relating to stock option grants
made by ZixIt to each of ZixIt's five most highly compensated executive officers
during the year ended December 31, 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM
OPTIONS EMPLOYEES PER EXPIRATION -----------------------
NAME GRANTED IN 1999 SHARE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David P. Cook................ -- --% $ -- -- $ -- $ --
Donald D. Druckenbrodt....... 50,000(1) 8.68 9.50 01/24/2009 298,500 757,000
Douglas H. Kramp............. 125,000(1) 21.70 29.00 04/18/2009 2,280,000 5,777,500
Ronald A. Woessner........... -- -- -- -- -- --
Steve M. York................ -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options vest ratably and become exercisable over three years. In the
event of a change in control (as defined) of ZixIt or a material subsidiary
of ZixIt under specified circumstances, the options become immediately
exercisable.
13
<PAGE> 15
Aggregated Option Exercises and Year-End Option Value Table
The following table sets forth information relating to the exercises of
stock options by each of ZixIt's five most highly compensated executive officers
during the year ended December 31, 1999, and the value of unexercised stock
options as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND
DECEMBER 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
OPTION EXERCISES
DURING 1999 NUMBER OF SECURITIES
---------------------- UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Cook............... -- $ -- 3,220,968 1,063,659 $105,130,331 $34,701,874
Donald D. Druckenbrodt...... -- -- -- 50,000 -- 1,506,250
Douglas H. Kramp............ -- -- -- 125,000 -- 1,328,125
Ronald A. Woessner.......... -- -- 70,686 29,314 2,350,086 1,052,771
Steve M. York............... 15,000 22,970 74,800 -- 2,367,562 --
</TABLE>
Compensation of Directors
On September 14, 1999, ZixIt's stockholders adopted the ZixIt Corporation
1999 Directors' Stock Option Plan (the "1999 Plan"), which provides that on the
day a non-employee director is first appointed or elected to the Board of
Directors, such director will be granted nonqualified options to purchase 25,000
shares of ZixIt's common stock. These options vest six months from the grant
date, and the exercise price is 100% of the common stock price on the grant
date. Also, in January of each year, each director that has served on the Board
at least 12 consecutive months will receive a further grant of options
determined according to a specified formula. The exercise price for these
options will be 120% of the common stock price on the grant date. These annual
options were immediately vested in 1999 and in subsequent years will vest over
three years. Directors that are eligible to receive the 1999 Plan annual option
grants will no longer receive any retainer fees. ZixIt pays a $15,000 retainer
fee to non-employee directors until they are eligible to receive the annual
grants.
Compensation Committee Interlocks and Insider Participation
ZixIt has a Compensation and Stock Option Committee that was comprised of
James S. Marston, Michael E. Keane and Jack L. Martin during 1999. The committee
did not meet during the year ended December 31, 1999, as the pertinent
compensation decisions were made by the entire Board of Directors. Mr. Martin, a
director of ZixIt, is Chairman of Public Strategies, Inc., a firm engaged by
ZixIt to assist in the marketing of its ZixMail and ZixCharge products. Mark A.
Tebbe, a director of ZixIt, is Chairman of Lante Corporation, a company formerly
engaged by ZixIt to assist in software development of its ZixMail and ZixCharge
products.
See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
14
<PAGE> 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information concerning beneficial
ownership of ZixIt's common stock as of February 29, 2000 by (i) each person who
is known by ZixIt to own beneficially more than five percent of ZixIt's
outstanding shares of common stock, (ii) each director and executive officer of
ZixIt and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
----------------------------------------
PERCENTAGE OF TOTAL
NUMBER OF SHARES SHARES OUTSTANDING(2)
---------------- ---------------------
<S> <C> <C>
David P. Cook(3)............................................ 3,709,496 19.42%
Donald D. Druckenbrodt(4)................................... 19,841 *
Michael E. Keane(5)......................................... 77,808 *
Douglas H. Kramp(5)......................................... 41,667 *
James S. Marston(5)......................................... 87,808 *
Jack L. Martin(6)........................................... 25,150 *
Antonio R. Sanchez, Jr.(7).................................. 1,989,584 12.89%
Dr. Ben G. Streetman(5)..................................... 27,500 *
Mark A. Tebbe(8)............................................ 199,166 1.28%
Ronald A. Woessner(9)....................................... 121,729 *
Steve M. York(10)........................................... 149,555 *
White Rock Capital Management, L.P.(11)..................... 1,512,500 9.86%
3131 Turtle Creek Boulevard
Suite 800
Dallas, Texas 75219
All directors and executive officers as a group............. 6,464,304 32.86%
</TABLE>
- ---------------
* Denotes ownership of less than 1%.
(1) Except as otherwise noted, each person has sole voting and investment power
over the common stock shown as beneficially owned, subject to community
property laws where applicable. Except as otherwise noted, the address for
each beneficial owner is c/o ZixIt, One Galleria Tower, 13355 Noel Road,
Suite 1555, Dallas, Texas 75240-6604.
(2) Shares of common stock that were not outstanding but could be acquired upon
exercise of an option within 60 days of February 29, 2000, are deemed
outstanding for the purpose of computing the percentage of outstanding
shares beneficially owned by a particular person. However, such shares are
not deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person.
(3) Includes 3,615,496 shares that Mr. Cook has the right to acquire under
outstanding stock options that are currently exercisable or that become
exercisable within 60 days of February 29, 2000.
(4) Includes 16,666 shares that Mr. Druckenbrodt has the right to acquire under
outstanding stock options that are currently exercisable or that become
exercisable within 60 days of February 29, 2000.
(5) This individual has the right to acquire these shares under outstanding
stock options that are currently exercisable or that become exercisable
within 60 days of February 29, 2000.
(6) Includes 25,000 shares that Mr. Martin has the right to acquire under
outstanding stock options that are currently exercisable or that become
exercisable within 60 days of February 29, 2000.
(7) Includes 291,251 shares that are owned by family members of Mr. Sanchez or
by trusts for which Mr. Sanchez serves as trustee or is a beneficiary. Of
such 291,251 shares, (i) 166,375 shares are held by family members of Mr.
Sanchez; (ii) 85,500 shares, over which Mr. Sanchez exercises voting,
investment and disposition power, are held in trusts for which Mr. Sanchez
acts as trustee for the benefit of other persons and (iii) 39,376 shares,
over which Mr. Sanchez does not have voting, investment or disposition
powers, are held in a trust for the benefit of Mr. Sanchez and certain of
his family members.
15
<PAGE> 17
Also, includes 85,308 shares that Mr. Sanchez has the right to acquire
under outstanding stock options that are currently exercisable or that
become exercisable within 60 days of February 29, 2000.
(8) Includes 25,000 shares that Mr. Tebbe has the right to acquire under
outstanding stock options that are currently exercisable or that become
exercisable within 60 days of February 29, 2000. Also, includes 166,666
shares that Lante Corporation, for which Mr. Tebbe is Chairman and a major
stockholder, has the right to acquire under outstanding stock options that
are currently exercisable. Mr. Tebbe disclaims beneficial ownership with
respect to the 166,666 shares.
(9) Includes 77,124 shares that Mr. Woessner has the right to acquire under
outstanding stock options that are currently exercisable or that become
exercisable within 60 days of February 29, 2000.
(10) Includes 68,500 shares that Mr. York has the right to acquire under
outstanding stock options that are currently exercisable or that become
exercisable within 60 days of February 29, 2000 and 40,000 shares that are
subject to forfeiture to ZixIt under certain circumstances.
(11) According to White Rock's Schedule 13G, Amendment No. 1, filed February 7,
2000 for the period ended December 31, 1999, voting and investment control
is divided among several entities. See such filing for further detail.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In May 1998, ZixIt acquired Petabyte Corporation ("Petabyte"), a digital
data distribution start-up enterprise founded by Mr. Cook. In consideration of
the sale of Petabyte, ZixIt paid Mr. Cook $200,000 and agreed to pay Mr. Cook
four annual payments of $200,000 each. Effective March 1999, ZixIt returned to
Mr. Cook title to a Petabyte patent covering certain digital data distribution
concepts, while retaining a use license to the patent for a nominal payment. In
connection with the return of the patent, ZixIt's future payments to Mr. Cook,
totaling $800,000, were eliminated.
In February 1999, ZixIt entered into an agreement with Lante Corporation
("Lante"), an Internet services company, to assist ZixIt in the software
development for ZixMail and ZixCharge. Mr. Tebbe, who was elected a director of
ZixIt in March 1999, is Chairman and a major stockholder of Lante. During 1999,
ZixIt paid Lante development fees of $11,282,000, and ZixIt and Lante each
issued options to acquire one another's common stock. See Notes 4 and 10 to the
consolidated financial statements.
In April 1999, ZixIt entered into an agreement with Public Strategies, Inc.
("PSI"), an international strategic communications firm, to assist in the
marketing of ZixMail and ZixCharge. Mr. Martin, a director of ZixIt since August
1998, is Chairman of PSI. In exchange for the services performed by PSI, ZixIt
pays PSI a monthly retainer of $75,000. During 1999, ZixIt paid PSI $770,000 for
services performed by PSI and related expenses.
Mr. York was indebted to ZixIt at December 31, 1999 in the principal amount
of $430,862 which amount represents money loaned by ZixIt to fund the exercise
of retention incentive options and pay federal withholding taxes attributable to
the lapse of transfer and forfeiture restrictions on certain ZixIt shares held
by Mr. York. Of this amount, $240,862 was repaid in January 2000. Mr. York's
remaining indebtedness is represented by promissory notes that bear interest at
the rate of 5.61% and 4.66% per annum. All such notes are secured by the shares
issued upon exercise of the retention incentive options and are due in December
2001 and September 2002 (unless becoming due earlier under certain circumstances
described in the notes).
16
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page F-1 hereof.
(A)(2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the SEC have been omitted because of the absence of the
conditions under which they are required or because the information required is
included in the consolidated financial statements or notes thereto.
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Articles of Incorporation of ZixIt, together with all
amendments thereto. Filed under exhibit number 3.1 to
ZixIt's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
Articles of Amendment to Articles of Incorporation of
CustomTracks Corporation, dated September 14, 1999. Filed
under exhibit number 3.2 to ZixIt's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1999, and incorporated herein by reference. Articles of
Amendment to Articles of Incorporation of CustomTracks
Corporation, dated October 12, 1999. Filed under exhibit
number 3.3 to ZixIt's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1999, and
incorporated herein by reference.
3.2 -- Restated Bylaws of ZixIt, dated August 31, 1998. Filed
under exhibit number 3.2 to ZixIt's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1998, and incorporated herein by reference.
4.1* -- Specimen certificate for common stock of ZixIt.
10.1 -- 1990 Stock Option Plan of ZixIt (Amended and Restated as
of September 1999). Filed under exhibit number 10.1 to
ZixIt's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999, and incorporated herein
by reference.
10.2 -- 1992 Stock Option Plan of ZixIt (Amended and Restated as
of September 1999). Filed under exhibit number 10.2 to
ZixIt's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999, and incorporated herein
by reference.
10.3 -- 401(k) Retirement Plan of ZixIt and related Adoption
Agreement. Filed under exhibit number 10.5 to ZixIt's
Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by reference.
10.4 -- 1995 Long-Term Incentive Plan of ZixIt (Amended and
Restated as of September 1999). Filed under exhibit
number 10.3 to ZixIt's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1999, and
incorporated herein by reference.
10.5* -- ZixIt's 1999 Directors' Stock Option Plan (Amended and
Restated as of January 1, 2000).
10.6 -- 1996 Employee Stock Purchase Plan of ZixIt. Filed under
Annex II in ZixIt's Proxy Statement for the Annual
Meeting of Stockholders held April 25, 1996, and
incorporated herein by reference.
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.7 -- Stock Option Agreement, effective as of April 29, 1998,
between David P. Cook and ZixIt Corporation. Filed under
exhibit number 10.1 to ZixIt's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, and
incorporated herein by reference.
10.8* -- Amendment No. 1 to Stock Option Agreement, dated February
18, 2000, between David P. Cook and ZixIt Corporation.
10.9 -- Employment Agreement, effective as of April 29, 1998,
between David P. Cook and ZixIt Corporation. Filed under
exhibit number 10.2 to ZixIt's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, and
incorporated herein by reference.
10.10 -- Amendment to Employment Agreement, dated March 22, 1999,
between David P. Cook and ZixIt Corporation. Filed under
exhibit number 10.3 to ZixIt's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1999, and
incorporated herein by reference.
10.11 -- Severance Agreement, dated November 4, 1996, between
Amtech Corporation and Steve M. York. Filed under exhibit
number 10.28 to ZixIt's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein
by reference.
10.12 -- Severance Agreement, dated November 4, 1996, between
Amtech Corporation and Ronald A. Woessner. Filed under
exhibit number 10.12 to ZixIt's Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference.
10.13 -- Sublease Agreement, dated February 12, 1999, between
Fidelity Corporate Real Estate, L.L.C. and ZixIt
Operating Corporation. Filed under exhibit number 10.13
to ZixIt's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
10.14 -- Purchase and Sale Agreement, dated October 1, 1999, among
ZixIt Corporation, Anacom Communications, Inc. (Delaware
corporation), Anacom Communications, Inc. (Texas
corporation), Warren E. Rosenfeld and George A. DeCourcy
(including exhibits A and C, but excluding exhibit B and
the schedules). Filed under exhibit number 2.1 to ZixIt's
Current Report on Form 8-K, dated October 13, 1999, and
incorporated herein by reference. The Registrant agrees
to furnish supplementally to the Commission upon request
a copy of any of the schedules and exhibits referred to
but not included in the Purchase and Sale Agreement filed
with the Commission.
10.15 -- Registration Rights Agreement, effective as of February
2, 1999, by and between ZixIt Corporation and Lante
Corporation. Filed under exhibit number 10.1 to ZixIt's
Annual Report on Form 10-K/A for the year ended December
31, 1998, and incorporated herein by reference.
10.16* -- Amended and Restated ZixIt Corporation Stock Option
Agreement, dated November 24, 1999, between ZixIt and
Lante Corporation (Delaware corporation).
10.17* -- Registration Rights Agreement, dated November 24, 1999,
between ZixIt and Lante Corporation (Delaware
corporation) relating to exhibit number 10.16 filed
herewith.
10.18* -- Lante Corporation Stock Option Agreement, dated November
24, 1999, between Lante Corporation (Delaware
corporation) and ZixIt.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.19* -- Registration Rights Agreement, dated November 24, 1999,
between Lante Corporation (Delaware corporation) and
ZixIt relating to exhibit number 10.18 filed herewith.
21.1* -- Subsidiaries of ZixIt.
23.1* -- Consent of Independent Auditors.
24.1 -- Power of Attorney (included on page 21 of this Annual
Report on Form 10-K).
27.1* -- Financial Data Schedule.
99.1 -- Press Release issued by the Registrant on October 1,
1999, relating to the Purchase and Sale Agreement, dated
October 1, 1999, among ZixIt Corporation, Anacom
Communications, Inc. (Delaware corporation), Anacom
Communications, Inc. (Texas corporation), Warren E.
Rosenfeld and George A. DeCourcy. Filed under exhibit
number 99.1 to ZixIt's Current Report on Form 8-K, dated
October 13, 1999, and incorporated herein by reference.
</TABLE>
- ---------------
* Filed herewith
(b) REPORTS ON FORM 8-K
The Registrant filed Form 8-K on October 13, 1999 to report the October 1,
1999 purchase of all of the outstanding shares of Anacom Communications, Inc.
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on March 24, 2000.
ZIXIT CORPORATION
By: /s/ STEVE M. YORK
----------------------------------
Steve M. York
Senior Vice President,
Chief Financial Officer and
Treasurer
20
<PAGE> 22
POWER OF ATTORNEY
We, the undersigned directors and officers of ZixIt Corporation (the
"Company"), do hereby severally constitute and appoint David P. Cook and Steve
M. York, and each or either of them, our true and lawful attorneys and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
ZixIt's Annual Report on Form 10-K for the year ended December 31, 1999, and to
file the same with all exhibits thereto, and all other documents in connection
therewith, with the SEC, granting unto said attorneys and agents, and each or
either of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys and agents, and each of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, 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>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID P. COOK Chairman, President, Chief March 24, 2000
- ----------------------------------------------------- Executive Officer and Director
(David P. Cook) (Principal Executive Officer)
/s/ STEVE M. YORK Senior Vice President, Chief March 24, 2000
- ----------------------------------------------------- Financial Officer and Treasurer
(Steve M. York) (Principal Financial and
Accounting Officer)
/s/ MICHAEL E. KEANE Director March 24, 2000
- -----------------------------------------------------
(Michael E. Keane)
/s/ JAMES S. MARSTON Director March 24, 2000
- -----------------------------------------------------
(James S. Marston)
/s/ JACK L. MARTIN Director March 24, 2000
- -----------------------------------------------------
(Jack L. Martin)
/s/ ANTONIO R. SANCHEZ, JR. Director March 24, 2000
- -----------------------------------------------------
(Antonio R. Sanchez, Jr.)
/s/ DR. BEN G. STREETMAN Director March 24, 2000
- -----------------------------------------------------
(Dr. Ben G. Streetman)
/s/ MARK A. TEBBE Director March 24, 2000
- -----------------------------------------------------
(Mark A. Tebbe)
</TABLE>
21
<PAGE> 23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 31, 1999 and 1998... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998
and 1997.................................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ZIXIT CORPORATION
We have audited the accompanying consolidated balance sheets of ZixIt
Corporation, formerly CustomTracks Corporation, as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ZixIt
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Dallas, Texas
February 29, 2000, except for the third paragraph
of Note 10, as to which the date
is March 23, 2000
F-2
<PAGE> 25
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 6,598,000 $ 54,292,000
Marketable securities..................................... 33,186,000 26,929,000
Due from sale of discontinued operations.................. 581,000 5,304,000
Other current assets...................................... 3,030,000 215,000
------------ ------------
Total current assets.............................. 43,395,000 86,740,000
Property and equipment, net................................. 21,006,000 158,000
Goodwill, net............................................... 2,122,000 --
------------ ------------
$ 66,523,000 $ 86,898,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,481,000 $ 1,574,000
Liabilities related to discontinued operations............ 1,148,000 3,875,000
------------ ------------
Total current liabilities......................... 3,629,000 5,449,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value, 10,000,000 shares
authorized; none outstanding........................... -- --
Common stock, $0.01 par value, 175,000,000 shares
authorized; 17,629,929 issued, 15,338,029 outstanding
in 1999 and 17,384,437 issued, 15,092,537 outstanding
in 1998................................................ 176,000 174,000
Additional capital........................................ 104,244,000 88,449,000
Treasury stock, at cost; 2,291,900 shares................. (11,314,000) (11,314,000)
Retained earnings (accumulated deficit) (net of deficit
accumulated during the development stage of $34,352,000
in 1999)............................................... (30,212,000) 4,140,000
------------ ------------
Total stockholders' equity........................ 62,894,000 81,449,000
------------ ------------
$ 66,523,000 $ 86,898,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 26
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Revenues............................................ $ 99,000 $ -- $ --
Research and development expenses................... (23,548,000) -- --
Operating costs and general corporate expenses...... (16,696,000) (4,022,000) (2,931,000)
Investment income, net.............................. 3,533,000 1,956,000 1,068,000
------------ ----------- ------------
Loss from continuing operations before income
taxes............................................. (36,612,000) (2,066,000) (1,863,000)
Income taxes........................................ 807,000 576,000 (8,000)
------------ ----------- ------------
Loss from continuing operations................... (35,805,000) (1,490,000) (1,871,000)
Discontinued operations:
Income (loss) from discontinued operations, net of
income taxes................................... -- 6,105,000 (12,089,000)
Gain (loss) on sale of discontinued operations,
net of income taxes............................ 1,453,000 21,651,000 (3,657,000)
------------ ----------- ------------
1,453,000 27,756,000 (15,746,000)
------------ ----------- ------------
Net income (loss)................................... $(34,352,000) $26,266,000 $(17,617,000)
============ =========== ============
Basic and diluted earnings (loss) per common share:
Continuing operations............................. $ (2.35) $ (0.09) $ (0.12)
Discontinued operations........................... 0.10 1.75 (1.05)
------------ ----------- ------------
Net income (loss)................................. $ (2.25) $ 1.66 $ (1.17)
============ =========== ============
Weighted average shares outstanding................. 15,244,291 15,835,654 15,080,669
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 27
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS TOTAL
--------------------- ADDITIONAL TREASURY (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK DEFICIT) EQUITY
---------- -------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996...................... 14,802,663 $148,000 $ 76,510,000 $ (393,000) $ (4,509,000) $ 71,756,000
Stock option
compensation............ 10,000 -- 92,000 -- -- 92,000
Sale of common stock, net
of expenses............. 2,211,900 22,000 9,945,000 -- -- 9,967,000
Other..................... -- -- (502,000) -- -- (502,000)
Net loss.................. -- -- -- -- (17,617,000) (17,617,000)
---------- -------- ------------ ------------ ------------ ------------
Balance, December 31,
1997...................... 17,024,563 170,000 86,045,000 (393,000) (22,126,000) 63,696,000
Exercise of stock options
for cash................ 227,928 2,000 1,504,000 -- -- 1,506,000
Tax benefit from exercise
of stock options........ -- -- 196,000 -- -- 196,000
Stock option
compensation............ 131,946 2,000 715,000 -- -- 717,000
Treasury stock received in
sale of business
(2,211,900 shares)...... -- -- -- (10,921,000) -- (10,921,000)
Other..................... -- -- (11,000) -- -- (11,000)
Net income................ -- -- -- -- 26,266,000 26,266,000
---------- -------- ------------ ------------ ------------ ------------
Balance, December 31,
1998...................... 17,384,437 174,000 88,449,000 (11,314,000) 4,140,000 81,449,000
Exercise of stock options
for cash................ 245,492 2,000 1,619,000 -- -- 1,621,000
Stock option
compensation............ -- -- 13,250,000 -- -- 13,250,000
Stock issuable from
purchase of Anacom
Communications.......... -- -- 937,000 -- -- 937,000
Other..................... -- -- (11,000) -- -- (11,000)
Net loss.................. -- -- -- -- (34,352,000) (34,352,000)
---------- -------- ------------ ------------ ------------ ------------
Balance, December 31,
1999...................... 17,629,929 $176,000 $104,244,000 $(11,314,000) $(30,212,000) $ 62,894,000
========== ======== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 28
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations.................. $ (35,805,000) $ (1,490,000) $(1,871,000)
Adjustments to reconcile loss from continuing
operations to net cash provided (used) by
operating activities:
Depreciation and amortization................. 3,476,000 13,000 20,000
Deferred income taxes......................... -- -- 380,000
Stock-based compensation, net................. 12,315,000 404,000 --
Changes in assets and liabilities, excluding
divestiture of businesses:
Other current assets........................ (943,000) (208,000) 80,000
Accounts payable and accrued expenses....... 126,000 1,351,000 (227,000)
------------- ------------ -----------
Net cash provided (used) by continuing
operations.................................. (20,831,000) 70,000 (1,618,000)
Net cash provided (used) by discontinued
operations.................................. (1,855,000) 6,286,000 (4,339,000)
------------- ------------ -----------
Net cash provided (used) by operating
activities............................... (22,686,000) 6,356,000 (5,957,000)
Cash flows from investing activities:
Purchases of property and equipment.............. (23,165,000) (110,000) (68,000)
Purchases of marketable securities............... (119,150,000) (36,867,000) (4,916,000)
Sales and maturities of marketable securities.... 112,893,000 10,948,000 15,758,000
Purchase of Anacom Communications................ (2,500,000) -- --
Investing activities of discontinued operations:
Proceeds from sales of businesses, net of cash
sold........................................ 5,304,000 62,503,000 1,225,000
Purchase of Cardkey Systems................... -- -- (1,868,000)
Purchases of property and equipment, net and
other....................................... -- (2,616,000) (3,780,000)
------------- ------------ -----------
Net cash provided (used) by investing
activities............................... (26,618,000) 33,858,000 6,351,000
Cash flows from financing activities:
Proceeds from exercise of stock options.......... 1,621,000 1,506,000 --
Proceeds from sale of common stock, net of
expenses...................................... -- -- 9,967,000
------------- ------------ -----------
Net cash provided by financing activities... 1,621,000 1,506,000 9,967,000
Effect of exchange rate changes on cash and cash
equivalents...................................... (11,000) (11,000) 106,000
------------- ------------ -----------
Increase (decrease) in cash and cash equivalents... (47,694,000) 41,709,000 10,467,000
Cash and cash equivalents, beginning of year....... 54,292,000 12,583,000 2,116,000
------------- ------------ -----------
Cash and cash equivalents, end of year............. $ 6,598,000 $ 54,292,000 $12,583,000
============= ============ ===========
Supplemental cash flow information:
Income taxes paid (net of refunds)............... $ 486,000 $ (391,000) $ (681,000)
Interest paid.................................... $ -- $ -- $ 405,000
Treasury stock received in sale of business...... $ -- $ 10,921,000 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 29
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation -- The accompanying consolidated financial statements
of ZixIt Corporation (formerly CustomTracks Corporation) include the accounts of
the Company and its majority-owned subsidiaries. Intercompany balances and
transactions have been eliminated.
During 1998, the Company sold all of its operating businesses and,
accordingly, the assets and liabilities, operating results and cash flows of
these businesses have been classified as discontinued operations in the
accompanying financial statements. The results of the discontinued operations do
not include any interest expense or allocation of corporate expenses.
During 1999, the Company has been developing a digital signature and
encryption technology and is planning a series of products that enhance privacy,
security and convenience over the Internet. ZixMail(TM), which was commercially
released in March 2000, is a secure document delivery, private email and message
tracking service that enables Internet users worldwide to easily send and
receive encrypted and digitally signed communications without changing their
existing email systems or addresses. ZixCharge(TM), which has not been
commercially released, is a shopping portal and payment authorization system
that enables consumers to purchase goods and services over the Internet without
being required to provide personal and charge card information to Internet
merchants. Successful development of a development stage enterprise,
particularly Internet related businesses, is costly and highly competitive. The
Company's growth depends on the timely development and market acceptance of new
products. A development stage enterprise involves risks and uncertainties and
there are no assurances that the Company will be successful in its efforts. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Cash investments and marketable securities -- Cash investments with
maturities of three months or less when purchased are considered cash
equivalents. Marketable securities, which are available-for-sale and have stated
maturities on various dates through September 2001, are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
U.S. corporate debt securities..................... $15,913,000 $26,929,000
U.S. government agency securities.................. 17,273,000 --
----------- -----------
$33,186,000 $26,929,000
=========== ===========
</TABLE>
Marketable securities are carried at amortized cost, which approximates
fair market value. The Company purchases cash investments and marketable
securities that are of high credit quality and limits the amount invested in any
one institution.
Property and equipment -- Property and equipment are recorded at cost and
depreciated or amortized using the straight-line method over their estimated
useful lives as follows: computer equipment and software -- 3 years; leasehold
improvements -- 5 year lease term; office equipment, furniture and fixtures -- 5
years.
Goodwill -- Goodwill, which resulted from the October 1999 acquisition of
Anacom Communications, Inc. (Note 4), is amortized using the straight-line
method over two years. Accumulated amortization at December 31, 1999 was
$307,000.
Long-lived assets -- In accordance with Financial Accounting Standards
Board Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," the Company reviews the original
assumptions and rationale utilized in the establishment of the carrying value
and estimated life of certain long-lived assets. The carrying value would be
adjusted to fair value if facts and circumstances indicating an impairment were
present.
F-7
<PAGE> 30
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Research and development costs -- Research and development costs incurred
for the development and testing of new or significantly enhanced software
products are accounted for in accordance with the provisions of Statement of
Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed". Pursuant to SFAS
86, costs are capitalized when technological feasibility of the product is
established, which is achieved upon completion of a detailed program design or a
working model. Costs incurred prior to the establishment of technological
feasibility are expensed as incurred as research and development costs. As of
December 31, 1999, no amounts have been capitalized pursuant to SFAS 86.
Stock-based employee compensation -- As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for stock-based compensation plans under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Compensation expense for employee stock
options, if any, is measured as the excess of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock.
Earnings per share -- Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," became effective in the fourth quarter of 1997 and
requires two presentations of earnings per share -- "basic" and "diluted." Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding (the
denominator) for the period. The computation of diluted earnings per share is
similar to basic earnings per share, except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potentially dilutive common shares had been issued.
The amounts presented for basic and diluted loss per share from continuing
operations in the accompanying statements of operations have been computed by
dividing loss from continuing operations by the weighted average number of
common shares outstanding. The two presentations are equal in amounts because
the assumed exercise of common stock equivalents would be antidilutive, since a
loss from continuing operations was reported for each period presented. See Note
4 for information regarding potentially dilutive common stock equivalents.
Comprehensive income (loss) -- In 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" which
establishes standards for reporting comprehensive income (loss) and its
components in the financial statements. Comprehensive income (loss), as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. The Company has not had any transactions during 1999, 1998 or 1997 that
are required to be reported in comprehensive income (loss).
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management reviews its estimates on an ongoing basis, including those related to
discontinued operations and revises such estimates based upon currently
available facts and circumstances.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the 1999 presentation.
F-8
<PAGE> 31
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant accounting policies related to the Company's discontinued
operations were as follows:
Inventories -- Inventories were stated at the lower of cost (first-in,
first-out) or market.
Intangible assets -- Intangible assets, primarily goodwill, were amortized
using the straight-line method over seven to fifteen years.
Revenue recognition -- Generally, sales were recorded when products were
shipped or services were rendered. Sales under long-term contracts were recorded
as costs were incurred and included estimated profits calculated on the basis of
the relationship between costs incurred and total estimated costs (cost-to-cost
type of percentage-of-completion method of accounting). In the period in which
it was determined it was probable that a loss would result from the performance
of a contract, the entire amount of the estimated ultimate loss was charged
against income. In late 1997, the Company recorded a pre-tax contract loss
provision of $5,700,000 related to the Transportation Systems Group's multi-year
contract with a state agency to design, install and maintain an electronic toll
collection system.
2. DISCONTINUED OPERATIONS
Historically, the Company operated in one industry segment, the provision
of systems and solutions for the intelligent transportation, electronic security
and other markets through the design, manufacturing, installation and support of
hardware and software products utilizing the Company's wireless data and
security technologies. The businesses comprising this industry segment were sold
during 1998 and 1997 in four separate transactions as described below. These
businesses are presented as Discontinued Operations in the accompanying
financial statements.
Transportation Systems Group
In June 1998, the Company sold its Transportation Systems Group to UNOVA,
Inc. ("UNOVA"), effective as of May 31, 1998, resulting in a pre-tax gain of
$1,139,000. As consideration for the sale, the Company received $22,350,000 in
cash and 2,211,900 unregistered shares of the Company's common stock that were
previously purchased by UNOVA in late 1997. The shares were valued at
$10,921,000. Included in UNOVA's purchase were the Company's manufacturing and
technology facility in Albuquerque, New Mexico, the Company's radio frequency
identification technologies and other intellectual properties, the brand name
Amtech, and all operations associated with the transportation business.
Cotag International
In July 1998, the Company sold the net assets of Cotag International
("Cotag") to Metric Gruppen AB ("Metric") of Solna, Sweden, effective as of June
30, 1998, resulting in a pre-tax loss of $2,372,000, including a $2,800,000
write-off of intangible assets. The Company received sales proceeds of
$3,050,000 during 1998 and $1,552,000 in February 1999. Included in Metric's
purchase was the brand name and intellectual property underlying Cotag's
hands-free proximity technology, Cotag's manufacturing facility in Cambridge,
England, and the ongoing business of the unit. Subsequently, $581,000 of
contingent sales proceeds were earned and recorded in 1999 based upon Cotag's
1999 revenue levels.
Cardkey Systems
In November 1998, the Company sold Cardkey Systems and related entities to
Johnson Controls, Inc., effective as of November 29, 1998, realizing cash
proceeds of $44,715,000, including $3,752,000 received in January 1999. The sale
resulted in a pre-tax gain of $23,550,000 and included all of the operations and
net assets of the business.
F-9
<PAGE> 32
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interactive Data Group
The Company withdrew from the wireless LAN terminal market and sold its
Interactive Data Group in late 1997 for $1,225,000 in cash, resulting in a
pre-tax loss of $3,725,000.
The gain or loss on the sale of discontinued operations is summarized as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Gain (loss) on sale before income taxes........ $1,453,000 $22,317,000 $(3,725,000)
Income taxes................................... -- (666,000) 68,000
---------- ----------- -----------
Gain (loss) on sale of discontinued
operations................................... $1,453,000 $21,651,000 $(3,657,000)
========== =========== ===========
</TABLE>
The 1999 gain on sale of discontinued operations totalling $1,453,000
represents $581,000 of contingent sales proceeds earned based upon Cotag's 1999
revenue levels and the reduction of estimated future costs for various
indemnification issues associated with the disposal of these businesses.
Summary operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Revenues.......................................... $87,224,000 $117,706,000
Costs and expenses................................ 80,396,000 126,848,000
----------- ------------
Income (loss) before income taxes................. 6,828,000 (9,142,000)
Income taxes...................................... (723,000) (2,947,000)
----------- ------------
Income (loss) from discontinued operations........ $ 6,105,000 $(12,089,000)
=========== ============
</TABLE>
Liabilities related to discontinued operations of $1,148,000 and $3,875,000
at December 31, 1999 and 1998, respectively, consist of estimated future costs
for various indemnification issues associated with the disposal of these
businesses and, in 1998, accrued compensation paid to certain employees of the
discontinued businesses.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
Computer equipment and software...................... $19,631,000 $ 83,000
Leasehold improvements............................... 3,923,000 --
Office equipment, furniture and fixtures............. 635,000 88,000
----------- --------
24,189,000 171,000
Less accumulated depreciation and amortization....... (3,183,000) (13,000)
----------- --------
$21,006,000 $158,000
=========== ========
</TABLE>
The Company's continuing operations include depreciation and amortization
expense related to property and equipment of $3,169,000 in 1999, $13,000 in 1998
and $20,000 in 1997.
F-10
<PAGE> 33
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' EQUITY
Purchase of Anacom Communications
In October 1999, the Company purchased all of the outstanding shares of
Anacom Communications, Inc. ("Anacom"), a privately-held provider of Internet
transaction processing and real-time credit processing services to Internet
merchants. Consideration consists of a cash payment of $2,500,000, primarily
recorded as goodwill, and common stock, valued at a minimum of $7,500,000, to be
delivered in two annual installments beginning October 2000, assuming continued
employment by the former owners. The minimum value of the common stock issuable
pursuant to the purchase agreement of $7,500,000 is treated as compensation for
financial accounting purposes and is being charged to operating costs and
general corporate expenses over two years ($937,000 in 1999) with a
corresponding increase in additional capital. Financial accounting rules require
the minimum number of common shares issuable be revalued on each subsequent
reporting date until performance is complete with a cumulative catch up
adjustment recognized for any changes in their intrinsic value in excess of
$7,500,000. Accordingly, if the price of the Company's common stock exceeds
$39.48 on the dates the stock is delivered, causing the value of the delivered
shares to exceed $7,500,000, the Company's results of operations in 2000 and
2001 could be materially adversely impacted; however, there would be no impact
on the Company's cash flows or total stockholders' equity. The number of shares
to be delivered, set at a minimum of 190,000 shares, may be increased should the
market value of the common stock be less than $39.48 at the time of delivery.
However, if additional consideration is required, the Company may elect to pay
cash rather than issue additional shares of common stock. The historical results
of operations of Anacom were not significant compared to the Company's results
of operations.
Sale and Reacquisition of Stock
In November 1997, UNOVA purchased 2,211,900 shares of the Company's common
stock for $10,000,000 in a private placement transaction. As partial
consideration for the sale of the Company's Transportation Systems Group to
UNOVA in June 1998 (Note 2), these shares were returned to the Company.
Employee and Director Stock Options
The Company has non-qualified stock options outstanding to employees and
directors under various stockholder approved stock option plans. Options granted
under these plans are generally not less than the fair market value at the date
of grant, and subject to termination of employment generally expire ten years
from the date of grant. Employee options are generally exercisable in annual
installments over three to five years or are exercisable at rates of 45% in
three years and the remaining 55% in five and one-half years, unless accelerated
due to the Company's common stock trading at appreciated price targets. Grants
to directors are exercisable immediately or within six months from the date of
the grant. In 1999, 1998 and 1997, 15,000, 58,000 and 5,000 shares of restricted
stock, respectively, were issued pursuant to the plans. At December 31, 1999,
1,021,824 shares of common stock were available for future grants under the
Company's stock option plans.
In January 1999, certain outside directors were granted options on 151,000
shares of common stock under a plan that was approved by the Company's
stockholders in September 1999. The Company recognized a non-cash compensation
expense of $3,335,000, which is included in operating costs and general
corporate expenses, based on the excess of the fair market value of the
Company's common stock on the date of plan approval, which was $32.75, over the
exercise price of the options of $10.65, which was 120% of the fair market value
of the Company's common stock on the date of grant.
F-11
<PAGE> 34
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1998, the Company replaced its chairman, president and chief
executive officer. The provisions of the former executive's severance agreement
and various stock options resulted in a charge to income in 1998 of
approximately $1,000,000, including a cash payment of approximately $650,000,
which is included in operating costs and general corporate expenses. The Company
and Mr. David P. Cook, who subsequently became chairman, president and chief
executive officer, entered into an employment arrangement providing for a three
year term, beginning April 29, 1998. Mr. Cook receives no salary; however, as
consideration for entering into the employment arrangement, Mr. Cook received an
option to acquire 4,254,627 shares of the Company's common stock. The option
exercise price is $7.00 per share, which was twice the closing price of the
Company's common stock on April 28, 1998. The options have a five year term,
vest quarterly over two years, and are subject to accelerated vesting upon the
occurrence of specified events. In the year options are exercised, taxable
compensation realized by Mr. Cook in excess of $1,000,000 is not deductible by
the Company for federal income tax purposes.
The following is a summary of stock option transactions for 1999, 1998 and
1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1996............................ 1,409,521 $ 7.53
Granted at market price................................... 515,767 $ 4.48
Cancelled................................................. (276,594) $ 7.09
Exercised................................................. (5,000) $ 5.75
---------
Outstanding at December 31, 1997............................ 1,643,694 $ 6.65
Granted at market price................................... 178,625 $ 4.50
Granted at prices exceeding market........................ 4,334,627 $ 7.01
Cancelled................................................. (847,875) $ 6.46
Exercised................................................. (301,874) $ 4.66
---------
Outstanding at December 31, 1998............................ 5,007,197 $ 6.98
Granted at market price................................... 400,000 $20.79
Granted at prices less than market........................ 175,924 $13.26
Cancelled................................................. (9,753) $ 6.05
Exercised................................................. (230,492) $ 7.51
---------
Outstanding at December 31, 1999............................ 5,342,876 $ 8.20
=========
</TABLE>
Summarized information about stock options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------ ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.56 - $10.75.............. 5,085,876 4.1 $ 7.12 3,786,572 $ 7.10
$16.50 - $43.63.............. 257,000 9.4 $29.58 10,000 $20.95
--------- ----------
5,342,876 3,796,572
========= ==========
</TABLE>
There were 1,559,106 and 602,652 exercisable options at December 31, 1998
and 1997, respectively.
The Company applies Accounting Principles Board Opinion No. 25 ("APB 25")
in accounting for its stock options. Accordingly, the Company does not record
compensation expenses for its employee stock option grants unless the market
price exceeds the exercise price on the date of grant. Statement of Financial
F-12
<PAGE> 35
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," encourages adoption of a fair-value based method for valuing the
cost of stock-based compensation; however, it allows companies to continue to
use the intrinsic value method under APB 25 and disclose pro forma results and
earnings per share in accordance with SFAS 123. Under SFAS 123, compensation
cost is measured at the grant date based upon the value of the award and is
recognized over the vesting period. As required, the pro forma disclosures
include only options granted since January 1, 1995. Because the Company's stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions to the option
valuation models can materially affect their estimated fair value, in
management's opinion, the existing valuation methods do not necessarily provide
a reliable single measure of the fair value of its stock options. Had
compensation cost for the Company's stock-based compensation been determined
consistent with SFAS 123, the Company's net results and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Net income (loss):
As reported............................... $(34,352,000) $26,266,000 $(17,617,000)
Pro forma................................. $(36,530,000) $25,019,000 $(17,923,000)
Basic and diluted earnings (loss) per share:
As reported............................... $ (2.25) $ 1.66 $ (1.17)
Pro forma................................. $ (2.40) $ 1.58 $ (1.19)
</TABLE>
The Company used the Black-Scholes option pricing model to determine the
fair value of grants made during 1999, 1998 and 1997. The following weighted
average assumptions were applied in determining the pro forma compensation cost:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate.............................. 4.97% 5.59% 5.85%
Expected option life................................. 2.8 years 3.1 years 3.4 years
Expected stock price volatility...................... 96% 52% 55%
Expected dividend yield.............................. -- -- --
Fair value of options:
Granted at market price............................ $11.86 $1.45 $1.84
Granted at prices exceeding market................. -- $0.70 --
Granted at prices less than market................. $24.66 -- --
</TABLE>
Third Party Stock Options
Lante Corporation
The Company entered into an agreement in February 1999 with Lante
Corporation ("Lante"), a third party Internet services company who develops
technology-based solutions for electronic markets, to assist the Company in
developing software for its new Internet related businesses. In exchange for the
services provided by Lante, the Company paid discounted fees of $11,282,000
during 1999, included in research and development expenses, and initially issued
options to purchase 500,000 shares of the Company's common stock to Lante at an
exercise price of $7.62 per share, the closing price of the Company's common
stock on the date of the agreement. Upon completion of Lante's engagement in
November 1999, the terms of the original stock option were revised whereby Lante
holds a fully vested option to acquire up to 166,666 shares of the Company's
common stock at an exercise price of $7.62 per share ("Lante Option"). Pursuant
to an agreement executed simultaneously with the Lante Option, the Company
received a fully vested option to acquire up to 400,000 shares of Lante's common
stock at $7.00 per share ("ZixIt Option"). However, the number of shares
F-13
<PAGE> 36
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of common stock issuable upon the cashless exercise of either of the options
will not exceed a number of shares having a fair market value, as determined in
accordance with a formula, at the time of exercise of $12,000,000 in the
aggregate. Both options expire in 2009 and have certain restrictions regarding
the sale or transfer of the shares once exercised. The fair value of the Lante
Option upon the completion of Lante's engagement was $8,787,000 using the
Black-Scholes option valuation model, and has been included in research and
development expenses. For financial accounting purposes, this non-cash charge
represents the final valuation for the Lante Option and no further accounting
treatment is required. The Company has valued the ZixIt Option on the date of
grant at $1,872,000, using the Black-Scholes option valuation model, and has
reduced its research and development expenses by such amount. The value of the
ZixIt Option is included in other current assets.
Other
The Company has entered into agreements during 1999 with two additional
service providers whereby the Company granted options to purchase up to 150,000
shares of the Company's common stock at a weighted average exercise price of
$30.03. These options vest over a period of 36 to 42 months and have expiration
dates ranging from five to eight years. On the dates of grant, these options had
an estimated fair value aggregating $4,123,000 using the Black-Scholes option
valuation model. Financial accounting rules require these options to be revalued
on each subsequent reporting date until performance is complete with a
cumulative catch up adjustment recognized for any changes in their fair value.
The Company's common stock price has increased since the dates of grant to
$39.63 per share at December 31, 1999, thereby increasing the estimated fair
value of these options to $4,617,000 as of December 31, 1999. The revalued
amount for these options is being amortized over the respective vesting periods.
Accordingly, the Company's results of operations for 1999 include a non-cash
charge of $805,000 for amortization of the fair value of these options. The
Company's future results of operations could be materially impacted by a change
in valuation of these stock options as a result of future increases or decreases
in the price of the Company's common stock. However, the required accounting
treatment has no impact on the Company's cash flows or total stockholders'
equity.
5. INCOME TAXES
Components of the income taxes related to continuing operations are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Federal income tax (provision) benefit:
Current........................................... $807,000 $576,000 $ 372,000
Deferred.......................................... -- -- (380,000)
-------- -------- ---------
$807,000 $576,000 $ (8,000)
======== ======== =========
</TABLE>
F-14
<PAGE> 37
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the expected U.S. tax benefit to income taxes related
to continuing operations is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ -------- ---------
<S> <C> <C> <C>
Expected tax benefit at U.S. statutory rate.... $ 12,448,000 $702,000 $ 633,000
Unbenefitted U.S. losses, net.................. (10,418,000) (64,000) (24,000)
(Unbenefitted) benefitted tax credits.......... (1,819,000) 6,000 (237,000)
Investment in subsidiary....................... 51,000 (68,000) --
Increase in valuation allowance, net........... -- -- (380,000)
Other.......................................... 545,000 -- --
------------ -------- ---------
$ 807,000 $576,000 $ (8,000)
============ ======== =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's deferred tax assets and liabilities as of December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Deferred tax assets:
Nondeductible reserves.......................... $ 706,000 $ 895,000
U.S. net operating loss carryforwards........... 4,543,000 16,000
Tax credit carryforwards........................ 2,447,000 607,000
Stock option compensation....................... 4,659,000 207,000
Start-up costs.................................. 2,571,000 --
Amortization of intangibles..................... 528,000 --
Other, net...................................... 80,000 --
------------ -----------
Total deferred tax assets............... 15,534,000 1,725,000
Deferred tax liabilities:
Investment in equity securities................. 117,000 --
------------ -----------
Net deferred tax assets........................... 15,417,000 1,725,000
Less valuation allowance.......................... (15,417,000) (1,725,000)
------------ -----------
Net deferred taxes................................ $ -- $ --
============ ===========
</TABLE>
The Company has fully reserved its deferred tax assets in 1999 and 1998 due
to the uncertainty of future taxable income from the Company's new business
initiatives. The Company has U.S. net operating loss carryforwards of
$13,361,000 which expire in 2019. Tax credit carryforwards of $2,447,000 consist
of research tax credits which are available through 2019 and alternative minimum
tax credits which do not expire.
6. LEASE COMMITMENTS
The Company's continuing operations includes office rental expenses of
$505,000 in 1999 and $150,000 per year for 1998 and 1997. At December 31, 1999,
future minimum lease payments under noncancelable operating leases are $646,000
annually through 2002, $561,000 for 2003 and $350,000 for 2004.
F-15
<PAGE> 38
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS
During 1999 the Company engaged Lante Corporation ("Lante") to assist the
Company in the development of new Internet products. The Chairman and major
stockholder of Lante has been a director of the Company since March 1999. See
Note 4.
In 1999, the Company engaged Public Strategies, Inc. ("PSI"), an
international strategic communications firm, to assist in the marketing of the
Company's new Internet products. During 1999, the Company paid PSI $770,000 for
services performed and related expenses. The Chairman of PSI has been a director
of the Company since August 1998.
In June 1998, the Company sold its Transportation Systems Group to UNOVA.
At the time of the sale, UNOVA was a 13% stockholder of the Company and a member
of UNOVA's senior management was on the Company's Board of Directors. See Note
2.
In May 1998, the Company acquired Petabyte Corporation ("Petabyte"), a
digital data distribution start-up enterprise founded by Mr. Cook, the Company's
chairman, president and chief executive officer. In consideration of the sale of
Petabyte, the Company paid Mr. Cook $200,000 and agreed to pay Mr. Cook four
annual payments of $200,000 each. In March 1999, the Company returned to Mr.
Cook title to a Petabyte patent covering certain digital data distribution
concepts, while retaining a use license to the patent for a nominal one-time
payment. As part of the return of the title, the Company's future payments to
Mr. Cook, totaling $800,000 were eliminated.
8. EMPLOYEE BENEFIT PLANS
The Company has a retirement savings plan structured under Section 401(k)
of the Internal Revenue Code. The plan covers substantially all U.S. employees
meeting minimum service requirements. Under the plan, contributions are
voluntarily made by employees and the Company may provide matching contributions
based on the employees' contributions. The Company's continuing operations
includes $32,000 in 1999 and $16,000 per year in 1998 and 1997 for matching
contributions to this plan.
The Company has an employee stock purchase plan for substantially all
employees that meet minimum service requirements. The plan provides for the
purchase of up to 300,000 previously issued shares of the Company's common
stock. The employee contributes 85% of the purchase price through payroll
deduction with the difference paid by the Company. Since inception of the plan
in 1996, a total of 155,431 shares have been purchased including 3,597, 50,789
and 85,152 shares purchased in 1999, 1998 and 1997, respectively.
9. LITIGATION
On December 30, 1999, the Company and ZixCharge.com, Inc. ("ZixCharge"), a
wholly-owned subsidiary of the Company, filed a lawsuit against Visa U.S.A.,
Inc. and Visa International Service Association (collectively "Visa") in the
192nd Judicial District Court of Dallas County, Texas. The suit alleges that
Visa undertook a series of actions that interfered with the Company's business
relationships and disparaged the Company, its products, its management and its
stockholders. The suit alleges that Visa intentionally set out to destroy the
Company's ability to market its ZixCharge shopping portal and payment
authorization system, which competed against the MasterCard and Visa-owned
Secure Electronic Transaction system. The suit seeks monetary damages and such
other relief as the court deems appropriate.
The Company is involved in legal proceedings that arise in the ordinary
course of business. In the opinion of management, the outcome of pending legal
proceedings will not have a material adverse affect on the Company's
consolidated financial statements.
F-16
<PAGE> 39
ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENTS
In February 2000, following Lante's initial public offering, the Company
fully exercised its option to acquire shares of Lante common stock pursuant to
the ZixIt Option as discussed in Note 4. The Company and Lante are disputing the
net number of Lante shares the Company is to receive from this cashless exercise
and have initiated arbitration proceedings. Lante is disputing 128,532 of the
320,802 shares for which the Company believes it is entitled to. The closing
price of Lante's common stock on the date of exercise was $57.00.
In February 2000, Mr. David P. Cook, the Company's chairman, president and
chief executive officer, reallocated options to acquire 254,627 shares of the
Company's common stock to certain of the Company's employees, as allowed by Mr.
Cook's option agreement with the Company. These options have a five year term,
vest in February 2002 and have an exercise price of $9.50 per share. Non-cash
compensation expense of $7,163,000 will be recognized over the two year vesting
period, representing the intrinsic value of the reallocated options based upon
the difference between the fair market value of the Company's common stock on
the date the options were reallocated and the option exercise price.
On March 23, 2000, the Company announced that a group headed by H. Wayne
Huizenga will invest between $20,000,000 and $44,000,000 in a private placement
of the Company's common stock. In conjunction with the investment, H. Wayne
Huizenga will become vice chairman of the Company's board of directors. Details
of the transaction are still being finalized and will be subject to the approval
of the Company's board of directors.
F-17
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Articles of Incorporation of ZixIt, together with all
amendments thereto. Filed under exhibit number 3.1 to
ZixIt's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
Articles of Amendment to Articles of Incorporation of
CustomTracks Corporation, dated September 14, 1999. Filed
under exhibit number 3.2 to ZixIt's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1999, and incorporated herein by reference. Articles of
Amendment to Articles of Incorporation of CustomTracks
Corporation, dated October 12, 1999. Filed under exhibit
number 3.3 to ZixIt's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1999, and
incorporated herein by reference.
3.2 -- Restated Bylaws of ZixIt, dated August 31, 1998. Filed
under exhibit number 3.2 to ZixIt's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1998, and incorporated herein by reference.
4.1* -- Specimen certificate for common stock of ZixIt.
10.1 -- 1990 Stock Option Plan of ZixIt (Amended and Restated as
of September 1999). Filed under exhibit number 10.1 to
ZixIt's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999, and incorporated herein
by reference.
10.2 -- 1992 Stock Option Plan of ZixIt (Amended and Restated as
of September 1999). Filed under exhibit number 10.2 to
ZixIt's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999, and incorporated herein
by reference.
10.3 -- 401(k) Retirement Plan of ZixIt and related Adoption
Agreement. Filed under exhibit number 10.5 to ZixIt's
Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by reference.
10.4 -- 1995 Long-Term Incentive Plan of ZixIt (Amended and
Restated as of September 1999). Filed under exhibit
number 10.3 to ZixIt's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1999, and
incorporated herein by reference.
10.5* -- ZixIt's 1999 Directors' Stock Option Plan (Amended and
Restated as of January 1, 2000).
10.6 -- 1996 Employee Stock Purchase Plan of ZixIt. Filed under
Annex II in ZixIt's Proxy Statement for the Annual
Meeting of Stockholders held April 25, 1996, and
incorporated herein by reference.
10.7 -- Stock Option Agreement, effective as of April 29, 1998,
between David P. Cook and ZixIt Corporation. Filed under
exhibit number 10.1 to ZixIt's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, and
incorporated herein by reference.
10.8* -- Amendment No. 1 to Stock Option Agreement, dated February
18, 2000, between David P. Cook and ZixIt Corporation.
10.9 -- Employment Agreement, effective as of April 29, 1998,
between David P. Cook and ZixIt Corporation. Filed under
exhibit number 10.2 to ZixIt's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, and
incorporated herein by reference.
10.10 -- Amendment to Employment Agreement, dated March 22, 1999,
between David P. Cook and ZixIt Corporation. Filed under
exhibit number 10.3 to ZixIt's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1999, and
incorporated herein by reference.
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 -- Severance Agreement, dated November 4, 1996, between
Amtech Corporation and Steve M. York. Filed under exhibit
number 10.28 to ZixIt's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein
by reference.
10.12 -- Severance Agreement, dated November 4, 1996, between
Amtech Corporation and Ronald A. Woessner. Filed under
exhibit number 10.12 to ZixIt's Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference.
10.13 -- Sublease Agreement, dated February 12, 1999, between
Fidelity Corporate Real Estate, L.L.C. and ZixIt
Operating Corporation. Filed under exhibit number 10.13
to ZixIt's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
10.14 -- Purchase and Sale Agreement, dated October 1, 1999, among
ZixIt Corporation, Anacom Communications, Inc. (Delaware
corporation), Anacom Communications, Inc. (Texas
corporation), Warren E. Rosenfeld and George A. DeCourcy
(including exhibits A and C, but excluding exhibit B and
the schedules). Filed under exhibit number 2.1 to ZixIt's
Current Report on Form 8-K, dated October 13, 1999, and
incorporated herein by reference. The Registrant agrees
to furnish supplementally to the Commission upon request
a copy of any of the schedules and exhibits referred to
but not included in the Purchase and Sale Agreement filed
with the Commission.
10.15 -- Registration Rights Agreement, effective as of February
2, 1999, by and between ZixIt Corporation and Lante
Corporation. Filed under exhibit number 10.1 to ZixIt's
Annual Report on Form 10-K/A for the year ended December
31, 1998, and incorporated herein by reference.
10.16* -- Amended and Restated ZixIt Corporation Stock Option
Agreement, dated November 24, 1999, between ZixIt and
Lante Corporation (Delaware corporation).
10.17* -- Registration Rights Agreement, dated November 24, 1999,
between ZixIt and Lante Corporation (Delaware
corporation) relating to exhibit number 10.16 filed
herewith.
10.18* -- Lante Corporation Stock Option Agreement, dated November
24, 1999, between Lante Corporation (Delaware
corporation) and ZixIt.
10.19* -- Registration Rights Agreement, dated November 24, 1999,
between Lante Corporation (Delaware corporation) and
ZixIt relating to exhibit number 10.18 filed herewith.
21.1* -- Subsidiaries of ZixIt.
23.1* -- Consent of Independent Auditors.
24.1 -- Power of Attorney (included on page 21 of this Annual
Report on Form 10-K).
27.1* -- Financial Data Schedule.
99.1 -- Press Release issued by the Registrant on October 1,
1999, relating to the Purchase and Sale Agreement, dated
October 1, 1999, among ZixIt Corporation, Anacom
Communications, Inc. (Delaware corporation), Anacom
Communications, Inc. (Texas corporation), Warren E.
Rosenfeld and George A. DeCourcy. Filed under exhibit
number 99.1 to ZixIt's Current Report on Form 8-K, dated
October 13, 1999, and incorporated herein by reference.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
[NUMBER] [ZIXIT(TM) CORPORATION LOGO] [SHARES]
C
ZIXIT CORPORATION
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS CUSIP 98974P 10 0
THIS CERTIFICATE IS TRANSFERABLE IN CHICAGO, IL AND NEW YORK, NY SEE REVERSE FOR CERTAIN
DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE COMMON STOCK OF
ZIXIT CORPORATION
(hereinafter referred to as the "Corporation") transferable on the books of the Corporation by the holder hereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated: [SEAL]
/s/ RONALD A. WOESSNER /s/ DAVID P. COOK
Secretary Chairman and Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
BY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
ZixIt Corporation
Preemptive rights are denied by the Articles of Incorporation of the
Corporation on file in the Office of the Secretary of State of Texas, and the
Corporation will furnish a copy of such Articles of Incorporation to the record
holder of this certificate without charge on written request to the Corporation
at its principal place of business or registered address. The Corporation will
also furnish any stockholder upon request without charge a statement of the
powers, designations, preferences and rights, and qualifications, limitations
and restrictions of such preferences and rights, of all classes and series of
the capital stock of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants ___________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated _______________________________________
X__________________________________________
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN ->
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
X__________________________________________
(SIGNATURE)
-------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
-------------------------------------------
SIGNATURE(S) GUARANTEED BY:
-------------------------------------------
<PAGE> 1
Exhibit 10.5
ZIXIT CORPORATION
1999 DIRECTORS' STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF JANUARY 1, 2000)
Section 1. PURPOSE
The purpose of the ZixIt Corporation 1999 Directors' Stock Option Plan
(hereinafter called the "Plan") is to advance the interests of ZixIt
Corporation, a Texas corporation (hereinafter called the "Company"), by
strengthening the ability of the Company to attract, on its behalf, and retain
External Directors (as defined below) of high caliber through encouraging a
sense of proprietorship by means of stock ownership.
Section 2. DEFINITIONS
"Adoption Date" shall mean January 28, 1999.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time-to-time.
"Committee" shall mean the entire Board of Directors, or if the
administration of the Plan has been delegated to a committee of the Board, a
committee selected by the Board and comprised of at least two directors. To the
extent necessary to comply with the requirements of Rule 16b-3, the Committee
shall consist of two or more Non-Employee Directors.
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share.
"Date of Grant" shall mean the date on which an Option is granted under
the Plan.
"Designated Beneficiary" shall mean the beneficiary designated by the
Optionee, in a manner determined by the Committee, to receive amounts due the
Optionee in the event of the Optionee's death. In the absence of an effective
designation by the Optionee, Designated Beneficiary shall mean the Optionee's
estate.
"Eligible Director" shall mean an External Director who has served on
the Board at least 12 consecutive months as of the Date of Grant.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"External Director" shall mean a member of the Board who is not an
employee of the Company or a subsidiary.
"Fair Market Value" shall mean the closing sales price (or average of
the quoted closing bid and asked prices if there is no closing sales price
reported) of the Common Stock on the date specified as reported by the NASDAQ
Stock Market, or by the principal national stock exchange on which the Common
Stock is then listed. If there is no reported price information for such date,
the Fair Market Value will be determined by the reported price information for
Common Stock on the day nearest preceding such date.
1
<PAGE> 2
"Grant Shares" shall mean, with respect to each Eligible Director for a
particular year, a number of shares calculated according to the following
formula: 1% of the number of the Company's outstanding Common Stock shares as of
the December 31 immediately preceding the Date of Grant divided by the number of
then-Eligible Directors. In no event may the number of Grant Shares in any given
year to any given Eligible Director exceed one-half of 1% of the Company's
outstanding Common Stock shares.
"Non-Employee Director" shall have the meaning given such term in Rule
16b-3.
"Option" shall mean a nonqualified option to purchase shares of the
Company's Common Stock.
"Optionee" shall mean the person to whom an Option is granted under the
Plan or who has obtained the right to exercise an Option in accordance with the
provisions of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 of the rules and regulations under
the Exchange Act as it may be amended from time-to-time and any successor
provision to Rule 16b-3 under the Exchange Act.
Section 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have sole and complete authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the operation of the Plan as it shall
from time-to-time deem advisable, and to construe, interpret and administer the
terms and provisions of the Plan and the agreements thereunder. The
determinations and interpretations made by the Committee are final and
conclusive and binding on all persons.
Section 4. ELIGIBILITY
All External Directors shall be eligible to receive awards of Options
under the Plan.
Section 5. MAXIMUM AMOUNT AVAILABLE FOR AWARDS
Subject to the provisions of Section 9, the maximum number of shares of
Common Stock in respect of which Options may be granted under the Plan shall be
750,000 shares of Common Stock. Shares of Common Stock may be made available
from authorized but unissued shares of the Company or from shares reacquired by
the Company, including shares purchased in the open market. In the event that an
Option is terminated unexercised as to any shares of Common Stock covered
thereby, such shares shall thereafter be again available for award pursuant to
the Plan.
Section 6. STOCK OPTIONS
(a) During the term of the Plan, on the day that an External Director
is first appointed or elected to the Board, such director shall be granted
nonqualified Options to purchase 25,000 shares of the Company's Common Stock.
Also, during the term of the Plan, on the first business day of January of each
year after the Adoption Date, each Eligible Director shall be granted Options to
purchase the Grant Shares. Each Eligible Director serving on the Board on the
Adoption Date shall be granted Options to purchase the Grant Shares, effective
as of the Adoption Date. Directors that receive the Grant Shares are not
eligible to receive a directors' retainer cash payment, although they are
eligible to be reimbursed for expenses related to Board activities.
(b) All Options granted under the Plan prior to shareholder approval of
the Plan shall be subject to the approval of the Plan by the shareholders of the
Company.
2
<PAGE> 3
(c) The exercise price of the 25,000 share option grants shall be 100%
of the Fair Market Value of the Common Stock on the Date of Grant. The exercise
price for the Grant Shares shall be 120% of the Fair Market Value of the Common
Stock on the Date of Grant. The exercise price of any outstanding Options may
not be repriced without the approval of the Company's shareholders (obtained in
accordance with applicable law), given in each specific instance.
(d) Each Option hereunder shall be evidenced in writing, delivered to
the Optionee, and shall be exercisable at such times and subject to such terms
and conditions as specified in the applicable grant and agreement, subject to
the following principles:
(1) the 25,000 share option grants shall vest six months from the
Date of Grant;
(2) the Grant Shares shall vest annually and pro-rata on each of
the first three anniversaries of the Date of Grant; provided,
that, the vesting will accelerate if (a) a Change in Control
(as defined in the applicable agreement) of the Company occurs
or (b) the director is removed by vote of the shareholders
other than for Cause (as defined in the applicable agreement);
and
(3) the Options may not be exercised after the tenth anniversary
of the Date of Grant.
The Committee may impose such conditions with respect to the exercise
of Options (that are consistent with the foregoing principles), including
without limitation, any relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
(e) No shares shall be delivered pursuant to any exercise of an Option
until cash payment in full of the option price therefor is received by the
Company. If the shares to be purchased are covered by an effective registration
statement under the Securities Act of 1933, any Option may be exercised by a
broker-dealer acting on behalf of an Optionee if (a) the broker-dealer has
received from the Optionee instructions signed by the Optionee requesting the
Company to deliver the shares of Common Stock subject to such Option to the
broker-dealer on behalf of the Optionee and specifying the account into which
such shares should be deposited, (b) adequate provision has been made with
respect to the payment of any withholding taxes due upon such exercise, and (c)
the broker-dealer and the Optionee have otherwise complied with Section
220.3(e)(4) of Regulation T, 12 CFR Part 220, or any successor provision. The
Company shall have the right to deduct from all amounts paid to an Optionee in
cash (whether under the Plan or otherwise) any taxes the Company withholds in
respect of Options under the Plan.
(f) The Company shall not be required to issue any fractional shares
upon the exercise of any Options granted under the Plan. No Optionee or such
Optionee's legal representatives, legatees or distributees, as the case may be,
will be, or will be deemed to be, a holder of any shares subject to an Option
unless and until said Option has been exercised and the purchase price of the
shares in respect of which the Option has been exercised has been paid. Unless
otherwise provided in the agreement applicable thereto, an Option shall not be
exercisable except by the Optionee or by a person who has obtained the
Optionee's rights under the Option by will or under the laws of descent and
distribution or pursuant to a "qualified domestic relations order" as defined in
the Code, and no right or interest of any Optionee shall be subject to any lien,
obligation or liability of the Optionee.
3
<PAGE> 4
Section 7. PLAN AMENDMENTS
The Board may amend, abandon, suspend or terminate the Plan or any
portion thereof at any time in such respects as it may deem advisable in its
sole discretion, provided that no amendment shall be made without shareholder
approval if such amendment is material or if shareholder approval is necessary
to comply with any tax or regulatory requirement.
Section 8. RESTRICTIONS ON ISSUANCE OF OPTIONS AND OPTION SHARES
The Company shall not be obligated to issue any shares upon the
exercise of any Option granted under the Plan unless: (1) the shares pertaining
to such Option have been registered under applicable securities laws or are
exempt from such registration; (2) if required, the prior approval of such sale
or issuance has been obtained from any state regulatory body having
jurisdiction; and (3) in the event the Common Stock has been listed on any
exchange, the shares pertaining to such Option have been duly listed on such
exchange in accordance with the procedure specified therefor. The Company shall
be under no obligation to effect or obtain any listing, registration,
qualification, consent or approval with respect to shares pertaining to any
Option granted under the Plan. If the shares to be issued upon the exercise of
any Option granted under the Plan are intended to be issued by the Company in
reliance upon the exemptions from the registration requirements of applicable
federal and state securities laws, the recipient of the Option, if so requested
by the Company, shall furnish to the Company such evidence and representations,
including an opinion of counsel satisfactory to it as the Company may reasonably
request.
The Company shall not be liable for damages due to a delay in the
delivery or issuance of any stock certificates for any reason whatsoever,
including, but not limited to, a delay caused by listing, registration or
qualification of the shares of Common Stock pertaining to any Option granted
under the Plan upon any securities exchange or under any federal or state law or
the effecting or obtaining of any consent or approval of any governmental body.
The Committee may impose such other restrictions on the ownership and
transfer of shares issued pursuant to the Plan as it deems desirable; any such
restrictions shall be set forth in the agreement applicable thereto.
Section 9. ADJUSTMENT TO SHARES
In the event that the Committee shall determine that any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below Fair Market Value or other
similar corporate event affects the Common Stock such that an adjustment is
required in order to preserve the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall adjust appropriately any
or all of (a) the number and kind of shares that thereafter may be optioned
under the Plan, (b) the number and kind of shares subject of Options and (c) the
exercise price with respect to any of the foregoing and/or, if deemed
appropriate, make provision for cash payment to an Optionee or a person who has
an outstanding Option; provided, however, that the number of shares subject to
any Option shall always be a whole number.
Section 10. EFFECTIVE DATE; TERM; EFFECT ON 1996 PLAN
Subject to the approval of the shareholders of the Company, the Plan
shall be effective as of the Adoption Date. No Options may be granted under the
Plan after January 27, 2009; however, all previously granted Options that have
not expired under their original terms or will not then expire at the time the
Plan
4
<PAGE> 5
expires will remain outstanding. The Plan supersedes the Company's 1996
Directors' Stock Option Plan, effective upon the approval of the Plan by the
Company's shareholders.
Section 11. GENERAL PROVISIONS
(a) Neither the Plan nor any Option granted hereunder is intended to
confer upon any Optionee any rights with respect to continuance of the
utilization of his or her services by the Company, nor to interfere in any way
with his or her right or that of the Company to terminate his or her services at
any time (subject to the terms of any applicable contract, law, regulation, and
the articles and bylaws of the Company).
(b) No Optionee or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she has become the holder thereof.
(c) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
Texas (without giving effect to its conflicts of laws rules) and, to the extent
applicable, federal law.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
its behalf as of the 1st day of January 2000.
ZIXIT CORPORATION
By: Ronald A. Woessner
--------------------------------
Title: V.P.
------------------------------
Date: 3/15/00
------------------------------
5
<PAGE> 1
EXHIBIT 10.8
AMENDMENT NO. 1
TO AMTC CORPORATION STOCK OPTION AGREEMENT
This Agreement is entered into as of February 18, 2000, between David
P. Cook ("Cook") and ZixIt Corporation, a Texas corporation ("ZixIt"). Reference
is made to that certain AMTC Corporation Stock Option Agreement, effective as of
April 29, 1998, between Cook and ZixIt (the "Cook Option").
1. Amendments. The Cook Option is amended as follows:
o Delete 4,254,627 from Section 1 and substitute in its place
4,000,000.
o Delete 531,831 from Section 2 and substitute in its place
277,204.
o Delete clause (d) and renumber existing clause (e) as clause
(d) in Section 3. Delete the second paragraph of Section 3.
o Amend the first sentence of Annex A of the Cook Option to read
as follows: "At any time prior to the seventh anniversary of
the date hereof, the Optionee shall be entitled to make up to
four demands (but not more than one per calendar year) to the
Company to effect the registration under the Securities Act of
1933, as amended (the "Securities Act"), of all or part of the
Shares (provided that the Shares proposed to be sold by the
Optionee represent, in the aggregate, more than 15% of the
total number of Shares)."
2. No Other Changes. Other than as provided herein, the Cook Option shall
remain in full force and effect.
Executed on the dates set forth below, to be effective as of the date
first set forth above.
ZIXIT CORPORATION
By: /s/ Steve M. York
--------------------------
Steve M. York,
Senior Vice President
Date: 2/18/00
------------------------
/s/ David P. Cook
-----------------------------
David P. Cook
Date: 2/18/00
------------------------
/s/ Cheryl G. Cook
-----------------------------
Cheryl G. Cook
Date: 2/18/00
------------------------
<PAGE> 1
Exhibit 10.16
Execution Copy
THIS AGREEMENT CONTAINS AN ARBITRATION PROVISION
AMENDED AND RESTATED ZIXIT CORPORATION
STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), effective as of November 24, 1999,
and entered into by and between ZixIt Corporation f/k/a CustomTracks
Corporation, a Texas corporation (the "Company" or "ZixIt"), and Lante
Corporation, a Delaware corporation and successor-in-interest to Lante
Corporation, an Illinois corporation ("Lante"), amends and restates that certain
CustomTracks Corporation Stock Option Agreement entered into between ZixIt and
Lante's predecessor-in-interest, effective as of February 2, 1999 (the "Original
Option").
WITNESSETH:
WHEREAS, ZixIt and Lante entered into an engagement letter, dated as of
February 2, 1999 (the "Engagement Letter"), whereby, inter alia, ZixIt engaged
Lante to provide the consulting services stated therein; and
WHEREAS, the parties hereto desire to amend and restate the Original
Option as provided herein; and
WHEREAS, the parties hereto entered into a Registration Rights
Agreement effective as of February 2, 1999, and the parties desire to enter into
an amended and restated Registration Rights Agreement (herein so called) in the
form of Exhibit A attached hereto;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein and in the Engagement Letter and in
that certain stock option agreement of Lante Corporation entered into between
the parties, effective the date hereof, the parties hereby agree as follows:
1. Grant of Option; Expiration of Option. Effective as of February 2, 1999 (the
"Award Date"), ZixIt hereby grants to Lante, upon the terms set forth in this
Agreement, a nonqualified option (the "Option"), to acquire 166,666 shares of
ZixIt Common Stock, $.01 par value per share (the "ZixIt Common Stock"). The
exercise price of the Option is $7.625 per share, which was the closing price of
ZixIt Common Stock on the Award Date. The Option may be exercised from
time-to-time with respect to any shares of ZixIt Common Stock as to which the
Option has not been exercised until the tenth anniversary of the Award Date. On
the tenth anniversary of the
1
<PAGE> 2
Award Date, the Option will expire with respect to all shares as to which the
Option has not been exercised.
2. Vesting. The Option is fully vested.
3. Exercise. To exercise the Option with respect to the ZixIt Common Stock,
Lante shall provide written notice (the "Company Exercise Notice") to ZixIt at
One Galleria Tower, 13355 Noel Road, Suite 1555, Dallas, Texas 75240-6604, fax
number 972-702-7054 (or such other address as ZixIt may apprise Lante of from
time-to-time) to the attention of ZixIt's chief financial officer (currently
Steve M. York). The notice must: (i) state the number of shares of ZixIt Common
Stock being purchased and (ii) be signed by Lante. The Option may be exercised
with respect to shares of ZixIt Common Stock from time-to-time, i.e., there is
no obligation to exercise all shares at one time.
4. Cashless Exercise. The Option may only be exercised as a cashless exercise.
Upon exercise of the Option, Lante will receive "N" number of shares, where "N"
is determined according to the following formula:
N = [(then-current ZixIt per share stock price minus $7.625) multiplied by (the
number of shares sought to be exercised)], divided by the
then-current ZixIt stock price.
For purposes of this calculation the "then-current" ZixIt stock price inside the
brackets (i.e., for the numerator only) will be capped at $79.625. Subject to
the preceding sentence, for purposes of this calculation, the "then-current"
ZixIt stock price will be the average of the quoted closing prices of the ZixIt
stock for the ten trading days preceding the date of exercise. If the Option is
exercised in full, Lante shall, upon request, surrender this Agreement to ZixIt
for cancellation. If the Option is exercised in part, Lante shall surrender this
Agreement to ZixIt so that ZixIt may make appropriate notation hereon and shall
promptly return this Agreement to Lante. If the ZixIt stock is not publicly
traded (i.e., there is no quoting closing price), the then-current price will be
its fair market value, determined as provided in Section 15 below.
Subject to Section 8, after the exercise of the Option in whole or in
part, ZixIt shall promptly (and no later than five business days thereafter)
issue and deliver a certificate representing the number of shares of ZixIt
Common Stock as to which the Option has been exercised. The shares of ZixIt
Common Stock issuable upon the exercise of the Option are subject to the
transfer restrictions noted in Section 8 below and, if issued prior to the lapse
of the restrictions, will bear an appropriate legend. Other than as stated in
the preceding sentence and in Section 8, ZixIt agrees to deliver the underlying
stock certificates, free and clear of any restrictive legends, registered as
designated by Lante or its designee, in time to permit normal-way settlement of
a simultaneous exercise of the Option and sale of the underlying ZixIt Common
Stock.
5. Accredited Investor Status. Lante represents and warrants that it is an
"accredited investor" as such term is defined in Regulation D under the
Securities Act of 1933, as amended.
2
<PAGE> 3
6. Preservation of Rights. The number of shares of ZixIt Common Stock subject to
the Option and the exercise price therefor set forth in Section 1 and the
$79.625 and the $7.625 numbers relating to the formula set forth in Section 4
shall be subject to appropriate adjustment, reasonably satisfactory to Lante and
ZixIt, to preserve the relative rights of Lante and ZixIt under this Agreement
in the event of any change or exchange of ZixIt Common Stock for a different
number or kind of securities, any of which results from one or more stock
splits, reverse stock splits, or stock dividends or a transaction described in
the immediately following sentence. If a merger, consolidation, sale of shares,
or similar transaction involving ZixIt, on the one hand, and one or more
persons, on the other hand with respect to ZixIt occurs, and, as a part of such
transaction, shares of stock, other securities, cash or property shall be
issuable or deliverable in exchange for ZixIt Common Stock, then Lante shall be
entitled to purchase or receive (in lieu of the shares of ZixIt Common Stock
that Lante would otherwise be entitled to purchase or receive hereunder), the
number of shares of stock, other securities, cash or property to which that
number of shares of ZixIt Common Stock would have been entitled in connection
with such transaction (and, at an aggregate exercise price equal to the
aggregate exercise price hereunder that would have been payable if that number
of shares of ZixIt Common Stock had been purchased on the exercise of the Option
immediately before the consummation of the transaction).
7. Who May Exercise. Without ZixIt's consent, except as provided in the
immediately following sentence, the Option shall be exercisable only by Lante
and Lante shall not, directly or indirectly, sell, transfer, or assign
("Transfer") the Option or the rights and privileges pertaining thereto. It is
understood and agreed by the parties that any sale, transfer, or assignment of
this Agreement, the Option, or the rights and privileges pertaining thereto
resulting from (i) a merger, consolidation, or share exchange involving Lante,
or (ii) any sale of substantially all of Lante's assets, or (iii) any
liquidation or dissolution of Lante in connection with an event stated in clause
(i) or (ii) is not a "Transfer" of the Option or the rights and privileges
pertaining thereto for purposes of this Agreement if the successor, surviving,
acquiring, or recipient entity, as applicable, receives the entire Option and
agrees in writing to perform, or by operation of law is obligated to perform,
the obligations under the Engagement Letter, if any, and the Lante Option (as
defined below). It is understood and agreed that Lante is entitled to pledge,
encumber, or hypothecate the Option and the rights and privileges pertaining
thereto, provided that the transferee is bound by the transfer restrictions set
forth in this Section and in Subsection 8(b). The Option is not liable for or
subject to, in whole or in part, the debts, contracts, liabilities or torts of
Lante, nor shall it be subject to garnishment, attachment, execution, levy or
other legal or equitable process.
8. Certain Legal Restrictions.
(a) Except as provided in the Registration Rights Agreement, ZixIt
shall not have any obligation to Lante, express or implied, to list, register or
otherwise qualify any of Lante's shares of ZixIt Common Stock. ZixIt shall not
be obligated to sell or issue any shares of ZixIt Common Stock upon the exercise
of the Option unless, in the opinion of counsel for ZixIt or counsel otherwise
reasonably acceptable to ZixIt, the issuance and delivery of such shares shall
comply with all relevant provisions of law and other legal requirements
including, without limitation, any applicable federal or state securities laws
and the requirements of any stock exchange or inter-
3
<PAGE> 4
dealer quotation system on which shares of ZixIt Common Stock may then be listed
or quoted. The shares of ZixIt Common Stock issued upon the exercise of the
Option may not be transferred except in accordance with applicable federal or
state securities laws. At ZixIt's election, if the shares of stock issuable upon
the exercise of the Option have not been registered under the Securities Act of
1933, as amended, and applicable state securities laws, the certificate
evidencing shares of ZixIt Common Stock issued to Lante may be legended as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE
OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND
THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
(b) Except as provided in this Subsection 8(b), the shares of ZixIt
Common Stock issued under the Option may not be directly or indirectly
Transferred unless and until (i)(A) the class of the securities issuable under
that certain Lante Corporation Stock Option Agreement, effective as of the date
hereof, issued to ZixIt Corporation (the "Lante Option") is registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and is either listed and qualified for trading on a national securities
exchange or is listed for quotation and qualified for trading on NASDAQ, (B) the
Lock-Up Period set forth in Subsection 8(b) of the Lante Option has expired, and
(C) Lante is, at the time of the contemplated Transfer of the shares of Common
Stock, current in its reporting obligations under the Exchange Act, or (ii)
Lante has experienced a Liquidity Event (as hereinafter defined), or (iii) Lante
has exercised its redemption right under the Lante Option and tendered payment
for the option shares thereunder, or (iv) ZixIt has experienced a Change of
Control (as hereinafter defined), or (v) upon ZixIt's exercise of its Redemption
Right (as hereinafter defined) hereunder and tendered payment for the option
shares. In order to enforce the foregoing covenant, ZixIt may impose
stop-transfer instructions with respect to the shares issued under the Option,
which instructions will be promptly lifted when the above Transfer restrictions
are no longer applicable. It is understood and agreed that Lante is permitted to
pledge, encumber, or hypothecate the shares issued under the Option, provided
that the transferee is bound by the transfer restrictions imposed by this
Subsection 8(b). A "Change of Control" shall mean a merger, consolidation, sale
of shares, sale of all or substantially all the assets or similar transaction
involving a party hereto, on the one hand, and one or more persons, on the other
hand, pursuant to which the securities of the party are converted into the right
to receive cash or other property. A "Liquidity Event" shall mean a "Change of
Control" pursuant to which the shareholders of the party in question receive (i)
cash and/or (ii) Public Securities that have been registered under the
Securities Act of 1933, as amended, or if not registered, are accompanied by
then-currently exercisable rights to require registration under such Act.
"Public Securities" shall mean securities meeting the following requirements:
(i) of a class that is registered under Section 12 of the Exchange Act and is
either listed and qualified for trading on a national securities exchange or is
listed for quotation and
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qualified for trading on NASDAQ and (ii) in a company that is then-current in
its reporting obligations under the Exchange Act.
9. Termination. The Option shall automatically terminate if Lante (i)
voluntarily seeks, consents to, or acquiesces in the benefit or benefits of the
Bankruptcy Code of the United States of America or any other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief law from time-to-time in effect affecting the rights of creditors
generally ("Debtor Relief Law"); or (ii) becomes a party to (or is made the
subject of) any proceeding provided for by any Debtor Relief Law, other than as
a creditor or claimant (unless, in the event such proceeding is involuntary, the
petition instituting same is dismissed within 60 days of the filing of same).
10. Registration Rights. Lante shall have the registration rights set forth in
the Registration Rights Agreement attached as Exhibit A hereto.
11. Arbitration. The parties agree to the resolution by binding arbitration of
all claims, demands, causes of action, disputes, controversies, or other matters
in question ("claims") arising under this Agreement or the Registration Rights
Agreement, whether sounding in contract, tort, or otherwise and whether provided
by statute or common law, except for claims where the relief sought is an
injunction, specific performance, or other equitable relief. The claims shall be
submitted to arbitration and finally settled under the applicable rules of the
American Arbitration Association ("AAA") in effect at the time the written
notice of the claim is received. An arbitrator shall be selected in the manner
provided for in such rules of the AAA, except that the parties agree that the
arbitrator shall be an attorney licensed in the state where the arbitration is
being conducted. If any party refuses to honor its obligations under this
agreement to arbitrate the other party may compel arbitration in either federal
or state court. The arbitrator will have exclusive authority to resolve any
dispute relating to the interpretation, applicability, enforceability, or
formation of this agreement to arbitrate, including, but not limited to, any
claim that all or part of this Agreement or the Registration Rights Agreement is
void or voidable and any claim that an issue is not subject to arbitration. The
arbitrator shall have the authority to award injunctive and other equitable
relief. The arbitration will be held in Dallas County, Texas. The arbitrator
shall issue a written decision that identifies the factual findings and
principles of law upon which any award is based. The award and findings of such
arbitrator shall be conclusive and binding upon the parties, and judgment upon
such award may be entered in any court of competent jurisdiction. Any and all of
the arbitrator's orders, decisions, and awards may be enforceable in, and
judgment upon any award rendered by the arbitrator may be confirmed and entered
by, any federal or state court having jurisdiction. Each party shall pay all
costs and expenses of its advisors. The costs and expenses of the arbitration
proceedings will be paid by the non-prevailing party or as the arbitrator
otherwise determines. Discovery will be permitted to the extent directed by the
arbitrator. Except as otherwise provided in the first sentence of this Section
11, EACH PARTY UNDERSTANDS THAT BY AGREEING TO SUBMIT CLAIMS TO ARBITRATION IT
GIVES UP THE RIGHT TO SEEK A TRIAL BY COURT OR JURY AND THE RIGHT TO AN APPEAL
FROM ANY ERRORS OF THE COURT AND FORGOES ANY AND ALL RELATED RIGHTS IT MAY
OTHERWISE HAVE UNDER FEDERAL AND STATE LAWS.
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12. Notices of Certain Transactions. In case:
(a) ZixIt shall take a record of the holders of the ZixIt
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Option) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right, to subscribe for or purchase any shares of stock of any
class or any other securities, or to receive any other right, or
(b) of any capital reorganization of ZixIt, any
reclassification of the capital stock of ZixIt, any consolidation or merger of
ZixIt, any consolidation or merger of ZixIt with or into another corporation
pursuant to which the securities of ZixIt are converted into the right to
receive cash or other property, or any transfer of all or substantially all of
the assets of ZixIt, or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of ZixIt,
then, and in each such case, ZixIt will mail or cause to be mailed to Lante a
notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the
effective date on which such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of ZixIt
Common Stock (or such other stock or securities at the time deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up) are to be determined. Such notice shall
be mailed at least ten (10) days prior to the record date or effective date for
the event specified in such notice.
13. Reservation of Stock. ZixIt will at all times reserve and keep available,
solely for the issuance and delivery upon the exercise of the Option, such
shares of ZixIt Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of the Option.
14. No Impairment. ZixIt will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Option, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Option against impairment.
15. Redemption Right. If on the 30th day prior to the 10th anniversary of the
Award Date, the ZixIt Common Stock is not registered under Section 12 of the
Exchange Act and is not either listed and qualified for trading on a national
securities exchange or listed for quotation and qualified for trading on NASDAQ,
then ZixIt shall have the right, exercised by giving written notice within such
30 day period, to cause Lante to exercise the Option and to sell to ZixIt the
resulting securities issued upon exercise at the "fair market value" thereof
(the "Redemption
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Right"). The fair market value shall be determined by an Appraiser (as defined
below) taking into account relevant factors pursuant to the following process:
(a) ZixIt shall retain an Appraiser to conduct an appraisal of
ZixIt and of the fair market value of the securities as of the
relevant determination date (the "First Appraisal"). ZixIt
shall pay the cost of the First Appraisal.
(b) Within 10 days after receipt of the First Appraisal, Lante
shall notify ZixIt in writing whether it accepts or rejects
the First Appraisal. If the First Appraisal is accepted, the
First Appraisal shall determine the fair market value. If the
First Appraisal is rejected, Lante shall select an Appraiser
who shall perform a second appraisal of the fair market value
(the "Second Appraisal") and Lante shall deliver the Second
Appraisal to ZixIt within 20 days of the written notice of
rejection of the First Appraisal. The cost of the Second
Appraisal shall be borne by Lante.
(c) If the Second Appraisal is at least equal to 90% of, but not
more than 110% of, the First Appraisal, then the two
Appraisals shall be averaged and such average shall determine
the fair market value.
(d) If the Second Appraisal is less than 90% of the First
Appraisal or more than 110% of the First Appraisal, and if
ZixIt and Lante are unable to agree upon the fair market value
within 10 days after receipt of the Second Appraisal, then the
Appraisers who performed the First Appraisal and the Second
Appraisal shall select a third Appraiser (the "Third
Appraiser"), who shall perform a third appraisal of the fair
market value (the "Third Appraisal"), and the Third Appraiser
shall deliver the Third Appraisal, within 25 days after
delivery of the Second Appraisal, to each of Lante and ZixIt.
The cost of the Third Appraisal shall be paid equally by ZixIt
and Lante.
(e) After the Third Appraisal has been received, the highest and
lowest of the three Appraisals shall be ignored and the middle
Appraisal shall determine the fair market value.
"Appraiser" means either (i) a certified public accounting firm that is
not at such time performing regular accounting services for the person in
question, (ii) a reputable investment banking firm that is not at such time
performing regular investment banking services for the person in question, or
(iii) a nationally recognized independent appraisal firm, provided that such
organization defined in (i), (ii) or (iii) above shall be engaged full time
(either exclusively or as a substantial part of its regular business activities)
in the appraisal of businesses and business interests.
16. Miscellaneous.
(a) The granting of the Option herein shall impose no obligation upon
Lante to exercise the Option or any part thereof. Nothing herein contained shall
affect the right of ZixIt or
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<PAGE> 8
Lante to terminate the engagement set forth in the Engagement Letter at any
time, with or without cause.
(b) Neither Lante nor any person claiming under or through Lante shall
be or shall have any of the rights or privileges of a shareholder of ZixIt in
respect of any of the shares issuable upon the exercise of the Option until
validly exercised.
(c) Any notice to be given to ZixIt under the terms of this Agreement
or any delivery of the Option herein to ZixIt shall be in writing, addressed to
ZixIt at the address set forth in Section 3, Attn: Chief Financial Officer; and
any notice to be given to Lante shall be addressed to Lante at its address set
forth in the Lante Option. A party may specify a different address for receiving
notice by giving written notice thereof to the other parties. Any such notice
shall be deemed to have been duly given upon personal delivery, one business day
after deposit with a nationally recognized overnight courier delivery service,
or three business days after deposit in the U.S. mail, first class, return
receipt requested.
(d) Subject to Section 7, this Agreement shall be binding upon and
inure to the benefit of the assignees, representatives, executors, successors or
beneficiaries of the parties hereto.
(e) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
(f) If any provision of this Agreement is declared or found to be
illegal, unenforceable or void, in whole or in part, then the parties shall be
relieved of all obligations arising under such provision, but only to the extent
that it is illegal, unenforceable or void, it being the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objectives.
(g) All section titles and captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement, and in no way
shall define, limit, extend or describe the scope or intent of any provisions of
this Agreement.
(h) The parties shall execute all documents, provide all information,
and take or refrain from taking all actions as may be necessary or appropriate
to achieve the purposes of this Agreement.
(i) This Agreement, the Engagement Letter, and the Registration Rights
Agreement constitute the entire agreement among the parties hereto pertaining to
the subject matter hereof and thereof and supersede all prior written and prior
or contemporaneous oral agreements and understandings pertaining hereto and
thereto.
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<PAGE> 9
(j) No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, agreement or condition.
(k) This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. This Agreement supersedes the Original Option.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates set forth below, to be effective as of the date first above written.
COMPANY:
ZIXIT CORPORATION
By: /s/ Ronald A. Woessner
-------------------------------
Its: V.P.
-------------------------------
Date: 11/24/99
-------------------------------
OPTIONEE:
LANTE CORPORATION
By: /s/ C.R. Puryear
-------------------------------
Its: President & CEO
-------------------------------
Date: 11/24/99
-------------------------------
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EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), effective as of
November 24, 1999, and entered into by and between ZixIt Corporation f/k/a
CustomTracks Corporation, a Texas corporation (the "Company" or "ZixIt"), and
Lante Corporation, a Delaware corporation and successor-in-interest to Lante
Corporation, an Illinois corporation ("Lante"), amends and restates that certain
Registration Rights Agreement entered into between ZixIt and Lante's
predecessor-in-interest, effective as of February 2, 1999 (the "Prior
Registration Rights Agreement"). Terms used herein with their initial letter
capitalized but not defined herein will have the meaning given such terms in the
Option (as defined below), unless the context otherwise requires.
WITNESSETH:
WHEREAS, ZixIt and Lante have entered into an Amended and Restated
Stock Option Agreement as of the date hereof whereby Lante has been granted an
option (the "Option") to acquire up to 166,666 shares of ZixIt's common stock,
$.01 par value per share (the "Common Stock");
WHEREAS, ZixIt desires to grant Lante certain registration rights with
respect to the shares of Common Stock issuable under the Option in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, ZixIt and Lante agree as follows:
1. Shares. As used herein, the term "Shares" shall mean the shares of
Common Stock issuable upon the exercise of the Option.
2. Registration. Subject to the immediately following sentence, upon
its receipt of a written notice from Lante, ZixIt shall promptly prepare and
file with the Securities and Exchange Commission (the "SEC") a registration
statement on Form S-3 (or such successor or other form as the SEC may stipulate
or require) under the Securities Act of 1933, as amended (the "Securities Act")
covering the Shares that are the subject of the request. The notice from Lante
may be delivered at any time after the following conditions are met (or within a
reasonable period of time prior to the date when the conditions are anticipated
to be met): (i) the Transfer restrictions pertaining to the Shares (as set forth
in Subsection 8(b) of the Option) have lapsed and (ii) ZixIt is permitted to
deliver a demand registration notice under paragraph 2.A. of Section 2 of the
registration rights agreement pertaining to the Lante Option, or ZixIt is
permitted to sell all of the shares issuable upon exercise of the Lante Option
without restriction within 90 days pursuant to Rule 144 under the Securities
Act, or an event specified in subsection 8(b)(ii) or (iii) of the Option has
occurred. ZixIt shall use its commercially reasonable efforts to cause such
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registration statement to become effective as promptly as practicable following
the later to occur of (a) both conditions set forth above are met and (b) the
receipt of the written notice. ZixIt shall also file such post-effective
amendments to such registration statement in order for it to remain effective
without lapse until the earlier of (i) 90 days following the date the
registration statement is declared effective or (ii) all the Shares so
registered have been sold, subject to the three immediately following sentences.
Upon request of Lante and subject to the consent of ZixIt (which consent is not
to be unreasonably withheld), the effectiveness of the registration statement
will be extended for up to an additional 30 days. If, during the effectiveness
of the registration statement, Lante determines that it no longer desires to
sell any (or further) Shares at that time, Lante will so advise ZixIt so that
ZixIt can withdraw the registration statement. The running of the aforesaid
periods of time shall be extended to account for any stop order suspending the
effectiveness of a registration statement is in effect. Lante shall be entitled
to make one registration request under this Section 2. Lante shall pay the
expenses described in Section 4 for the registration pursuant to this Section 2.
The parties acknowledge and agree that any registration effected under this
Section 2 shall not be an underwritten offering.
ZixIt may defer the filing (but not the preparation) of the
registration statement for a period of up to 90 days if (a) at the time ZixIt or
any of its subsidiaries is engaged in material confidential negotiations or
other material confidential business activities, disclosure of which would be
required in such registration statement (but would not be required if such
registration statement were not filed), and the Board of Directors of ZixIt
determines, reasonably and in good faith, that such disclosure would be
materially detrimental to ZixIt and its shareholders or would have a material
adverse effect on any such confidential negotiations or other confidential
business activities; or (b) at the time ZixIt is engaged in business activities
pertaining to an underwritten public offering of ZixIt's securities and the
underwriters have advised ZixIt in writing that the filing of the registration
statement would have a material adverse effect on its ability to consummate such
offering; or (c) pursuant to an underwriting agreement in connection with an
underwritten offering, ZixIt has agreed not to file any registration statement
pursuant to which the Shares may be registered.. A deferral of the filing of the
registration statement will be lifted, and the registration statement shall be
filed as soon as practicable thereafter forthwith, if the negotiations or other
activities are completed, disclosed or terminated or the underwritten public
offering is completed, terminated or postponed. In order to defer the filing of
a registration statement, ZixIt will deliver to Lante a certificate signed by a
senior executive officer of ZixIt setting forth a statement of the reason for
such deferral and an approximation of the anticipated delay, which information
Lante shall treat as confidential. Moreover, ZixIt shall have no obligation to
register any Shares under this Section 2 if Lante is, at the time of the
registration request, permitted to sell all Shares sought by it to be registered
without restriction within 90 days pursuant to Rule 144 under the Act. ZixIt may
not defer the filing or effectiveness of a registration statement pursuant to
this paragraph more than once in any 12 month period.
3. Registration Procedures. If, and whenever, ZixIt is required by
Section 2 to effect the registration of Shares under the Securities Act, ZixIt
will as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such securities, and use its commercially reasonable efforts to
cause such registration statement to
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become and remain effective for the period set forth in Section 2 (the
"Effective Period"); provided that, before filing, ZixIt will furnish to Lante's
counsel copies of such documents to be filed, which documents will be subject to
such counsel's review;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for the Effective
Period as may be reasonably necessary to effect the sale of such securities;
(c) furnish to Lante and to the underwriters of the securities
being registered, such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
Lante and such underwriters may reasonably request in order to facilitate the
public offering of such securities;
(d) use commercially reasonable efforts to register or qualify
the Shares covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as Lante may reasonably request in writing,
except that ZixIt shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or subject itself
to taxation in a jurisdiction where it had not previously been subject to
taxation, or take any other action that would subject ZixIt to service of
process in a lawsuit other than one arising out of the registration of the
Shares;
(e) notify Lante, promptly after it shall receive notice
thereof, of the time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration statement has
been filed;
(f) notify Lante promptly of any request by the SEC for the
amending or supplementing of such registration statement or prospectus or for
additional information;
(g) prepare and file with the SEC, promptly upon the request
of Lante, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for Lante (and concurred in by
counsel for ZixIt), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of Shares by Lante;
(h) prepare and promptly file with the SEC and promptly notify
Lante of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise Lante, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such
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registration statement or the initiation or threatening of any proceeding for
that purpose and promptly use its best efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be issued;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission; and.
(k) upon the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Shares included in such registration statement for sale in any jurisdiction,
ZixIt will use its reasonable best efforts promptly to obtain the withdrawal of
such order.
4. Expenses. Subject to the limitation stated in the next sentence, all
fees, costs, and expenses of and incidental to such registration and public
offering of the Shares in connection therewith for which the selling holders are
responsible shall be borne by Lante, including any commissions and transfer
taxes in respect of the sale of its Shares. Lante's liability for any fees and
expenses of ZixIt's professional advisors in connection with the registration of
the S-3 and the public offering of the Shares in connection therewith shall be
limited to $12,500 (in 1999 dollars).
5. Indemnification.
(a) ZixIt will indemnify and hold harmless Lante, its
directors, officers, employees, and agents, any underwriter (as defined in the
Securities Act) for Lante and any person controlling Lante or such underwriter
from and against, and will reimburse such persons with respect to, any and all
loss, damage, liability, cost and expense to which such persons may become
subject under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, 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
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that ZixIt will not be liable in any such case to
the extent that any such loss, damage, liability, cost or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by or on
behalf of Lante in writing specifically for use in the preparation thereof.
ZixIt will not be subject to any liability for any settlement made without its
consent, which consent shall not be unreasonably withheld.
(b) Lante will indemnify and hold harmless ZixIt, its
directors, officers, employees, and agents, any underwriter for ZixIt and any
person controlling ZixIt or such underwriter from and against, and will
reimburse such persons with respect to, any and all loss, damage, liability,
cost and expense to which such persons may become subject under the Securities
Act or otherwise, insofar as such losses, damages, liabilities, costs or
expenses are
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caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, 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 statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
conformity with written information furnished by or on behalf of Lante
specifically for use in the preparation thereof. Lante will not be subject to
any liability for any settlement made without its consent, which consent shall
not be unreasonably withheld; provided that, the obligation to indemnify will be
limited to the net proceeds received by Lante with respect to the sale of the
Shares.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of Subsection (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said
Subsection (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability that it may have to any indemnified party,
except to the extent that such omission materially and adversely affects the
indemnifying party's ability to defend against or compromise such claim. In case
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and there is a conflict of interest
that would prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to an indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said Subsection (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than out-of-pocket costs of investigation, unless (i) the
indemnified party shall have employed counsel in accordance with the provisions
of the preceding sentence, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
(d) If the indemnification provided for herein is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, will contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and of the
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indemnified party, on the other, in connection with the statements or omissions
that resulted in such loss, liability, claim, damage or expense, as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party will be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the 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 obligation to contribute will be individual to Lante
and will be limited to the amount by which the net amount of proceeds received
by Lante from the sale of the Shares exceeds the amount of losses, liabilities,
damages and expenses that Lante has otherwise been required to pay by reason of
such statements or omissions.
(e) The indemnification and contribution provided for under
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling person of such indemnified party and will survive the
transfer of securities and the termination or expiration of this Agreement.
6. Miscellaneous.
(a) Any notice to be given to ZixIt under the terms of this
Agreement shall be in writing, addressed to ZixIt at the address set forth in
Section 3 of the Option, Attn: Chief Financial Officer; and any notice to be
given to Lante shall be addressed to Lante at its address set forth in the Lante
Option. A party may specify a different address for receiving notice by giving
written notice thereof to the other parties. Any such notice shall be deemed to
have been duly given upon personal delivery, one business day after deposit with
a nationally recognized overnight courier delivery service, or three business
days after deposit in the U.S. mail, first class, return receipt requested.
(b) Lante may not Transfer this Agreement or its rights and
privileges hereunder, except in connection with a permitted Transfer of the
Option. Subject to the preceding sentence, this Agreement shall be binding upon
and inure to the benefit of the assignees, representatives, executors,
successors or beneficiaries of the parties hereto.
(c) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES, AS APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
(d) If any provision of this Agreement is declared or found to
be illegal, unenforceable or void, in whole or in part, then the parties shall
be relieved of all obligations arising under such provision, but only to the
extent that it is illegal, unenforceable or void, it being the intent and
agreement of the parties that this Agreement shall be deemed amended by
modifying such provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
A-6
<PAGE> 16
(e) All section titles and captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement, and in no way
shall define, limit, extend or describe the scope or intent of any provisions of
this Agreement.
(f) The parties shall execute all documents, provide all
information, and take or refrain from taking all actions as may be necessary or
appropriate to achieve the purposes of this Agreement.
(g) This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
written and prior or contemporaneous oral agreements and understandings
pertaining hereto.
(h) No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
(i) This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. This Agreement supersedes the Prior Registration Rights
Agreement.
(j) This Agreement shall continue in effect until the earlier
of (a) all of the Shares are publicly sold pursuant to a Section 2 registration
statement or (b) Lante is permitted to sell all the Shares then held by it
without restriction within 90 days pursuant to Rule 144 under the Securities
Act.
A-7
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below, to be effective as of the date first above written.
ZIXIT CORPORATION
By:
------------------------------------
Its:
------------------------------------
Date:
------------------------------------
LANTE CORPORATION
By:
------------------------------------
Its:
------------------------------------
Date:
------------------------------------
A-8
<PAGE> 1
Exhibit 10.17
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), effective as of
November 24, 1999, and entered into by and between ZixIt Corporation f/k/a
CustomTracks Corporation, a Texas corporation (the "Company" or "ZixIt"), and
Lante Corporation, a Delaware corporation and successor-in-interest to Lante
Corporation, an Illinois corporation ("Lante"), amends and restates that certain
Registration Rights Agreement entered into between ZixIt and Lante's
predecessor-in-interest, effective as of February 2, 1999 (the "Prior
Registration Rights Agreement"). Terms used herein with their initial letter
capitalized but not defined herein will have the meaning given such terms in the
Option (as defined below), unless the context otherwise requires.
WITNESSETH:
WHEREAS, ZixIt and Lante have entered into an Amended and Restated Stock
Option Agreement as of the date hereof whereby Lante has been granted an option
(the "Option") to acquire up to 166,666 shares of ZixIt's common stock, $.01 par
value per share (the "Common Stock");
WHEREAS, ZixIt desires to grant Lante certain registration rights with
respect to the shares of Common Stock issuable under the Option in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, ZixIt and Lante agree as follows:
1. Shares. As used herein, the term "Shares" shall mean the shares of
Common Stock issuable upon the exercise of the Option.
2. Registration. Subject to the immediately following sentence, upon its
receipt of a written notice from Lante, ZixIt shall promptly prepare and file
with the Securities and Exchange Commission (the "SEC") a registration statement
on Form S-3 (or such successor or other form as the SEC may stipulate or
require) under the Securities Act of 1933, as amended (the "Securities Act")
covering the Shares that are the subject of the request. The notice from Lante
may be delivered at any time after the following conditions are met (or within a
reasonable period of time prior to the date when the conditions are anticipated
to be met): (i) the Transfer restrictions pertaining to the Shares (as set forth
in Subsection 8(b) of the Option) have lapsed and (ii) ZixIt is permitted to
deliver a demand registration notice under paragraph 2.A. of Section 2 of the
registration rights agreement pertaining to the Lante Option, or ZixIt is
permitted to sell all of the shares issuable upon exercise of the Lante Option
without restriction within 90 days pursuant to Rule 144 under the Securities
Act, or an event specified in subsection 8(b)(ii) or (iii) of the Option has
occurred. ZixIt shall use its commercially reasonable efforts to cause such
registration statement to become effective as promptly as practicable following
the later to occur of (a) both conditions set forth above are met and (b) the
receipt of the written notice. ZixIt shall
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<PAGE> 2
also file such post-effective amendments to such registration statement in order
for it to remain effective without lapse until the earlier of (i) 90 days
following the date the registration statement is declared effective or (ii) all
the Shares so registered have been sold, subject to the three immediately
following sentences. Upon request of Lante and subject to the consent of ZixIt
(which consent is not to be unreasonably withheld), the effectiveness of the
registration statement will be extended for up to an additional 30 days. If,
during the effectiveness of the registration statement, Lante determines that it
no longer desires to sell any (or further) Shares at that time, Lante will so
advise ZixIt so that ZixIt can withdraw the registration statement. The running
of the aforesaid periods of time shall be extended to account for any stop order
suspending the effectiveness of a registration statement is in effect. Lante
shall be entitled to make one registration request under this Section 2. Lante
shall pay the expenses described in Section 4 for the registration pursuant to
this Section 2. The parties acknowledge and agree that any registration effected
under this Section 2 shall not be an underwritten offering.
ZixIt may defer the filing (but not the preparation) of the
registration statement for a period of up to 90 days if (a) at the time ZixIt or
any of its subsidiaries is engaged in material confidential negotiations or
other material confidential business activities, disclosure of which would be
required in such registration statement (but would not be required if such
registration statement were not filed), and the Board of Directors of ZixIt
determines, reasonably and in good faith, that such disclosure would be
materially detrimental to ZixIt and its shareholders or would have a material
adverse effect on any such confidential negotiations or other confidential
business activities; or (b) at the time ZixIt is engaged in business activities
pertaining to an underwritten public offering of ZixIt's securities and the
underwriters have advised ZixIt in writing that the filing of the registration
statement would have a material adverse effect on its ability to consummate such
offering; or (c) pursuant to an underwriting agreement in connection with an
underwritten offering, ZixIt has agreed not to file any registration statement
pursuant to which the Shares may be registered. A deferral of the filing of the
registration statement will be lifted, and the registration statement shall be
filed as soon as practicable thereafter forthwith, if the negotiations or other
activities are completed, disclosed or terminated or the underwritten public
offering is completed, terminated or postponed. In order to defer the filing of
a registration statement, ZixIt will deliver to Lante a certificate signed by a
senior executive officer of ZixIt setting forth a statement of the reason for
such deferral and an approximation of the anticipated delay, which information
Lante shall treat as confidential. Moreover, ZixIt shall have no obligation to
register any Shares under this Section 2 if Lante is, at the time of the
registration request, permitted to sell all Shares sought by it to be registered
without restriction within 90 days pursuant to Rule 144 under the Act. ZixIt may
not defer the filing or effectiveness of a registration statement pursuant to
this paragraph more than once in any 12 month period.
3. Registration Procedures. If, and whenever, ZixIt is required by
Section 2 to effect the registration of Shares under the Securities Act, ZixIt
will as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities, and use its commercially reasonable efforts to cause
such registration statement to become and remain effective for the period set
forth in Section 2 (the "Effective Period"); provided that, before filing, ZixIt
will furnish to Lante's counsel copies of such documents to be filed, which
documents will be subject to such counsel's review;
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<PAGE> 3
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for the Effective
Period as may be reasonably necessary to effect the sale of such securities;
(c) furnish to Lante and to the underwriters of the securities being
registered, such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as Lante and
such underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use commercially reasonable efforts to register or qualify the
Shares covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as Lante may reasonably request in writing,
except that ZixIt shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or subject itself
to taxation in a jurisdiction where it had not previously been subject to
taxation, or take any other action that would subject ZixIt to service of
process in a lawsuit other than one arising out of the registration of the
Shares;
(e) notify Lante, promptly after it shall receive notice thereof, of
the time when such registration statement has become effective or a supplement
to any prospectus forming a part of such registration statement has been filed;
(f) notify Lante promptly of any request by the SEC for the amending
or supplementing of such registration statement or prospectus or for additional
information;
(g) prepare and file with the SEC, promptly upon the request of
Lante, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for Lante (and concurred in by
counsel for ZixIt), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of Shares by Lante;
(h) prepare and promptly file with the SEC and promptly notify Lante
of the filing of such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in which they
were made, not misleading;
(i) advise Lante, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such registration statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued;
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<PAGE> 4
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission; and
(k) upon the issuance of any stop order suspending the effectiveness
of a registration statement, or of any order suspending or preventing the use of
any related prospectus or suspending the qualification of any Shares included in
such registration statement for sale in any jurisdiction, ZixIt will use its
reasonable best efforts promptly to obtain the withdrawal of such order.
4. Expenses. Subject to the limitation stated in the next sentence, all
fees, costs, and expenses of and incidental to such registration and public
offering of the Shares in connection therewith for which the selling holders are
responsible shall be borne by Lante, including any commissions and transfer
taxes in respect of the sale of its Shares. Lante's liability for any fees and
expenses of ZixIt's professional advisors in connection with the registration of
the S-3 and the public offering of the Shares in connection therewith shall be
limited to $12,500 (in 1999 dollars).
5. Indemnification.
(a) ZixIt will indemnify and hold harmless Lante, its directors,
officers, employees, and agents, any underwriter (as defined in the Securities
Act) for Lante and any person controlling Lante or such underwriter from and
against, and will reimburse such persons with respect to, any and all loss,
damage, liability, cost and expense to which such persons may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, 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
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that ZixIt will not be liable in any such case to
the extent that any such loss, damage, liability, cost or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by or on
behalf of Lante in writing specifically for use in the preparation thereof.
ZixIt will not be subject to any liability for any settlement made without its
consent, which consent shall not be unreasonably withheld.
(b) Lante will indemnify and hold harmless ZixIt, its directors,
officers, employees, and agents, any underwriter for ZixIt and any person
controlling ZixIt or such underwriter from and against, and will reimburse such
persons with respect to, any and all loss, damage, liability, cost and expense
to which such persons may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, 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 statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only
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<PAGE> 5
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in conformity with
written information furnished by or on behalf of Lante specifically for use in
the preparation thereof. Lante will not be subject to any liability for any
settlement made without its consent, which consent shall not be unreasonably
withheld; provided that, the obligation to indemnify will be limited to the net
proceeds received by Lante with respect to the sale of the Shares.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of Subsection (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said
Subsection (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability that it may have to any indemnified party,
except to the extent that such omission materially and adversely affects the
indemnifying party's ability to defend against or compromise such claim. In case
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and there is a conflict of interest
that would prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to an indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said Subsection (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than out-of-pocket costs of investigation, unless (i) the
indemnified party shall have employed counsel in accordance with the provisions
of the preceding sentence, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
(d) If the indemnification provided for herein is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, liability, claim, damage or expense referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
will contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense 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 that resulted in such loss, liability, claim, damage or
expense, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party will be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the 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
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<PAGE> 6
to information and opportunity to correct or prevent such statement or omission.
The obligation to contribute will be individual to Lante and will be limited to
the amount by which the net amount of proceeds received by Lante from the sale
of the Shares exceeds the amount of losses, liabilities, damages and expenses
that Lante has otherwise been required to pay by reason of such statements or
omissions.
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling person of such indemnified party and will survive the transfer of
securities and the termination or expiration of this Agreement.
6. Miscellaneous.
(a) Any notice to be given to ZixIt under the terms of this Agreement
shall be in writing, addressed to ZixIt at the address set forth in Section 3 of
the Option, Attn: Chief Financial Officer; and any notice to be given to Lante
shall be addressed to Lante at its address set forth in the Lante Option. A
party may specify a different address for receiving notice by giving written
notice thereof to the other parties. Any such notice shall be deemed to have
been duly given upon personal delivery, one business day after deposit with a
nationally recognized overnight courier delivery service, or three business days
after deposit in the U.S. mail, first class, return receipt requested.
(b) Lante may not Transfer this Agreement or its rights and
privileges hereunder, except in connection with a permitted Transfer of the
Option. Subject to the preceding sentence, this Agreement shall be binding upon
and inure to the benefit of the assignees, representatives, executors,
successors or beneficiaries of the parties hereto.
(c) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES, AS APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
(d) If any provision of this Agreement is declared or found to be
illegal, unenforceable or void, in whole or in part, then the parties shall be
relieved of all obligations arising under such provision, but only to the extent
that it is illegal, unenforceable or void, it being the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objectives.
(e) All section titles and captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement, and in no way
shall define, limit, extend or describe the scope or intent of any provisions of
this Agreement.
(f) The parties shall execute all documents, provide all information,
and take or refrain from taking all actions as may be necessary or appropriate
to achieve the purposes of this Agreement.
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(g) This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
written and prior or contemporaneous oral agreements and understandings
pertaining hereto.
(h) No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, agreement or condition.
(i) This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. This Agreement supersedes the Prior Registration Rights
Agreement.
(j) This Agreement shall continue in effect until the earlier of (a)
all of the Shares are publicly sold pursuant to a Section 2 registration
statement or (b) Lante is permitted to sell all the Shares then held by it
without restriction within 90 days pursuant to Rule 144 under the Securities
Act.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
set forth below, to be effective as of the date first above written.
ZIXIT CORPORATION
By: /s/ Ronald A. Woessner
-----------------------------------------
Its: V.P.
----------------------------------------
Date: 11/24/99
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LANTE CORPORATION
By: /s/ C.R. Puryear
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Its: President & CEO
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Date: 11/24/99
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Exhibit 10.18
Execution Copy
THIS AGREEMENT CONTAINS AN ARBITRATION PROVISION
LANTE CORPORATION
STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), effective as of November 24, 1999, is
entered into by and between Lante Corporation, a Delaware corporation and
successor-in-interest to Lante Corporation, an Illinois corporation ("Lante"),
and ZixIt Corporation, a Texas corporation ("ZixIt").
WITNESSETH:
WHEREAS, ZixIt and Lante have entered into an amended and restated stock
option agreement, dated of even date herewith, pursuant to which Lante has
received from ZixIt an option to acquire 166,666 fully vested shares (the "ZixIt
Option");
WHEREAS, the parties desire to enter into this Agreement and a Registration
Rights Agreement (herein so called) relating hereto, a form of which is attached
hereto as Exhibit A;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein and in the ZixIt Option, the parties
hereby agree as follows:
1. Grant of Option; Expiration of Option. Effective as of the date first set
forth above (the "Award Date"), Lante hereby grants to ZixIt, upon the terms set
forth in this Agreement, a nonqualified option (the "Option"), to acquire
400,000 shares of Lante Common Stock, $.01 par value per share (the "Lante
Common Stock"). The exercise price of the Option is $7.00 per share. The Option
may be exercised from time-to-time with respect to any shares of Lante Common
Stock as to which the Option has not been exercised until the tenth anniversary
of the Award Date. On the tenth anniversary of the Award Date, the Option will
expire with respect to all shares as to which the Option has not been exercised.
2. Vesting. The Option is fully vested.
3. Exercise. To exercise the Option with respect to Lante Common Stock, ZixIt
shall provide written notice (the "Company Exercise Notice") to Lante at 161
North Clark Street, Suite 4900, Chicago, Illinois 60601, fax number (312)
696-0060 (or such other address as Lante may apprise ZixIt of from time-to-time)
to the attention of Lante's chief financial officer (currently Brian Henry). The
notice must: (i) state the number of shares of Lante Common Stock being
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purchased and (ii) be signed by ZixIt. The Option may be exercised with respect
to shares of Lante Common Stock from time-to-time, i.e., there is no obligation
to exercise all shares at one time.
4. Cashless Exercise. The Option may only be exercised as a cashless exercise.
Upon exercise of the Option, ZixIt will receive "N" number of shares, where "N"
is determined according to the following formula:
N = [(then-current Lante per share stock price minus $7.00) multiplied by (the
number of shares sought to be exercised)], divided by the then-current
Lante stock price.
For purposes of this calculation the "then-current" Lante stock price inside the
brackets (i.e., for the numerator only) will be capped at $37.00. Subject to the
preceding sentence, for purposes of this calculation, the "then-current" Lante
stock price will be the average of the closing prices of the Lante stock for the
ten trading days preceding the date of exercise. If the Option is exercised in
full, ZixIt shall, upon request, surrender this Agreement to Lante for
cancellation. If the Option is exercised in part, ZixIt shall surrender this
Agreement to Lante so that Lante may make appropriate notation hereon and shall
promptly return this Agreement to ZixIt. If the Lante stock is not publicly
traded (i.e., there is no quoting closing price), the then-current price will be
its fair market value, determined as provided in Section 15 below.
Subject to Section 8, after the exercise of the Option in whole or in part,
Lante shall promptly (and no later than five business days thereafter) issue and
deliver a certificate representing the number of shares of Lante Common Stock as
to which the Option has been exercised. The shares of Lante Common Stock
issuable upon the exercise of the Option are subject to the transfer
restrictions noted in Section 8 below and, if issued prior to the lapse of the
restrictions, will bear an appropriate legend. Other than as stated in the
preceding sentence and in Section 8, Lante agrees to deliver the underlying
stock certificates, free and clear of any restrictive legends, registered as
designated by ZixIt or its designee, in time to permit normal-way settlement of
a simultaneous exercise of the Option and sale of the underlying Lante Common
Stock.
5. Accredited Investor Status. ZixIt represents and warrants that it is an
"accredited investor" as such term is defined in Regulation D under the
Securities Act of 1933, as amended.
6. Preservation of Rights. The number of shares of Lante Common Stock subject to
the Option and the exercise price therefor set forth in Section 1 and the $37.00
and the $7.00 numbers relating to the formula set forth in Section 4 shall be
subject to appropriate adjustment, reasonably satisfactory to ZixIt and Lante,
to preserve the relative rights of ZixIt and Lante under this Agreement in the
event of any change or exchange of Lante Common Stock for a different number or
kind of securities, any of which results from one or more stock splits, reverse
stock splits, or stock dividends or a transaction described in the immediately
following sentence. If a merger, consolidation, sale of shares, or similar
transaction involving Lante, on the one hand, and one or more persons, on the
other hand with respect to Lante occurs, and, as a part of such transaction,
shares of stock, other securities, cash or property shall be issuable or
deliverable in
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exchange for Lante Common Stock, then ZixIt shall be entitled to purchase or
receive (in lieu of the shares of Lante Common Stock that ZixIt would otherwise
be entitled to purchase or receive hereunder), the number of shares of stock,
other securities, cash or property to which that number of shares of Lante
Common Stock would have been entitled in connection with such transaction (and,
at an aggregate exercise price equal to the aggregate exercise price hereunder
that would have been payable if that number of shares of Lante Common Stock had
been purchased on the exercise of the Option immediately before the consummation
of the transaction).
7. Who May Exercise. Without Lante's consent, except as provided in the
immediately following sentence, the Option shall be exercisable only by ZixIt
and ZixIt shall not, directly or indirectly, sell, transfer, or assign
("Transfer") the Option or the rights and privileges pertaining thereto. It is
understood and agreed by the parties that any sale, transfer, or assignment of
this Agreement, the Option, or the rights and privileges pertaining thereto
resulting from (i) a merger, consolidation, or share exchange involving ZixIt,
or (ii) any sale of substantially all of ZixIt's assets, or (iii) any
liquidation or dissolution of ZixIt in connection with an event stated in clause
(i) or (ii) is not a "Transfer" of the Option or the rights and privileges
pertaining thereto for purposes of this Agreement if the successor, surviving,
acquiring, or recipient entity, as applicable, receives the entire Option and is
obligated to perform the obligations under the ZixIt Option. It is understood
and agreed that ZixIt is entitled to pledge, encumber, or hypothecate the Option
and the rights and privileges pertaining thereto, provided that the transferee
is bound by the transfer restrictions set forth in this Section and in
Subsection 8(b). The Option is not liable for or subject to, in whole or in
part, the debts, contracts, liabilities or torts of ZixIt, nor shall it be
subject to garnishment, attachment, execution, levy or other legal or equitable
process.
8. Certain Legal Restrictions. (a) Except as provided in the Registration Rights
Agreement, Lante shall not have any obligation to ZixIt, express or implied, to
list, register or otherwise qualify any of ZixIt's shares of Lante Common Stock.
Lante shall not be obligated to sell or issue any shares of Lante Common Stock
upon the exercise of the Option unless, in the opinion of counsel for Lante or
counsel otherwise reasonably acceptable to Lante, the issuance and delivery of
such shares shall comply with all relevant provisions of law and other legal
requirements including, without limitation, any applicable federal or state
securities laws and the requirements of any stock exchange or inter-dealer
quotation system on which shares of Lante Common Stock may then be listed or
quoted. The shares of Lante Common Stock issued upon the exercise of the Option
may not be transferred except in accordance with applicable federal or state
securities laws. At Lante's election, if the shares of stock issuable upon the
exercise of the Option have not been registered under the Securities Act of
1933, as amended, and applicable state securities laws, the certificate
evidencing shares of Lante Common Stock issued to ZixIt may be legended as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE
OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF
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SUCH ACT AND THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION.
(b) Except as provided in this Subsection 8(b), the shares of Lante
Common Stock issued under the Option may not be directly or indirectly
Transferred unless and until (i) (A) Lante has undergone an IPO (defined below)
and the Lock-up Period has expired, (B) the class of securities issueable under
the ZixIt Option is registered under Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and is either listed and qualified for
trading on a national securities exchange or is listed for quotation and
qualified for trading on NASDAQ, and (C) ZixIt is, at the time of the
contemplated Transfer of the shares of Common Stock, current in its reporting
obligations under the Exchange Act, or (ii) Lante has experienced a Change of
Control (as defined in the ZixIt Option), or (iii) upon Lante's exercise of its
Redemption Right (as hereinafter defined) hereunder and tendered payment for the
option shares, or (iv) ZixIt has exercised its redemption right under the ZixIt
Option and tendered payment for the option shares thereunder, or (v) ZixIt has
experienced a Liquidity Event (as defined in the ZixIt Option). In order to
enforce the foregoing covenant, Lante may impose stop-transfer instructions with
respect to the shares issued under the Option, which instructions will be
promptly lifted when the above Transfer restrictions are no longer applicable.
The Lock-up Period will be a period of time no longer than the shortest lock-up
period imposed by the managing underwriters, if any, of Lante's initial public
offering ("IPO"), if any, on any other persons; provided that, the Lock-up
Period will expire if any other persons are released from their lock-up
obligation before the stated expiration of ZixIt's lock-up obligation. It is
understood and agreed that ZixIt is permitted to pledge, encumber, or
hypothecate the shares issued under the Option, provided that the transferee is
bound by the transfer restrictions imposed by this Subsection 8(b).
9. Termination. The Option shall automatically terminate if ZixIt (i)
voluntarily seeks, consents to, or acquiesces in the benefit or benefits of the
Bankruptcy Code of the United States of America or any other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief law from time-to-time in effect affecting the rights of creditors
generally ("Debtor Relief Law"); or (ii) becomes a party to (or is made the
subject of) any proceeding provided for by any Debtor Relief Law, other than as
a creditor or claimant (unless, in the event such proceeding is involuntary, the
petition instituting same is dismissed within 60 days of the filing of same).
10. Registration Rights. ZixIt shall have the registration rights set forth in
the Registration Rights Agreement attached as Exhibit A hereto.
11. Arbitration. The parties agree to the resolution by binding arbitration of
all claims, demands, causes of action, disputes, controversies, or other matters
in question ("claims") arising under this Agreement or the Registration Rights
Agreement, whether sounding in contract, tort, or otherwise and whether provided
by statute or common law, except for claims where the relief sought is an
injunction, specific performance, or other equitable relief. The claims shall be
submitted to arbitration and finally settled under the applicable rules of the
American Arbitration Association ("AAA") in effect at the time the written
notice of the claim is received. An arbitrator
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<PAGE> 5
shall be selected in the manner provided for in such rules of the AAA, except
that the parties agree that the arbitrator shall be an attorney licensed in the
state where the arbitration is being conducted. If any party refuses to honor
its obligations under this agreement to arbitrate the other party may compel
arbitration in either federal or state court. The arbitrator will have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this agreement to arbitrate, including, but not
limited to, any claim that all or part of this Agreement or the Registration
Rights Agreement is void or voidable and any claim that an issue is not subject
to arbitration. The arbitrator shall have the authority to award injunctive and
other equitable relief. The arbitration will be held in Cook County, Illinois.
The arbitrator shall issue a written decision that identifies the factual
findings and principles of law upon which any award is based. The award and
findings of such arbitrator shall be conclusive and binding upon the parties,
and judgment upon such award may be entered in any court of competent
jurisdiction. Any and all of the arbitrator's orders, decisions, and awards may
be enforceable in, and judgment upon any award rendered by the arbitrator may be
confirmed and entered by, any federal or state court having jurisdiction. Each
party shall pay all costs and expenses of its advisors. The costs and expenses
of the arbitration proceedings will be paid by the non-prevailing party or as
the arbitrator otherwise determines. Discovery will be permitted to the extent
directed by the arbitrator. Except as otherwise provided in the first sentence
of this Section 11, EACH PARTY UNDERSTANDS THAT BY AGREEING TO SUBMIT CLAIMS TO
ARBITRATION IT GIVES UP THE RIGHT TO SEEK A TRIAL BY COURT OR JURY AND THE RIGHT
TO AN APPEAL FROM ANY ERRORS OF THE COURT AND FORGOES ANY AND ALL RELATED RIGHTS
IT MAY OTHERWISE HAVE UNDER FEDERAL AND STATE LAWS.
12. Notices of Certain Transactions. In case:
(a) Lante shall take a record of the holders of the Lante Common Stock
(or other stock or securities at the time deliverable upon the exercise of this
Option) for the purpose of entitling or enabling them to receive any dividend or
other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, to subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right, or
(b) of any capital reorganization of Lante, any reclassification of the
capital stock of Lante, any consolidation or merger of Lante, any consolidation
or merger of Lante with or into another corporation pursuant to which the
securities of Lante are converted into the right to receive cash or other
property, or any transfer of all or substantially all of the assets of Lante, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of Lante,then, and in each such case, Lante will mail or cause to be
mailed to ZixIt a notice specifying, as the case may be, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(ii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Lante Common Stock (or such
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<PAGE> 6
other stock or securities at the time deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up) are to be determined. Such notice shall be mailed at least ten (10)
days prior to the record date or effective date for the event specified in such
notice.
13. Reservation of Stock. Lante will at all times reserve and keep available,
solely for the issuance and delivery upon the exercise of the Option, such
shares of Lante Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of the Option.
14. No Impairment. Lante will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Option, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of such action as may be
necessary or appropriate in order to protect the rights of the holder of the
Option against impairment.
15. Redemption Right. If by the 30th day prior to the 10th anniversary of the
Award Date, the transfer restrictions set forth in Subsection 8(b) of the ZixIt
Option have not lapsed by reason of the requirements of clauses (i) or (ii)
thereof having been met, then Lante shall have the right, exercised by giving
written notice within such 30 day period, to cause ZixIt to exercise the Option
and to sell to Lante the resulting securities issued upon exercise at the "fair
market value" thereof (the "Redemption Right"). The fair market value shall be
determined by an Appraiser (as defined below) taking into account relevant
factors pursuant to the following process:
(a) Lante shall retain an Appraiser to conduct an appraisal of Lante and
of the fair market value of the securities as of the relevant
determination date (the "First Appraisal"). Lante shall pay the cost
of the First Appraisal.
(b) Within 10 days after receipt of the First Appraisal, ZixIt shall
notify Lante in writing whether it accepts or rejects the First
Appraisal. If the First Appraisal is accepted, the First Appraisal
shall determine the fair market value. If the First Appraisal is
rejected, ZixIt shall select an Appraiser who shall perform a second
appraisal of the fair market value (the "Second Appraisal") and ZixIt
shall deliver the Second Appraisal to Lante within 20 days of the
written notice of rejection of the First Appraisal. The cost of the
Second Appraisal shall be borne by ZixIt.
(c) If the Second Appraisal is at least equal to 90% of, but not more than
110% of, the First Appraisal, then the two Appraisals shall be
averaged and such average shall determine the fair market value.
(d) If the Second Appraisal is less than 90% of the First Appraisal or
more than 110% of the First Appraisal, and if Lante and ZixIt are
unable to agree upon the
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fair market value within 10 days after receipt of the Second
Appraisal, then the Appraisers who performed the First Appraisal and
the Second Appraisal shall select a third Appraiser (the "Third
Appraiser"), who shall perform a third appraisal of the fair market
value (the "Third Appraisal"), and the Third Appraiser shall deliver
the Third Appraisal, within 25 days after delivery of the Second
Appraisal, to each of ZixIt and Lante. The cost of the Third Appraisal
shall be paid equally by Lante and ZixIt.
(e) After the Third Appraisal has been received, the highest and lowest of
the three Appraisals shall be ignored and the middle Appraisal shall
determine the fair market value.
"Appraiser" means either (i) a certified public accounting firm that is not
at such time performing regular accounting services for the person in question,
(ii) a reputable investment banking firm that is not at such time performing
regular investment banking services for the person is question, or (iii) a
nationally recognized independent appraisal firm, provided that such
organization defined in (i), (ii) or (iii) above shall be engaged full time
(either exclusively or as a substantial part of its regular business activities)
in the appraisal of businesses and business interests.
16. Release. (a) ZixIt, on behalf of itself and any and all majority-owned
subsidiaries, and any person claiming by, through, or under any of them, and
their respective successors and assigns, confirming that all work product
delivered by Lante to ZixIt under or pursuant to the Engagement Letter (as
defined in the ZixIt Option) is acceptable, hereby generally releases, forever
discharges and covenants not-to-sue Lante and its majority-owned subsidiaries
and their directors, officers, employees, subcontractors, and attorneys (in
their capacities as such), and their respective predecessors, successors and
assigns from and for any and all causes of action, claims of any type, defenses,
suits, sums of money, liabilities, losses and damages, both known and unknown,
contingent or actual, in law or in equity, including but not limited to
attorneys' fees and costs, which ZixIt now has, has had or may hereafter have,
for, upon or by reason of any matter, cause, or thing occurring prior to the
date hereof, including, without limiting the generality of the foregoing, claims
or causes of action in contract, tort, warranty or arising out of the Engagement
Letter or any business relationship between Lante and ZixIt. Moreover, ZixIt
hereby releases Lante from any obligation to indemnify ZixIt under item "2)" of
the section of Exhibit E of the Engagement Letter entitled "Indemnification."
ZixIt further agrees that any additional work performed by Lante after the date
hereof will be performed on an AS IS basis, without express or implied warranty
of any kind, and that no claim with respect to such additional work may be made
against Lante except in the case of willful misconduct. Notwithstanding the
foregoing, the provisions of this Subsection shall not be construed to waive any
claim that ZixIt might have (either arising prior to the date hereof or
hereafter) (a) regarding a breach of the section of Exhibit E of the Engagement
Letter entitled "Confidentiality," (b) under clause 1) of the section of Exhibit
E of the Engagement Letter entitled "Indemnification," or (c) relating to
enforcement of this Agreement or the ZixIt Option, or (d) for a prepayment in
the amount of $400,000 previously delivered to Lante, or (e) the second sentence
of the section of Exhibit E of the Engagement Letter entitled
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"Ownership of Work Product"; ZixIt hereby acknowledges that it currently has no
actual knowledge of any facts likely to lead to a claim falling within (a) or
(b). Furthermore, the provisions of this Subsection shall not be construed to
waive any claim that ZixIt might have against Lante if any Lante employees,
contractors, subcontractors, or other agents were to assert an ownership or
moral rights interest in, or royalty or license right or other claim with
respect to, the work product delivered under or pursuant to the Engagement
Letter; ZixIt acknowledges that it has not received notice of any such claim
to-date. In the event of conflict between the foregoing provisions of this
Subsection and the terms of the Engagement Letter, this Subsection shall take
precedence and control.
(b) Lante, on behalf if itself and any and all majority-owned
subsidiaries, and any person claiming by, through, or under any of them, and
their respective successors and assigns hereby generally releases, forever
discharges and covenants not-to-sue ZixIt and its majority-owned subsidiaries
and their directors, officers, employees, subcontractors, and attorneys (in
their capacities as such), and their respective predecessors, successors and
assigns from and for any and all causes of action, claims of any type, defenses,
suits, sums of money, liabilities, losses and damages, both known and unknown,
contingent or actual, in law or in equity, including but not limited to
attorneys' fees and costs, which Lante now has, has had or may hereafter have,
for, upon or by reason of any matter, cause, or thing occurring prior to the
date hereof, including, without limiting the generality of the foregoing, claims
or causes of action in contract, tort, warranty or arising out of the Engagement
Letter or any business relationship between Lante and ZixIt. Moreover, Lante
hereby releases ZixIt from any obligation to indemnify Lante under item "2)" of
the section of Exhibit E of the Engagement Letter entitled "Indemnification."
Notwithstanding the foregoing, the provisions of this Subsection shall not be
construed to waive any claim that Lante might have (either arising prior to the
date hereof or hereafter) (a) under clause 1) of the section of Exhibit E of the
Engagement Letter entitled "Indemnification," or (b) relating to enforcement of
this Agreement or the ZixIt Option, or to otherwise release ZixIt from its
obligations to pay any invoices issued by Lante prior to the date hereof. Lante
hereby acknowledges that it currently has no actual knowledge of any facts
likely to lead to a claim falling within (a). In the event of conflict between
the foregoing provisions of this Subsection and the terms of the Engagement
Letter, this Subsection shall take precedence and control.
17. Miscellaneous.
(a) The granting of the Option herein shall impose no obligation upon
ZixIt to exercise the Option or any part thereof.
(b) Neither ZixIt nor any person claiming under or through ZixIt shall
be or shall have any of the rights or privileges of a shareholder of Lante in
respect of any of the shares issuable upon the exercise of the Option until
validly exercised.
(c) Any notice to be given to Lante under the terms of this Agreement
or any delivery of the Option herein to Lante shall be in writing, addressed to
Lante at the address set forth in Section 3, Attn: Chief Financial Officer; and
any notice to be given to ZixIt shall be addressed to
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ZixIt at the address setforth in the ZixIt Option. A party may specify a
different address for receiving notice by giving written notice thereof to the
other parties. Any such notice shall be deemed to have been duly given upon
personal delivery, one business day after deposit with a nationally recognized
overnight courier delivery service, or three business days after deposit in the
U.S. mail, first class, return receipt requested.
(d) Subject to Section 7, this Agreement shall be binding upon and
inure to the benefit of the assignees, representatives, executors, successors or
beneficiaries of the parties hereto.
(e) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
(f) If any provision of this Agreement is declared or found to be
illegal, unenforceable or void, in whole or in part, then the parties shall be
relieved of all obligations arising under such provision, but only to the extent
that it is illegal, unenforceable or void, it being the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objectives.
(g) All section titles and captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement, and in no way
shall define, limit, extend or describe the scope or intent of any provisions of
this Agreement.
(h) The parties shall execute all documents, provide all information,
and take or refrain from taking all actions as may be necessary or appropriate
to achieve the purposes of this Agreement.
(i) This Agreement and the Registration Rights Agreement constitute
the entire agreement among the parties hereto pertaining to the subject matter
hereof and thereof and supersede all prior written and prior or contemporaneous
oral agreements and understandings pertaining hereto and thereto.
(j) No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, agreement or condition.
(k) This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates set forth below, to be effective as of the date first above written.
LANTE CORPORATION
By: /s/ C.R. Puryear
-----------------------------
Its: President & CEO
-----------------------------
Date: 11/24/99
-----------------------------
ZIXIT CORPORATION
By: /s/ Ronald A. Woessner
-----------------------------
Its: V.P.
-----------------------------
Date: 11/24/99
-----------------------------
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EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), effective as of
November 24, 1999, is made by and between Lante Corporation, an Illinois
corporation ("Lante"), and ZixIt Corporation, a Texas corporation ("ZixIt").
Terms used herein with their initial letter capitalized but not defined herein
will have the meaning given such terms in the Option (as defined below), unless
the context otherwise requires.
WITNESSETH:
WHEREAS, Lante and ZixIt have entered into a Stock Option Agreement as of
the date hereof whereby Lante has granted ZixIt an option (the "Option") to
acquire up to 400,000 shares of Lante's common stock, $.01 par value per share
(the "Common Stock");
WHEREAS, Lante desires to grant ZixIt certain registration rights with
respect to the shares of Common Stock issuable under the Option in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, Lante and ZixIt agree as follows:
1. Shares. As used herein, the term "Shares" shall mean the shares of
Common Stock issuable upon the exercise of the Option.
2. Registration.
A. Demand Registrations. Subject to the immediately following sentence,
upon its receipt of a written notice from ZixIt, Lante shall promptly prepare
and file with the Securities and Exchange Commission (the "SEC") a registration
statement on the applicable form under the Securities Act of 1933, as amended
(the "Securities Act") covering the Shares that are the subject of the request.
The notice from ZixIt may be delivered at any time after the following
conditions are met (or within a reasonable period prior to the date when the
conditions are anticipated to be met): (i) the Transfer restrictions pertaining
to the Shares (as set forth in Subsection 8(b) of the Option) have lapsed and
(ii) Lante is permitted to use a Form other than Form S-1 to register the sale
of the Shares. Lante shall use its commercially reasonable efforts to cause such
registration statement to become effective as promptly as practicable following
the later to occur of (a) both conditions set forth above are met and (b) the
receipt of the written notice. Lante shall also file such post-effective
amendments to such registration statement in order for it to remain effective
without lapse until the earlier of (i) 90 days following the date the
registration statement is declared effective or (ii) all the Shares so
registered have been sold, subject to the three immediately following sentences.
Upon request of ZixIt and subject to the consent of Lante (which consent is not
to be unreasonably withheld), the effectiveness of the registration statement
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will be extended for up to an additional 30 days. If, during the effectiveness
of the registration statement, ZixIt determines that it no longer desires to
sell any (or further) Shares at that time, ZixIt will so advise Lante so that
Lante can withdraw the registration statement. The running of the periods of
time shall be extended to account for any stop order suspending the
effectiveness of a registration statement is in effect. ZixIt shall be entitled
to make three registration requests under this paragraph 2.A. Lante will not be
required to effect a registration pursuant to this paragraph 2.A. more
frequently than once during any period of 12 consecutive months. The parties
acknowledge and agree that any registration effected under this paragraph 2.A.
shall not be an underwritten offering.
Lante may defer the filing (but not the preparation) of the registration
statement under this paragraph 2.A. for a period of up to 90 days if (a) at the
time Lante or any of its subsidiaries is engaged in material confidential
negotiations or other material confidential business activities, disclosure of
which would be required in such registration statement (but would not be
required if such registration statement were not filed), and the Board of
Directors of Lante determines, reasonably and in good faith that such disclosure
would be materially detrimental to Lante and its shareholders or would have a
material adverse effect on any such confidential negotiations or other
confidential business activities; or (b) at the time Lante is engaged in
business activities pertaining to an underwritten public offering of Lante's
securities and the underwriters have advised Lante in writing that the filing of
the registration statement would have a material adverse effect on its ability
to consummate such offering; or (c) pursuant to an underwriting agreement in
connection with an underwritten offering, Lante has agreed not to file any
registration statement pursuant to which the Shares may be registered. A
deferral of the filing of the registration statement will be lifted, and the
registration statement shall be filed as soon as practicable thereafter
forthwith, if the negotiations or other activities are completed, disclosed or
terminated or the underwritten public offering is completed, terminated or
postponed. In order to defer the filing of a registration statement, Lante will
deliver to ZixIt a certificate signed by a senior executive officer of Lante
setting forth a statement of the reason for such deferral and an approximation
of the anticipated delay, which information ZixIt shall treat as confidential.
Moreover, Lante may not defer the filing or effectiveness of a registration
statement pursuant to this paragraph more than once in any 12 month period.
Lante represents and warrants that any shareholder of Lante who has
piggyback registration rights also has demand registration rights.
B. Piggyback Registrations. (1) If Lante proposes to register the sale or
issuance of any of its securities under the Securities Act (other than pursuant
to a demand registration pursuant to paragraph 2.A. or registration solely in
connection with an employee benefit or stock ownership plan, and other than its
IPO) and the registration form to be used may be used for the registration of
the sale of Shares (a "Piggyback Registration"), Lante will give prompt written
notice to ZixIt of its intention to effect such a registration (each, a
"Piggyback Notice"). Subject to paragraphs 2.B.(2), 2.B.(3), and 2.B.(4) below,
and subject to the consent of persons having a contractual right of approval of
the inclusion of securities in the registration, Lante will include in such
registration all the Shares that ZixIt requests Lante to include in such
registration by written notice given to Lante within fifteen days after the date
Lante sent the Piggyback Notice.
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ZixIt may request that Shares be included in the registration prior to the
expiration of the Transfer restrictions set forth in Subsection 8(b) of the
Option, with the understanding that Shares may not actually be sold under the
registration statement until the Transfer restrictions have lapsed.
(2) If a Piggyback Registration relates to an underwritten public offering
of equity securities by Lante and the managing underwriters advise Lante in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number that can be sold in an orderly manner in
such offering within a price range acceptable to Lante, Lante will include in
such registration (i) first, the securities proposed to be sold by Lante, (ii)
second, the securities requested to be included in such registration statement
by persons having a contractual right to priority with respect to such
registration, (iii) third, the Shares requested to be included in such
registration by ZixIt, and (iv) fourth, other securities requested to be
included in such registration.
(3) If a Piggyback Registration relates to an underwritten public offering
of equity securities by holders of Lante's securities and the managing
underwriters advise Lante in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner in such offering within a price range
acceptable to the holders initially requesting such registration, Lante will
include in such registration (i) first, the securities requested to be included
therein by the holders requesting such registration (including securities held
by those exercising piggyback rights with contractual rights to priority over
ZixIt), (ii) second, the Shares requested to be included in such registration by
ZixIt, and (iii) third, other securities requested to be included in such
registration.
(4) ZixIt may not participate in any registration hereunder which is
underwritten unless it (i) agrees to sell its Shares on the basis provided in
any underwriting arrangements approved by persons entitled to approve such
arrangements and (ii) completes and executes all questionnaires, power of
attorney, indemnities, underwriting agreements, and other documents reasonably
required under the terms of such underwriting arrangements.
ZixIt acknowledges that Lante has informed it that there are holders of
Lante securities that have a contractual piggyback right to priority in
registration over the Shares. Lante shall have no obligation to register any
Shares under this Section 2 if ZixIt is, at the time of the request, permitted
to sell all Shares sought by it to be registered without restriction within 90
days pursuant to Rule 144 under the Act.
3. Registration Procedures. If, and whenever, Lante is required by Section
2 to effect the registration of Shares under the Securities Act, Lante will as
expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities, and use its commercially reasonable efforts to cause
such registration statement to become and remain effective for the period set
forth in Section 2 (the "Effective Period"); provided that, before filing, Lante
will furnish to ZixIt's counsel copies of such documents to be filed, which
documents will be subject to such counsel's review;
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(b) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective for the Effective Period
as may be reasonably necessary to effect the sale of such securities;
(c) furnish to ZixIt and to the underwriters of the securities being
registered, such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as ZixIt and
such underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use commercially reasonable efforts to register or qualify the
Shares covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as ZixIt may reasonably request in writing,
except that Lante shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or subject itself
to taxation in a jurisdiction where it had not previously been subject to
taxation, or take any other action that would subject Lante to service of
process in a lawsuit other than one arising out of the registration of the
Shares;
(e) notify ZixIt, promptly after it shall receive notice thereof, of
the time when such registration statement has become effective or a supplement
to any prospectus forming a part of such registration statement has been filed;
(f) notify ZixIt promptly of any request by the SEC for the amending
or supplementing of such registration statement or prospectus or for additional
information;
(g) prepare and file with the SEC, promptly upon the request of ZixIt,
any amendments or supplements to such registration statement or prospectus
which, in the opinion of counsel for ZixIt (and concurred in by counsel for
Lante), is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of Shares by ZixIt;
(h) prepare and promptly file with the SEC and promptly notify ZixIt
of the filing of such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in which they
were made, not misleading;
(i) advise ZixIt, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such registration statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued;
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<PAGE> 15
(j) cause all such Shares to be listed on each securities exchange or
automated dealer quotation system on which similar securities issued by Lante
are then listed and to be qualified for trading on each exchange or system on
which similar securities issued by Lante are from time to time qualified;
(k) provide a transfer agent and registrar for all such Shares not
later than the effective date of such registration statement and thereafter
maintain such a transfer agent and registrar;
(l) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months beginning with the first day of Lante's first full
calendar quarter after the effective date of the registration statement, which
earnings statement must satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated by the Commission thereunder; and
(m) upon the issuance of any stop order suspending the effectiveness
of a registration statement, or of any order suspending or preventing the use of
any related prospectus or suspending the qualification of any Shares included in
such registration statement for sale in any jurisdiction, Lante will use its
reasonable best efforts promptly to obtain the withdrawal of such order.
4. Expenses. Subject to the limitation stated in the next sentence, all
fees, costs, and expenses of and incidental to a registration effected pursuant
to paragraph 2.A. and public offering of the Shares in connection therewith
shall be borne by ZixIt, including any commissions and transfer taxes in respect
of the sale of its Shares. ZixIt's liability for the fees and expenses of
Lante's professional advisors in connection with a registration effected
pursuant to paragraph 2.A. and the public offering of the Shares in connection
therewith shall be limited to $12,500 (in 1999 dollars). If the registration
statement is effected pursuant to paragraph 2.B and relates to an underwritten
public offering of equity securities by Lante, the fees, costs, and expenses of
and incidental to a registration effected pursuant thereto and public offering
of the Shares in connection therewith shall be borne by Lante, excluding any
commissions and transfer taxes in respect of the sale of the Shares. If the
registration statement is effected pursuant to paragraph 2.B and relates to an
underwritten public offering of equity securities by holders of Lante's
securities, ZixIt shall be responsible for its pro-rata share of any fees,
costs, and expenses of and incidental to a registration effected pursuant
thereto and public offering of the Shares in connection therewith for which the
selling holders are responsible and shall be fully responsible for any
commissions and transfer taxes in respect of the sale of the Shares.
5. Indemnification.
(a) Lante will indemnify and hold harmless ZixIt, its directors,
officers, employees, and agents, any underwriter (as defined in the Securities
Act) for ZixIt and any person controlling ZixIt or such underwriter from and
against, and will reimburse such persons with respect to, any and all loss,
damage, liability, cost and expense to which such persons may
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<PAGE> 16
become subject under the Securities Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, 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 statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that Lante will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information furnished by
or on behalf of ZixIt in writing specifically for use in the preparation
thereof. Lante will not be subject to any liability for any settlement made
without its consent, which consent shall not be unreasonably withheld.
(b) ZixIt will indemnify and hold harmless Lante, its directors,
officers, employees, and agents, any underwriter for Lante and any person
controlling Lante or such underwriter from and against, and will reimburse such
persons with respect to, any and all loss, damage, liability, cost and expense
to which such persons may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, 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 statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
conformity with written information furnished by or on behalf of ZixIt
specifically for use in the preparation thereof. ZixIt will not be subject to
any liability for any settlement made without its consent, which consent shall
not be unreasonably withheld; provided, that the obligation to indemnify will be
limited to the net proceeds received by ZixIt with respect to the sale of the
Shares.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of Subsection (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said
Subsection (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability that it may have to any indemnified party,
except to the extent that such omission materially and adversely affects the
indemnifying party's ability to defend against or compromise such claim. In case
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and there is a conflict of interest
that would prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties
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<PAGE> 17
shall have the right to select separate counsel to participate in the defense of
such action on behalf of such indemnified party or parties. After notice from
the indemnifying party to an indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said Subsection (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof other than out-of-pocket costs of investigation, unless (i)
the indemnified party shall have employed counsel in accordance with the
provisions of the preceding sentence, (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after the notice of the
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
(d) If the indemnification provided for herein is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, liability, claim, damage or expense referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
will contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense 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 that resulted in such loss, liability, claim, damage or
expense, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party will be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the 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 obligation to contribute
will be individual to ZixIt and will be limited to the amount by which the net
amount of proceeds received by ZixIt from the sale of the Shares exceeds the
amount of losses, liabilities, damages and expenses that ZixIt has otherwise
been required to pay by reason of such statements or omissions.
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling person of such indemnified party and will survive the transfer of
securities and the termination or expiration of this Agreement.
6. Miscellaneous.
(a) Any notice to be given to Lante under the terms of this Agreement
shall be in writing, addressed to Lante at the address set forth in Section 3 of
the Option, Attn: Chief Financial Officer; and any notice to be given to ZixIt
shall be addressed to ZixIt at its address set forth in the ZixIt Option. A
party may specify a different address for receiving notice by giving written
notice thereof to the other parties. Any such notice shall be deemed to have
been duly given upon personal delivery, one business day after deposit with a
nationally recognized overnight courier delivery service, or three business days
after deposit in the U.S. mail, first class, return receipt requested.
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<PAGE> 18
(b) ZixIt may not Transfer this Agreement or its rights and privileges
hereunder, except in connection with a permitted Transfer of the Option. Subject
to the preceding sentence, this Agreement shall be binding upon and inure to the
benefit of the assignees, representatives, executors, successors or
beneficiaries of the parties hereto.
(c) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
(d) If any provision of this Agreement is declared or found to be
illegal, unenforceable or void, in whole or in part, then the parties shall be
relieved of all obligations arising under such provision, but only to the extent
that it is illegal, unenforceable or void, it being the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objectives.
(e) All section titles and captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement, and in no way
shall define, limit, extend or describe the scope or intent of any provisions of
this Agreement.
(f) The parties shall execute all documents, provide all information,
and take or refrain from taking all actions as may be necessary or appropriate
to achieve the purposes of this Agreement.
(g) This Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior written
and prior or contemporaneous oral agreements and understandings pertaining
hereto.
(h) No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, agreement or condition.
(i) This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart.
(j) This Agreement shall continue in effect until the earlier of (a)
all of the Shares are publicly sold pursuant to a Section 2 registration
statement or (b) ZixIt is permitted to sell all the Shares then held by it
without restriction within 90 days pursuant to Rule 144 under the Securities
Act.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
set forth below, to be effective as of the date first above written.
ZIXIT CORPORATION
By:
-----------------------------------------
Its:
-----------------------------------------
Date:
-----------------------------------------
LANTE CORPORATION
By:
-----------------------------------------
Its:
-----------------------------------------
Date:
-----------------------------------------
A-9
<PAGE> 1
Exhibit 10.19
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), effective as of
November 24, 1999, is made by and between Lante Corporation, an Illinois
corporation ("Lante"), and ZixIt Corporation, a Texas corporation ("ZixIt").
Terms used herein with their initial letter capitalized but not defined herein
will have the meaning given such terms in the Option (as defined below), unless
the context otherwise requires.
WITNESSETH:
WHEREAS, Lante and ZixIt have entered into a Stock Option Agreement as
of the date hereof whereby Lante has granted ZixIt an option (the "Option") to
acquire up to 400,000 shares of Lante's common stock, $.01 par value per share
(the "Common Stock");
WHEREAS, Lante desires to grant ZixIt certain registration rights with
respect to the shares of Common Stock issuable under the Option in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, Lante and ZixIt agree as follows:
1. Shares. As used herein, the term "Shares" shall mean the shares of
Common Stock issuable upon the exercise of the Option.
1. Registration.
A. Demand Registrations. Subject to the immediately following sentence,
upon its receipt of a written notice from ZixIt, Lante shall promptly prepare
and file with the Securities and Exchange Commission (the "SEC") a registration
statement on the applicable form under the Securities Act of 1933, as amended
(the "Securities Act") covering the Shares that are the subject of the request.
The notice from ZixIt may be delivered at any time after the following
conditions are met (or within a reasonable period prior to the date when the
conditions are anticipated to be met): (i) the Transfer restrictions pertaining
to the Shares (as set forth in Subsection 8(b) of the Option) have lapsed and
(ii) Lante is permitted to use a Form other than Form S-1 to register the sale
of the Shares. Lante shall use its commercially reasonable efforts to cause such
registration statement to become effective as promptly as practicable following
the later to occur of (a) both conditions set forth above are met and (b) the
receipt of the written notice. Lante shall also file such post-effective
amendments to such registration statement in order for it to remain effective
without lapse until the earlier of (i) 90 days following the date the
registration statement is declared effective or (ii) all the Shares so
registered have been sold, subject to the three immediately following sentences.
Upon request of ZixIt and subject to the consent of Lante (which consent is not
to be unreasonably withheld), the effectiveness of the registration statement
will be extended for up to an additional 30 days. If, during the effectiveness
of the registration statement, ZixIt determines that it no longer desires to
sell any (or further) Shares at
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<PAGE> 2
that time, ZixIt will so advise Lante so that Lante can withdraw the
registration statement. The running of the periods of time shall be extended to
account for any stop order suspending the effectiveness of a registration
statement is in effect. ZixIt shall be entitled to make three registration
requests under this paragraph 2.A. Lante will not be required to effect a
registration pursuant to this paragraph 2.A. more frequently than once during
any period of 12 consecutive months. The parties acknowledge and agree that any
registration effected under this paragraph 2.A. shall not be an underwritten
offering.
Lante may defer the filing (but not the preparation) of the
registration statement under this paragraph 2.A. for a period of up to 90 days
if (a) at the time Lante or any of its subsidiaries is engaged in material
confidential negotiations or other material confidential business activities,
disclosure of which would be required in such registration statement (but would
not be required if such registration statement were not filed), and the Board of
Directors of Lante determines, reasonably and in good faith that such disclosure
would be materially detrimental to Lante and its shareholders or would have a
material adverse effect on any such confidential negotiations or other
confidential business activities; or (b) at the time Lante is engaged in
business activities pertaining to an underwritten public offering of Lante's
securities and the underwriters have advised Lante in writing that the filing of
the registration statement would have a material adverse effect on its ability
to consummate such offering; or (c) pursuant to an underwriting agreement in
connection with an underwritten offering, Lante has agreed not to file any
registration statement pursuant to which the Shares may be registered. A
deferral of the filing of the registration statement will be lifted, and the
registration statement shall be filed as soon as practicable thereafter
forthwith, if the negotiations or other activities are completed, disclosed or
terminated or the underwritten public offering is completed, terminated or
postponed. In order to defer the filing of a registration statement, Lante will
deliver to ZixIt a certificate signed by a senior executive officer of Lante
setting forth a statement of the reason for such deferral and an approximation
of the anticipated delay, which information ZixIt shall treat as confidential.
Moreover, Lante may not defer the filing or effectiveness of a registration
statement pursuant to this paragraph more than once in any 12 month period.
Lante represents and warrants that any shareholder of Lante who has
piggyback registration rights also has demand registration rights.
B. Piggyback Registrations. (1) If Lante proposes to register the sale
or issuance of any of its securities under the Securities Act (other than
pursuant to a demand registration pursuant to paragraph 2.A. or registration
solely in connection with an employee benefit or stock ownership plan, and other
than its IPO) and the registration form to be used may be used for the
registration of the sale of Shares (a "Piggyback Registration"), Lante will give
prompt written notice to ZixIt of its intention to effect such a registration
(each, a "Piggyback Notice"). Subject to paragraphs 2.B.(2), 2.B.(3), and
2.B.(4) below, and subject to the consent of persons having a contractual right
of approval of the inclusion of securities in the registration, Lante will
include in such registration all the Shares that ZixIt requests Lante to include
in such registration by written notice given to Lante within fifteen days after
the date Lante sent the Piggyback Notice. ZixIt may request that Shares be
included in the registration prior to the expiration of the Transfer
restrictions set forth in Subsection 8(b) of the Option, with the understanding
that
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<PAGE> 3
Shares may not actually be sold under the registration statement until the
Transfer restrictions have lapsed.
(2) If a Piggyback Registration relates to an underwritten public
offering of equity securities by Lante and the managing underwriters advise
Lante in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number that can be sold in an orderly
manner in such offering within a price range acceptable to Lante, Lante will
include in such registration (i) first, the securities proposed to be sold by
Lante, (ii) second, the securities requested to be included in such registration
statement by persons having a contractual right to priority with respect to such
registration, (iii) third, the Shares requested to be included in such
registration by ZixIt, and (iv) fourth, other securities requested to be
included in such registration.
(3) If a Piggyback Registration relates to an underwritten public
offering of equity securities by holders of Lante's securities and the managing
underwriters advise Lante in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner in such offering within a price range
acceptable to the holders initially requesting such registration, Lante will
include in such registration (i) first, the securities requested to be included
therein by the holders requesting such registration (including securities held
by those exercising piggyback rights with contractual rights to priority over
ZixIt), (ii) second, the Shares requested to be included in such registration by
ZixIt, and (iii) third, other securities requested to be included in such
registration.
(4) ZixIt may not participate in any registration hereunder which is
underwritten unless it (i) agrees to sell its Shares on the basis provided in
any underwriting arrangements approved by persons entitled to approve such
arrangements and (ii) completes and executes all questionnaires, power of
attorney, indemnities, underwriting agreements, and other documents reasonably
required under the terms of such underwriting arrangements.
ZixIt acknowledges that Lante has informed it that there are holders of
Lante securities that have a contractual piggyback right to priority in
registration over the Shares. Lante shall have no obligation to register any
Shares under this Section 2 if ZixIt is, at the time of the request, permitted
to sell all Shares sought by it to be registered without restriction within 90
days pursuant to Rule 144 under the Act.
3. Registration Procedures. If, and whenever, Lante is required by
Section 2 to effect the registration of Shares under the Securities Act, Lante
will as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such securities, and use its commercially reasonable efforts to
cause such registration statement to become and remain effective for the period
set forth in Section 2 (the "Effective Period"); provided that, before filing,
Lante will furnish to ZixIt's counsel copies of such documents to be filed,
which documents will be subject to such counsel's review;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such
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<PAGE> 4
registration statement effective for the Effective Period as may be reasonably
necessary to effect the sale of such securities;
(c) furnish to ZixIt and to the underwriters of the securities
being registered, such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
ZixIt and such underwriters may reasonably request in order to facilitate the
public offering of such securities;
(d) use commercially reasonable efforts to register or qualify
the Shares covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as ZixIt may reasonably request in writing,
except that Lante shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or subject itself
to taxation in a jurisdiction where it had not previously been subject to
taxation, or take any other action that would subject Lante to service of
process in a lawsuit other than one arising out of the registration of the
Shares;
(e) notify ZixIt, promptly after it shall receive notice
thereof, of the time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration statement has
been filed;
(f) notify ZixIt promptly of any request by the SEC for the
amending or supplementing of such registration statement or prospectus or for
additional information;
(g) prepare and file with the SEC, promptly upon the request
of ZixIt, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for ZixIt (and concurred in by
counsel for Lante), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of Shares by ZixIt;
(h) prepare and promptly file with the SEC and promptly notify
ZixIt of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise ZixIt, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(j) cause all such Shares to be listed on each securities
exchange or automated dealer quotation system on which similar securities issued
by Lante are then listed and to be
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<PAGE> 5
qualified for trading on each exchange or system on which similar securities
issued by Lante are from time to time qualified;
(k) provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration statement and thereafter
maintain such a transfer agent and registrar;
(l) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
Lante's first full calendar quarter after the effective date of the registration
statement, which earnings statement must satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 promulgated by the Commission thereunder; and
(m) upon the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Shares included in such registration statement for sale in any jurisdiction,
Lante will use its reasonable best efforts promptly to obtain the withdrawal of
such order.
4. Expenses. Subject to the limitation stated in the next sentence, all
fees, costs, and expenses of and incidental to a registration effected pursuant
to paragraph 2.A. and public offering of the Shares in connection therewith
shall be borne by ZixIt, including any commissions and transfer taxes in respect
of the sale of its Shares. ZixIt's liability for the fees and expenses of
Lante's professional advisors in connection with a registration effected
pursuant to paragraph 2.A. and the public offering of the Shares in connection
therewith shall be limited to $12,500 (in 1999 dollars). If the registration
statement is effected pursuant to paragraph 2.B and relates to an underwritten
public offering of equity securities by Lante, the fees, costs, and expenses of
and incidental to a registration effected pursuant thereto and public offering
of the Shares in connection therewith shall be borne by Lante, excluding any
commissions and transfer taxes in respect of the sale of the Shares. If the
registration statement is effected pursuant to paragraph 2.B and relates to an
underwritten public offering of equity securities by holders of Lante's
securities, ZixIt shall be responsible for its pro-rata share of any fees,
costs, and expenses of and incidental to a registration effected pursuant
thereto and public offering of the Shares in connection therewith for which the
selling holders are responsible and shall be fully responsible for any
commissions and transfer taxes in respect of the sale of the Shares.
5. Indemnification.
(a) Lante will indemnify and hold harmless ZixIt, its
directors, officers, employees, and agents, any underwriter (as defined in the
Securities Act) for ZixIt and any person controlling ZixIt or such underwriter
from and against, and will reimburse such persons with respect to, any and all
loss, damage, liability, cost and expense to which such persons may become
subject under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
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<PAGE> 6
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that Lante will not be liable in any such case to
the extent that any such loss, damage, liability, cost or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by or on
behalf of ZixIt in writing specifically for use in the preparation thereof.
Lante will not be subject to any liability for any settlement made without its
consent, which consent shall not be unreasonably withheld.
(b) ZixIt will indemnify and hold harmless Lante, its
directors, officers, employees, and agents, any underwriter for Lante and any
person controlling Lante or such underwriter from and against, and will
reimburse such persons with respect to, any and all loss, damage, liability,
cost and expense to which such persons may become subject under the Securities
Act or otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any prospectus contained
therein or any amendment or supplement thereto, 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 statements therein, in light of
the circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
conformity with written information furnished by or on behalf of ZixIt
specifically for use in the preparation thereof. ZixIt will not be subject to
any liability for any settlement made without its consent, which consent shall
not be unreasonably withheld; provided, that the obligation to indemnify will be
limited to the net proceeds received by ZixIt with respect to the sale of the
Shares.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of Subsection (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said
Subsection (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability that it may have to any indemnified party,
except to the extent that such omission materially and adversely affects the
indemnifying party's ability to defend against or compromise such claim. In case
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and there is a conflict of interest
that would prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to an indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said Subsection (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with
6
<PAGE> 7
the defense thereof other than out-of-pocket costs of investigation, unless (i)
the indemnified party shall have employed counsel in accordance with the
provisions of the preceding sentence, (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after the notice of the
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
(d) If the indemnification provided for herein is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, will contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense 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 that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party will be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
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 obligation to contribute will be individual to ZixIt
and will be limited to the amount by which the net amount of proceeds received
by ZixIt from the sale of the Shares exceeds the amount of losses, liabilities,
damages and expenses that ZixIt has otherwise been required to pay by reason of
such statements or omissions.
(e) The indemnification and contribution provided for under
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling person of such indemnified party and will survive the
transfer of securities and the termination or expiration of this Agreement.
6. Miscellaneous.
(a) Any notice to be given to Lante under the terms of this
Agreement shall be in writing, addressed to Lante at the address set forth in
Section 3 of the Option, Attn: Chief Financial Officer; and any notice to be
given to ZixIt shall be addressed to ZixIt at its address set forth in the ZixIt
Option. A party may specify a different address for receiving notice by giving
written notice thereof to the other parties. Any such notice shall be deemed to
have been duly given upon personal delivery, one business day after deposit with
a nationally recognized overnight courier delivery service, or three business
days after deposit in the U.S. mail, first class, return receipt requested.
(b) ZixIt may not Transfer this Agreement or its rights and
privileges hereunder, except in connection with a permitted Transfer of the
Option. Subject to the preceding sentence, this Agreement shall be binding upon
and inure to the benefit of the assignees, representatives, executors,
successors or beneficiaries of the parties hereto.
7
<PAGE> 8
(c) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS AND THE UNITED
STATES, AS APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
(d) If any provision of this Agreement is declared or found to
be illegal, unenforceable or void, in whole or in part, then the parties shall
be relieved of all obligations arising under such provision, but only to the
extent that it is illegal, unenforceable or void, it being the intent and
agreement of the parties that this Agreement shall be deemed amended by
modifying such provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
(e) All section titles and captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement, and in no way
shall define, limit, extend or describe the scope or intent of any provisions of
this Agreement.
(f) The parties shall execute all documents, provide all
information, and take or refrain from taking all actions as may be necessary or
appropriate to achieve the purposes of this Agreement.
(g) This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
written and prior or contemporaneous oral agreements and understandings
pertaining hereto.
(h) No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
(i) This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart.
(j) This Agreement shall continue in effect until the earlier
of (a) all of the Shares are publicly sold pursuant to a Section 2 registration
statement or (b) ZixIt is permitted to sell all the Shares then held by it
without restriction within 90 days pursuant to Rule 144 under the Securities
Act.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below, to be effective as of the date first above written.
ZIXIT CORPORATION
By: /s/ Ronald A. Woessner
-----------------------------
Its: V.P.
-----------------------------
Date: 11/24/99
-----------------------------
LANTE CORPORATION
By: /s/ C.R. Puryear
-----------------------------
Its: President & CEO
-----------------------------
Date: 11/24/99
-----------------------------
9
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Anacom Communications, Inc., a Delaware corporation
Anacom Communications, Inc., a Texas corporation
ZixCharge.com, Inc., a Delaware corporation
ZixIt.com, Inc., a Delaware corporation
ZixIt Management Services Corporation, a Delaware corporation (payroll entity)
ZixMail.com, Inc., a Delaware corporation
ZixMail Technology Company, a Delaware corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm in the headnote to the Selected
Financial Data included in this Annual Report (Form 10-K) for the year ended
December 31, 1999 and to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-34451) pertaining to the 1988 Stock Option Plan, 1989
Stock Option Plan, 1990 Stock Option Plan, and the Original Stock Plan of Amtech
Corporation; the Registration Statement (Form S-8 No. 33-53010) pertaining to
the Amtech Corporation 1992 Stock Option Plan; the Registration Statements (Form
S-8 No. 33-65061 and Form S-8 No. 333-06507) pertaining to the Amtech
Corporation 1995 Long-Term Incentive Plan; the Registration Statement (Form S-8
No. 333-06503) pertaining to the Amtech Corporation 1996 Directors' Stock Option
Plan; the Registration Statement (Form S-8 No. 333-06505) pertaining to the
Amtech Corporation 401(k) Plan; the Registration Statement (Form S-8 No.
333-06511) pertaining to the Amtech Corporation 1996 Employee Stock Purchase
Plan; the Registration Statement (Form S-8 No. 333-90323) pertaining to the
ZixIt Corporation 1999 Directors' Stock Option Plan; and the Registration
Statement (Form S-8 No. 333-31294) pertaining to the AMTC Corporation Stock
Option Agreement of our report dated February 29, 2000, except for the third
paragraph of note 10, as to which the date is March 23, 2000, with respect to
the consolidated financial statements of ZixIt Corporation included in this
Annual Report (Form 10-K) for the year ended December 31, 1999.
Ernst & Young LLP
Dallas, Texas
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,598
<SECURITIES> 33,186
<RECEIVABLES> 581
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,395
<PP&E> 24,189
<DEPRECIATION> 3,183
<TOTAL-ASSETS> 66,523
<CURRENT-LIABILITIES> 3,629
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 62,718
<TOTAL-LIABILITY-AND-EQUITY> 66,523
<SALES> 0
<TOTAL-REVENUES> 99
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (36,612)
<INCOME-TAX> (807)
<INCOME-CONTINUING> (35,805)
<DISCONTINUED> 1,453
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,352)
<EPS-BASIC> (2.25)
<EPS-DILUTED> (2.25)
</TABLE>
